Warrant Premium

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. Put Warrant

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

    A type of warrant that allows the holder to buy or sell a specific ...
  4. Piggyback Warrants

    Additional warrants that are acquired following the exercise ...
  5. Call Warrant

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

    An agreement between a company and its shareholders whereby the ...
Related Articles
  1. Professionals

    Warrants

    Although warrants are not very common any more, they are not all that hard to value in practice.
  2. Options & Futures

    Warrants: A High-Return Investment Tool

    Discover the advantages of this largely unexploited investment vehicle.
  3. 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.
  4. 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 ...
  5. 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.
  6. Professionals

    E. Warrants

    A warrant is a security that gives the holder the opportunity to purchase common stock. Like a right, the warrant has a subscription price; however, the subscription price is always above the ...
  7. Professionals

    Other Equities

    Series 7 - Equities Section 3: Other Equities
  8. Investing Basics

    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.
  9. Professionals

    Warrants and Rights

    Warrants and Rights
  10. Options & Futures

    NYIF Instructor Series: Warrants

    In this short instructional video Anton Theunissen explains what a warrant is and how it works.
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. 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 >>
  5. 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 >>
  6. 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 >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center