This is what the cop is doing while he or she is sitting in their car after pulling you over for speeding. If you have a warrant, get ready for handcuffs. It's also a term related to certain provisions included in bond and preferred stock offerings.
Call warrants give the holder the right, but not the obligation, to buy a certain number of shares of common stock at a specific price and by a specific date. Also known as just a warrant, companies offer call warrants directly to investors or they might just hand them out to employees. But most of the time call warrants are attached to bonds or to preferred stock offerings. Unlike employee stock options that are granted at a price lower than the current market price, the exercise price of a call warrant is usually about 15% higher than the current market price.
What also sets them apart from other securities (or options) is that they can be detached from the bond or preferred stock, so one can sell the warrant and keep the bond, or vice versa. They also have a longer period before they expire (5+ years) than a regular call option, for example. While investors can take advantage of any price increases over that time period, the issuing company also wins, since they will now receive an infusion of capital from the sale of the common stock, which will help reduce the cost of the debt owed on the bonds.
So let's say Warrant We Great Inc. wants to issue a bond with a call warrant attached in order to attract more investors to the bond offering (otherwise known as sweetening the pot). They issue $50 million worth of bonds, each with a face value of $1,500, with a callable warrant attached. That warrant gives the buyer the right (but not the obligation) to purchase 200 shares of Warrant We Great at $30 a share over the next six years. The $30 price is above the current market price by about 15% but it has six years to go up.
Related or Semi-related Video
Finance: What is a Strike Price?40 Views
Finance a la shmoop what is a strike price well before going
even a second further with this video be sure you've seen our Steven Spielberg [Introduction to a movie at the cinema directed by Steven Spielberg]
directed what is a stock option video here are the reviews from variety.. well
to review a stock option is the right to buy a share of stock for a set price
over a given period of time so let's say you were granted an option to buy a [Graph of amazon stock prices]
share of Amazon stock in 2015 when the stock was around 400 bucks a share the
option lasts as long as you work at the company in good standing or after 10
years have passed which ever ends first well one day you decide you want another job [Woman signing a contract]
your contract says that if you're no longer an employee with the company then
you have 90 days in which to either buy out your option that is to buy the
option and then own the stock or just forfeit the option [Woman underlining words on a contract]
well since Amazon is now at a thousand bucks a share you obviously don't want
to forfeit the option to buy that share of stock for 400 bucks but you note that
your many friends who joined apcray.com at a high price a high strike price which
creators know they're stock while they're doing a lot of option forfeiting
that is their options ended up being worthless so you've got a lot to think [Man holding out a bag of dog poo]
about here this is Amazon not apcray so you want to buy out your option so
what happens well you were granted your own options at the price Amazon stock [Amazon box falls off shelf]
was trading at the day you joined the company it was 400 bucks a share so
that's a strike price that $400 is the price you pay to buy a share of stock at
some point there in the future that strike price has nothing to do with [Protestors holding signs outside an Amazon building]
unions not working got it? all right well in order to buy that stock it's
currently trading in a thousand bucks a share
you pay Amazon 400 bucks and that buys out your option you then own the stock [Man writing a check to Amazon for 400 dollars]
that's it Amazon cancel your option then they give
you a share of actual stock which you now own for as long as you want to own [Man delivering an Amazon box]
it you can sell it immediately and make a
$600 a share profit that's a thousand bucks a share it's trading at now minus the
$400 strike price you just paid to buy out that option got it or you can hold [Grandparent bribing grand-daughter for amazon stock]
onto those shares and you know use it to bribe your grandchildren one day it's
worth like a million dollars a share
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