What is a 'Call Warrant'

A call warrant is a financial instrument that gives the holder the right to buy the underlying share of stock 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. A call warrant's purpose is to provide an added inducement to potential investors of the new stock or bond issue. Call warrants are usually detachable from the accompanying stock or bond certificate and trade separately on major stock exchanges.

A call warrant is also known as a warrant.

BREAKING DOWN '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.

RELATED TERMS
  1. Warrant

    A derivative that gives the holder the right, but not the obligation, ...
  2. Sweetener

    A special feature such as a warrant or a right, that's added ...
  3. Cum Warrant

    Cum warrant means "with," "along with," or "together with" a ...
  4. Ex-Warrant

    When a security is ex-warrant, the buyer of that security is ...
  5. Treasury Stock Method

    The treasury stock method is an approach companies use to compute ...
  6. Subscription Price

    The term "subscription price" refers to a static price at which ...
Related Articles
  1. Investing

    Understanding Warrants and Call Options

    Understand the fundamentals of warrants and call options, and find out how these securities contracts are quite similar, but also have some notable differences.
  2. Investing

    Investing In Warrants

    Because many warrants have a long time prior to expiration, they can offer an interesting way to bet on the underlying stock.
  3. 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 ...
  4. 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.
  5. Trading

    Call options: Right to buy versus obligation

    Learn what a call option is, how buyers and sellers are determined, and what the difference between a right and an obligation is for options investors.
  6. Investing

    Assess Shareholder Wealth With EPS

    Find out if management is doing its job of creating profit for investors.
  7. Investing

    Writing Covered Calls On Dividend Stocks

    Writing covered calls on stocks that pay above-average dividends is a strategy that can be used to boost returns on a portfolio, but it carries some risk.
  8. Trading

    Beginners Guide To Options Strategies

    Find out four simple ways to profit from call and put options strategies.
  9. Trading

    Options Hazards That Can Bruise Your Portfolio

    Learn the top three risks and how they can affect you on either side of an options trade.
RELATED FAQS
  1. I own some stock warrants. How do I exercise them?

    A stock warrant gives the holder the right to buy shares at a certain price before expiration. Learn how to utilize these ... Read Answer >>
  2. When is a call option considered to be "in the money"?

    Learn about call options, their intrinsic values and why a call option is in the money when the underlying stock price is ... Read Answer >>
  3. Can an Option Have a Negative Strike Price?

    When it comes to exchange traded options, an option can't have a negative strike price. Read Answer >>
Trading Center