DEFINITION of 'Warrant Premium'

The amount that an investor must pay above the current market price for a security, when purchasing and exercising a warrant. The warrant premium represents the cost of purchasing a share through the warrant, compared to buying the share directly through the open market.


It is calculated as:


[(warrant price + exercise price - current share price) / current share price] * 100


For example, an investor holds a warrant with a price of $10 and an exercise price of $25. The current share price is $30. The warrant premium would be [($10+$25-$30)/$30]*100 = 16.7%.

BREAKING DOWN 'Warrant Premium'

Warrants have both a price and premium. Typically, the premium will decrease as the price of the warrant rises and the time to expiration decreases. A warrant is in the money when the exercise price is less than the current share price. The more in the money the warrant is, the lower the warrant premium is. High volatility can also cause the warrant premium to be higher.




RELATED TERMS
  1. Warrant

    A derivative that confers the right, but not the obligation, ...
  2. Piggyback Warrants

    Additional warrants that are acquired following the exercise ...
  3. Wedding Warrant

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

    A warrant that is issued without a host bond. A naked warrant ...
  5. Cum Warrant

    A discount bond with an attached warrant that allows the holder ...
  6. Exploding Warrant

    An equity derivative investment instrument that gives that holder ...
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. 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 ...
  3. Investing

    Bank Warrants Your Atttention

    Bank warrants are a lucrative way to make a bet that U.S. financials will once again be respected by the investing public.
  4. Financial Advisor

    Warrants

    Learn more about this derivative security.
  5. Investing

    Weatherford Floats New Shares, Warrants, and Notes

    Struggling energy industry services company Weatherford International (NYSE: WFT) is raising some funds the old-fashioned way -- by issuing a fresh batch of securities: The company will float ...
  6. Managing Wealth

    Top Perks Warren Buffett Gets When Purchasing Equities

    Learn about the many investment perks that Buffett enjoys and the rest of us can only try to imagine.
  7. Investing

    Plug Power Prices $30M Stock Offering

    The offerings, due to close on Dec. 22, will go toward the prepayment of an outstanding loan.
  8. Insights

    Microsoft Wins Privacy Case Versus US Government

    The battle between privacy and security continues to heat up.
  9. 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.
  10. Trading

    Caterpillar Legal Woes Could Hurt Outlook

    Caterpillar is testing 3-month support after Federal authorities exercised search warrants that may be examining overseas tax accounting practices.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  2. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  3. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  4. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  5. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  6. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
Trading Center