Call Warrant

AAA

DEFINITION of 'Call Warrant'

A financial instrument that gives the holder the right to buy the underlying share at a specific price, on or before a specified date. Call warrants are often included in a new equity or debt offering from a company, in order to provide an added inducement to potential investors. Call warrants are usually detachable from the accompanying stock or bond certificate and trade separately on major stock exchanges.

Also known as a warrant.

INVESTOPEDIA EXPLAINS 'Call Warrant'

The price at which the warrant holder can buy the underlying stock is called the exercise price or strike price. This strike price is often set "out-of-the-money," i.e., it is fixed at a certain percentage above the current trading price of the underlying stock.

The inclusion of a call warrant feature may enable the company to lower the cost of its debt. The risk of potential equity dilution to the issuer, in the event of all the warrants being exercised, is more than offset by the additional equity capital available to the company at no additional cost, an especially important consideration during periods of severe stress in financial markets.

While a call warrant has a strike price and expiration date just like an option, there are some fundamental differences between the two. Warrants are issued by companies, while exchange-traded options are listed by an exchange. Warrants also have much longer expiration periods than options.

RELATED TERMS
  1. Exploding Warrant

    An equity derivative investment instrument that gives that holder ...
  2. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically ...
  3. Warrant

    A derivative security that gives the holder the right to purchase ...
  4. Put Warrant

    A type of security that gives the holder the right (but not the ...
  5. Covered Warrant

    A type of warrant that allows the holder to buy or sell a specific ...
  6. Contingent Value Rights - CVR

    A type of right given to shareholders of an acquired company ...
Related Articles
  1. Options & Futures

    Warrants: A High-Return Investment Tool

    Discover the advantages of this largely unexploited investment vehicle.
  2. Options & Futures

    How are stock warrants different from stock options?

    A stock option is a contract between two people that gives the holder the right, but not the obligation, to buy or sell outstanding stocks at a specific price and at a specific date. Options ...
  3. Markets

    The 5 Types Of Earnings Per Share

    A look at the five varieties of EPS and what each represents can help an investor determine whether a company is a good value, or not.
  4. Personal Finance

    When Warranties Aren't Worth It

    Before you fork over the extra cash for the extended warranty, find out what kind of return you can expect.
  5. Investing Basics

    Warrants And Call Options

    Warrants and call options are securities that are quite similar in many respects, but they also have some notable differences. Both give the holder the right, but not the obligation, to buy a ...
  6. Investing Basics

    Investing In Stock Rights And Warrants

    Many companies choose to issue rights or warrants as an alternative means of generating capital to avoid dilution of existing share value.
  7. Investing Basics

    Warrants

    Learn more about this derivative security.
  8. Bonds & Fixed Income

    Are High-Yield Bonds Too Risky?

    Despite their reputation, the debt securities known as "junk bonds" may actually reduce risk in your portfolio.
  9. Options & Futures

    What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, index or security. Common underlying instruments include: bonds, commodities, ...
  10. Options & Futures

    Find Investment Quality In The Income Statement

    Use these key attributes to uncover top-level investments.

You May Also Like

Hot Definitions
  1. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  2. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  3. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  4. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  5. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  6. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
Trading Center