Exploding Warrant

AAA

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."

INVESTOPEDIA EXPLAINS '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. Naked Warrant

    A warrant that is issued without a host bond. A naked warrant ...
  2. Covered Warrant

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

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

    A derivative security that gives the holder the right to purchase ...
  5. Earnings Before Interest, Taxes, ...

    An indicator of a company's financial performance which is calculated ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
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. 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 Full Answer >>
  3. How is buying on margin regulated by the Securities and Exchange Commission (SEC)?

    The Federal Reserve Board and the Financial Industry Regulatory Authority (FINRA) regulate buying on margin to a greater ... Read Full Answer >>
  4. 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 >>
  5. Why is the Vortex Indicator (VI) important for traders and analysts?

    Doug Siepman and Etienne Botes developed the vortex indicator to anticipate reversals in price trends. They believed that ... Read Full Answer >>
  6. What is a common strategy traders implement when using the Trade Volume Index (TVI)?

    The trade volume index (TVI) indicates whether an asset is being accumulated or sold. It is calculated using intraday tick ... Read Full Answer >>
Related Articles
  1. Options & Futures

    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. Options & Futures

    Warrants: A High-Return Investment Tool

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

    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.
  4. Investing Basics

    Market Simulators: How To Outperform Warren Buffett

    That moment when you realize you just booked $108 million dollars in less than an hour: it puts butterflies in your stomach.
  5. Trading Strategies

    How To Best Analyze Relative Strength

    Relative strength indicators measure performance between similar instruments, uncovering opportunities that can translate into reliable profits.
  6. Active Trading Fundamentals

    Where And How Should You Make Your First Trade?

    New traders should enter markets that offer the greatest opportunity for learning their craft while keeping risk at a minimum.
  7. Trading Strategies

    High-Frequency Trading Regulations

    Current regulations on high-frequency trading, and possible future ones. How some people think high-frequency trading should be regulated or illegal.
  8. Trading Strategies

    The World's 10 Most Famous Traders Of All Time

    A review of the most famous and infamous traders in history.
  9. Trading Strategies

    How Useful Is the CFA For A Day Trading Career?

    We take a look at how useful the Chartered Financial Analyst certification is for those wanting to start a career in day trading.
  10. Trading Strategies

    Best Undergraduate Degrees For Day Traders

    We look at some popular undergrad majors for those wanting to begin a career in the exciting world of fast-paced trading.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center