DEFINITION of Put Warrant
A put warrant is a type of security that gives the holder the right (but not the obligation) to sell a given quantity of an underlying asset for a specified price on or before a specified date. A put warrant is a company-issued option to sell back to the issuer a specified number of shares of the company's common stock at a particular price sometime in the future.
BREAKING DOWN Put Warrant
There are two types of warrants — put warrants and call warrants. All warrants have an expiration date — the last day that the rights of the warrant can be exercised. If a warrant is not exercised before the expiration date, it becomes worthless. A put warrant's exercise price (also called the strike price) is the price at which the holder can sell the warrant. Both put and call warrants are classified by their exercise style. American warrants can be exercised anytime on or before the expiration date; European warrants can only be exercised on the day of expiration. Investors can use put warrants to hedge against falling share values of stock held in their portfolios.
Similarities and Differences Between a Put Warrant and Put Option
Both put warrants and put options give the holder the right (but not obligation) to sell an underlying stock on or before expiration date at a strike price. They will be "in-the-money" if the price of the underlying stock is below the exercise price. Conversely, they will be "out-of-the-money" if the price of the stock is above the strike price. However, unlike options, which are traded on an exchange among investors, warrants are issued by companies and if investors exercise the put warrants, they sell them back to the companies. Another fundamental difference between a put warrant and put option is that the expiration term for a warrant can last up to 15 years. Option expiry dates are much shorter; the vast majority are within 12 months.