What is a stock warrant?

@sibyl 

A stock warrant is a financial instrument that gives the holder the right, but not the obligation, to buy a specific number of shares of a company's stock at a predetermined price, known as the exercise or strike price, before a specified expiration date. It is essentially a contract between the issuer of the warrant and the investor.

Stock warrants are often issued alongside other securities, such as bonds or preferred stock, as a sweetener or incentive for investors. They provide the holder with the opportunity to purchase the underlying stock at a predetermined price, which is usually higher than the current market price when the warrants are issued.

Warrants are tradable securities, meaning that investors can buy and sell them on secondary markets. The price of a warrant is influenced by several factors, including the price and volatility of the underlying stock, the time remaining until expiration, and the prevailing interest rates.

If the investor decides to exercise the warrant, they can purchase the specified number of shares at the exercise price from the issuer. The issuer then issues new shares to fulfill the purchase. On the other hand, if the investor chooses not to exercise the warrant before it expires, it becomes worthless and expires.

@sibyl 

Stock warrants are often used by companies to raise capital or to attract investors. They can provide potential upside for investors if the stock price increases above the exercise price of the warrant. However, there is also the risk that the stock price may never reach the exercise price, resulting in the warrant becoming worthless.

It's important to note that stock warrants differ from stock options. While both give the holder the right to buy shares at a predetermined price, warrants are typically issued by the company itself, whereas options are typically issued by an exchange. Warrants also have longer expiration dates compared to options.

Overall, stock warrants offer investors the opportunity to potentially profit from a company's growth, but they also carry risks. It's essential for investors to carefully analyze the terms and conditions of the warrant and to consider their investment goals and risk tolerance before investing in them.