Stock Warrants
What It Is
Stock warrants give the holder the right, but not the obligation, to buy a company’s stock at a specific price before a set expiration date.
Why It Matters
Warrants provide leverage and upside potential, often used in financing deals or as incentives.
How It Works
- Company issues warrants
- Holder can exercise at the strike price
- Exercising creates new shares (dilutive)
- Warrants trade separately from common stock
Key Components
- Strike price
- Expiration date
- Dilution impact
- Leverage potential
Example
If a warrant has a strike price of $20 and the stock rises to $35, exercising the warrant yields immediate value.
Key Takeaways
- Warrants offer leveraged exposure.
- Exercising creates dilution.
- They are common in early‑stage financing.