Call Warrant

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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.

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RELATED FAQS
  1. 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 ... Read Full Answer >>
  2. What is a direct rights offering?

    A direct rights offering is an offer made by a company, directly to existing shareholders, granting them rights to purchase ... Read Full Answer >>
  3. Can warrants be written on any security?

    Conceptually, warrants can be written on any type of security issue. The structure of a warrant only changes the timing of ... Read Full Answer >>
  4. How are mezzanine loans structured?

    Mezzanine loans are a combination of debt and equity finance, most commonly utilized in the expansion of established companies ... Read Full Answer >>
  5. Is there a secondary market for warrants?

    Warrants can be purchased directly from a warrant issuer (primary market transaction) or through a listed exchange (secondary ... Read Full Answer >>
  6. Are warrants traded by brokers?

    In finance, warrants can be traded through a bank or brokerage. When this happens, the broker's client submits a buy or sell ... Read Full Answer >>
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