Investing In Stock Rights And Warrants

Post on: 19 Июнь, 2015 No Comment

Investing In Stock Rights And Warrants

A warrant is a security issued to short and long-term by a society that gives the right to sell or buy a specific asset (underlying asset) at a specific price (exercise price). It is important to highlight that the warrant gives the right which does not mean no obligation. Warrants are very similar to options.

Warrants are traded in the stock market, and there are two types of warrants:

Call. the bearer of the warrant has the right to buy the underlying asset at an exercise price. If one exercises the right, the spread between the exercise price and that of liquidation is paid off.

Put. the bearer of the warrant has the right to sell the asset at an exercise price. If the right is exercised, the spread between exercise price and that of liquidation is paid off.

Besides, if one takes into account that when the right can be exercised a specific date.

European style warrants: the right can only be exercised on a specific date that coincides with the warrant’s maturity date

American style warrants: the right can be exercised during the warrant’s lifetime, until maturity.

Bermuda style warrants: the right can be exercised in several specific dates, including maturity date.

Investing In Stock Rights And Warrants

The bearer of the warrant can only exercise his rights when the spread between exercise price and liquidation price is favorable to him. In case the difference is unfavorable to the bearer, the right will not be exercised and the amount paid for the warrant lost. That is to say, he will lose the premium. Besides, the bearer of the warrant can always have the possibility of selling it during its lifetime.

The term warrant, when it gives the right to buy, could be translated into the expression “special subscription right.” In this case, the warrant is the right to buy one or more stocks than those previously agreed on. These stocks are issued at the time when the right granted by the warrant can be exercised.

To the investor that buys warrants one of the advantages is that with smaller investment (called premium) than stock investments, one can get a similar profit than the one one would have got if one would have bought the stocks.

Warrants can refer to stocks, but there are also warrants over indices (New York?s Dow Jones or Tokyo?s Nikke, for example) over types of interests, over exchange types (Euro / Dollar or Dollar / Yen ) for example and over assets (caf. for example).

Warrants are issued by societies that are quoted in the stock market to give the right to buy or sell one?s stocks and also for credit entities (as Citibank or Societ? Generale, for example) to give the right to buy or sell underlying assets (indices, interest rates, stocks, etc.). At the time of issuance, the issuer fixes the premium one will receive for each warrant. Now well once the warrant is issued, the bearer will be able to sell it at the stock market at a price that will depend on its quoting.


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