DEFINITION of 'Exploding Warrant'

An equity derivative investment instrument that gives that holder the right, but not the obligation, to acquire the underlying instrument, and which is exercised only if the issuing company does not meet certain specified goals.


An exploding warrant becomes exercisable only in the event that the issuing company fails to meet certain goals, such as sales targets, product goals or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) values. If the specified goals are met, however, the warrant "explodes" and is not exercisable.


Also known as a "springing warrant."

BREAKING DOWN 'Exploding Warrant'

A warrant is often presented as part of a new-issue offering to attract investors. It is similar to a call option, but is issued and guaranteed by the issuing company, and the lifetime is in terms of years, not months like a traditional option.

RELATED TERMS
  1. Put Warrant

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

    A derivative that confers the right, but not the obligation, ...
  3. Call Warrant

    A financial instrument that gives the holder the right to buy ...
  4. Covered Warrant

    A type of warrant that allows the holder to buy or sell a specific ...
  5. Warrant Premium

    The amount that an investor must pay above the current market ...
  6. Piggyback Warrants

    Additional warrants that are acquired following the exercise ...
Related Articles
  1. Trading

    A User's Guide To Warrants

    These investment vehicles are relatively uncommon in the United States, but they do still appear in U.S. markets.
  2. Trading

    Warrants: A High-Return Investment Tool

    Discover the advantages of this largely unexploited investment vehicle.
  3. Investing

    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 ...
  4. Investing

    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.
  5. Trading

    NYIF Instructor Series: Warrants

    In this short instructional video Anton Theunissen explains what a warrant is and how it works.
  6. Managing Wealth

    Explaining Wedding Warrants

    A wedding warrant is a warrant that can only be exercised if the host asset, usually a bond or preferred stock, is surrendered.
  7. Financial Advisor

    Warrants

    Learn more about this derivative security.
  8. Trading

    4 Equity Derivatives And How They Work

    Equity derivatives offer retail investors opportunities to benefit from an underlying security without owning the security itself.
  9. Trading

    5 Equity Derivatives And How They Work

    These derivatives allow investors to transfer risk, but there are many choices and factors that investors must weigh before buying in.
RELATED FAQS
  1. I own some stock warrants. How do I exercise them?

    Typically, stock warrants are derivative instruments added to new issues of stocks or bonds to make these issues more attractive. ... Read Answer >>
  2. Are warrants more desirable than options?

    Understand what stock warrants are, the differences between warrants and options, and learn whether warrants or options are ... Read Answer >>
  3. Can warrants be written on any security?

    Read about the different kinds of securities that may have warrants written on them, including which types of warrants are ... Read Answer >>
  4. 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 Answer >>
  5. Is there a secondary market for warrants?

    Find out how to trade warrants on the primary market, the secondary market and the over-the-counter market, including how ... Read Answer >>
  6. Are warrants traded by brokers?

    Learn about the role of investment brokers in trading warrants, both in normal stock exchanges and over-the-counter derivatives ... Read Answer >>
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center