Stock Warrants
Stock Warrants
A stock warrant is a financial instrument that gives the holder the right, but not the obligation, to purchase a company’s stock at a specified price (known as the exercise price) before the expiration date. Warrants are typically issued by the company itself and can be used as a way to raise Capital or as an incentive for investors.
Examples
- If a company issues a warrant to buy 100 shares at $10 each and the stock’s market price rises to $15, the holder can exercise the warrant to buy the shares at $10 and potentially sell them at $15, realizing a profit.
- A company might offer stock warrants alongside a bond issuance to make the bond more attractive to investors. For example, a bond might come with a warrant to purchase shares at a later date.
Cases
- In 2008, the U.S. government provided stock warrants to financial institutions as part of the Troubled Asset Relief Program (TARP), allowing the government to purchase shares at a predetermined price in the future.
- In 2020, a tech startup issued warrants to early investors that allowed them to purchase shares at a fixed price, incentivizing them to support the company during its growth phase.