How Do You Invest in Stock Warrants for Leveraged Profits?

Stock Warrants from Kinder Morgan

Sample Stock Warrant

Often you might come across stock warrants and you might have wondered what does it mean. Even if you are not interested in buying the warrants, it is important to know if the company that you are interested in buying the stock in also has outstanding warrants, as the warrants can have disproportionate effect on the returns you may be able to realize from the stock itself. To understand why this is the case, it is critical to understand what is a stock warrant and how it works. There are similarities between warrants and options but they also differ in some key respects

Difference between Stock Warrants and Options

If you have stock options awarded to you through your employer, you have the basic idea of how these options work. If you invest in publicly traded options then you have even better idea of how the options work. Warrants are similar to the options, but with one critical difference.

Just like an option, a stock warrant is issued with a “strike price” and an expiration date. The strike price is the price at which the warrant becomes exercisable or “in the money”. Both the warrants and the options eventually expire, if they are not exercised by a certain date.

The Key Difference Between Warrants and Options

Publicly traded options are created by the exchanges and are backed by the stock that already trades in the secondary market (the stock that is already issued that most of us buy and sell – as opposed to the primary market stock issue such as an IPO). When a Call Option is exercised, for example, the required amount of stock from the secondary market is purchased at the strike price.

Stock warrants on the other hand are issued directly by the company and they may trade on the exchanges or over the counter. When a warrant is exercised, the stock that is purchased upon exercising the warrants needs to be issued new by the company. These are not the shares that trade on the secondary market.

So you can see, exercising an option has no effect on the total number of common stock shares outstanding, whereas exercising a warrant increases the total number of common stock shares outstanding.

Stock warrants can also be long term, expiring far in the future while the options are typically short term instruments, expiring within the year (LEAPS are long term options but they are typically only available for a few selected stocks).

If you own common stock in a company that also has warrants outstanding, any exercise of the warrants will increase the number of outstanding shares thereby diluting the existing shareholders. This dilution is more pronounced when warrants are exercised, compared to say, the company issuing new shares on a follow on offering since any follow on offering is typically done close to the market price of the shares, while the exercise of the warrants are typically done below the market price of the shares.

Example of a Warrant

Consider a hypothetical warrant with a strike price of $25 and an expiration date of June 1, 2020. Let’s say the shares of the company currently trade at $5/share. We will take 3 dates with hypothetical stock prices and review how the warrants will behave on those dates and prices.

Situation 1: Today, Stock Price = $5/share

Since the stock price today is $5 and the warrants have a strike price of $25, exercising the warrants today does not make sense. It will force the warrant holder to purchase new stock at $25/share while the stock can just be bought in the secondary market at $5/share. Therefore, the warrants will not be exercised. The warrants will also have very little value because they are so far “out of money”.

The warrants will still have some value. This value comes from the fact that the warrant does not expire for another 8 years and it is likely that the stock price might exceed $25/share at some point during the next 8 years. Just like options, the value of the warrants can be calculated by using the Black Scholes method. Let’s assume, for the sake of the example, that the value of the warrants is $0.25

Situation 2: June 1 2016, Stock Price = $30/share

If the stock price has risen to $30/share by June 1, 2016 the value of the warrants is at least $5. This is because the warrant holders are now able to exercise the warrants, buy the stock at $25 and sell it back in the market at $30 for a $5 profit. Knowing this the market moves to bid up the price of the warrant until the possibility of profiting by just buying the warrant and exercising it right away disappears.

Note that if an investor buys the warrant on June 1 2016, and immediately flips it by exercising it and selling the resulting stock, he will not make any profit. In fact, he may end up with a loss since the price of the warrant is likely to be more than $5 (there are 4 more years remaining before the warrants expire and the probability that the stock price might move higher than $30 in that time gives the warrant additional value).

However, if the investor bought the warrants 4 years ago and paid very little for it, this is a great time to sell the warrants or exercise them. In this scenario, the investor in the warrants may end up with a profit of $5 – $0.25 = $4.75 or 1900%. The stock only went up by $30 – $5 = $25 or 500%.

Situation 3: June 1 2020, Stock Price = $25 or less

The warrants will expire worthless since there is no possibility of profiting by exercising the warrants. Note that the stock may have fallen only 17% since June 1, 2016 but the value of the warrants have declined by 100%.

As this example shows, the Warrants are highly leveraged and magnify the gains or losses on the stock. Therefore they should be used with care and unless you are a professional options trader and are comfortable with the risk, you should keep your exposure to the warrants to a small part of your portfolio.

That being said, warrants do have a role to play in an investor’s portfolio. They can be a way of controlling larger amount of stock with using a less capital than if you buy the stock directly. They can also be used for hedging purposes, similar to options.

And sometimes, the stock may not be undervalued but the stock warrants may be since warrants are not as popular with investors as the common stock. In those situations, it may offer the possibility of a risk free arbitrage.

Here is a real life example of a stock warrant that we bought and sold over the course of 1 year. These warrants were originally issued by Real Opportunity Investments Corp as an incentive for the investors to purchase their stock. The warrants have now expired.


  1. Abel says

    Hello and thank you for all your replies.

    I have warrants for company XYZ, trading at about $11.00 each. Common stock price is about $25. Strike price is about $14. Why aren’t more of these warrants being bought up?

    Well-known, multi-national brand.

    Also, how do warrants get excercised? Does brokerage company contact you? Or does it go through the actual company?

    Sorry for the questions, but warrants are really hard for me to understand. Thanks in advance.

    • says

      Hi Abel,

      The prices you listed sound right. The warrants are trading close to common stock price – strike price ($25 – $14 = $11).

      At these prices, there is no particular advantage to buying up the warrant over the common stock, if your ultimate goal is to own the common stock.

      Mostly warrants are used by arbitrageurs to exploit any variances between the value and the price of the warrant that may arise frequently. Common investors do not know much about warrants.

      To exercise the warrants, you will have to contact your broker and instruct them that you want to exercise. They will get in touch with the company and make it happen for you.


  2. Caesare valentine says


    I recently purchased a little over 3k warrants of a company at .06 per share. The company common shares traded at $5. I’ve never brought warrants before and honestly didn’t realize that it was warrants that I was purchasing. Long story short I brought the, on my brokerage app ROBINHOOD, it now says that this stock is no longer tradable, I can’t sell or buy. The company’s common stock just jumped because of 2 positive phase 3 trials. I believe this stock will eventually be over $20 per common share. What do I do? How do I know when this expire and will it be worth it to wait long term? Please if anybody could give me some type of feedback it would be greatly appreciated.

    • says


      If you read the annual report of the company, there should be a discussion about the outstanding warrants. If this does not give you enough detail, you may want to go through the company’s old filings and find one that was filed when the warrants were issued.

      You should be able to call your broker and tell them that you want to exercise the warrants. You will be required to put up additional capital for this, but once the exercise is complete, you can sell the stock and recoup this capital.


  3. Justin says

    If warrants are issued in non publicly traded companies, how are they exercised and cashed?

    Assume I have a warrant for 100,000 shares at a $0.01 exercise price. The company is 3 years old and profitable but has no intention of being publicly traded.

    -Who cashes the warrant?
    -Where does the money come from?
    -What if the company doesn’t have cash available to cover the warrants?

    I imagine that the warrant holder exercises. The value is based on a valuation. Lets assumes the value per share is $1.00 so he gets $100,000 but where does this come from? Does the company have to pay it or is the warrant basically worthless?

    • says

      Hi Justin,

      When you exercise a warrant, in your example, you will pay the cost of exercising the warrants, in this case 100,000 x $0.01 (exercise price) = $1000 to the company. In return, the company will issue 100,000 new shares to you.

      Since the company is not public, you may not have a liquid market for either the company shares or the warrants. The end result is that you will be the owner of an additional 100,000 shares of the company stock at the expense of $1000. For a publicly traded company, you could SELL your warrants in the market and avoid having to exercise it. For a private company, this is not an option and your only option is to exercise the warrants with the company. Warrants generally have a value in the market depending on the value of the shares, but since you will not be able to trade in the market any way, the value of the shares is not relevant (except to know how much stock that you are getting could be worth).

      The company does not need to pay out any cash, just issue new paper (stock) to you. The company will in fact receive $1000 from you as you exercise the warrants.

      For the new stock that you receive, if you are able to find a buyer, you can sell the stock. Otherwise, to cash out the stock in a non-public company, you will just have to wait for the company to go public. If it doesn’t, you may still enjoy other benefits of owning the stock such as, any dividends that are paid, ability to set the company direction and strategy, voting in the annual meetings, etc. If the company grows, your ownership will grow in value as well and there will be larger market for your private shares. Private companies also decide to buy back shares from time to time.

      All the best.

  4. Ben Tinsman says

    Thank you again Shailesh.
    I contacted Marishka, head of Shareholders of PEPSICO share division and she said she would look into it.
    Have you ever seen this stuff go to court and work in favor of the person of an old legal document. I ve never sued anyone or anything before.
    My whole life I ve been told and taught a contract is a contract is a contract. The legal verbiage on the warrant I have allows no out clauses with the human eye. However, if the market acts under a different honor of code maybe it is what it is. Of course I showed the warrant to a lawyer a few months ago and he told me they would need one of greatest explanations of all time to “not honor” the warrant unless of course the company went bankrupt or went out of business. Your explanations early regarding new corporate ownerships ability to squash warrant holders like me are merely what happens and there s nothing i can do because of the fear dilution? Do you see alot of people with my issue at hand? If you want to see it I can send it to you. It’s an old one. Thank you for your time Shailesh. If I had known of your knowledge I would have spent far less time on this document. Much appreciated.

    Also, how do corporations reach out to people who were issued the original warrant if they are dead or if it’s handed off to a family member? The warrant says who ever the “bearer” is holds title. They never contacted me about my deadline and they won’t be able to prove it was sent to me.

    • says

      Hi Ben,

      The warrant would have an associated prospectus that would lay out all the terms and conditions in detail. This should be available from old Securities and Exchange Commission filings. These might be archived now and I am not sure how to go about finding these. Some of the full service brokers (such as Merrill Lynch) would have a forensic department that would do investigations like this. The prospectus tends to be a large document (10s to 100s of pages). I am not sure if you are looking at the certificate or the full prospectus. If you have a certificate, you or your family would have had the prospectus at one time. The contract is a contract, it is just a matter of finding and ensuring that we are looking at the full contract statement as written in the prospectus.

      When Pepsico investor relations gets back to you, they will have reviewed the terms and conditions and should be able to tell you the next steps. I think you are doing the right thing by following this up to completion as the warrant terms and conditions are not standard across all issues so there is always a possibility this might still be valuable.

      There have been many cases in which corporations have tried to locate a large block of shares (certificates). The record of who owns the shares now (as they can pass through generations) is kept at the corporation’s transfer agent. I would think it is the same or similar process for the warrants, although the estate issues are definitely not part of my competency. When the bearer changes, either via sale of the asset, or via inheritance, the transfer agent is supposed to be notified.

      You can contact me privately at


  5. Ben Tinsman says

    Thank you for the quick response Shailesh.
    Regarding the old stock warrant I sentered you info on yesterday, need I do anymore research to see if there was any money issued to warrant holders in 1983 or except that it is 100% worthless.

    Could we agree that my relatives should have acted on the warrant prior to 1983 when they were locked in at .50/share for 7,500 shares? Even then it was a large sum of money lost.
    Thanks again Shailesh,
    Ben Tinsman

    • says

      Hi Ben,

      It would be a good idea to check with Pepsico’s investor relations to confirm. The phone number and email are below

      Manager of Shareholder Relations

      PepsiCo Investor Relations
      Purchase, NY 10577
      Telephone: (914) 253-3055

      More information at

      As for your second question, yes, the warrants could have been converted to cash prior to 1983 for a good sum. However, mergers/acquisitions have a way of blindsiding investors and they are hard to plan for. I would chalk this up to the risk inherent in the warrants due to its highly leveraged nature.


  6. Ben Tinsman says

    Hi Shailesh,
    I have no idea what I’m talking about when it comes to old Stock Purchase Warrants. I inherited one. Regardless of whether it s worth money or not it’s a neat document from 1929 for option to buy 7,500 shares in Stokely Foods without an expiration date.
    I wrote a woman in Utah to do a back ground check on things and this is how she responded to my “perpetual warrant”.
    “Foundation Industrial Engineering Co, Inc. re capitalized as Stokely Foods, Inc. in 1943. Stokely Foods, Inc. merged into Stokely-Van Camp. Inc. on May 29, 1952. Stokely-Van Camp Inc. merged into Quaker Oats Co. on October 31, 1983. At this time each share was exchanged for $77.00 cash and public interest was eliminated. The shareholder would have received the funds in 1983. The certificate would have no value today”
    We never received money for the warrant by the way. Is there a possibility that she is wrong when describing the warrant as having no value. The warrant says it’s valid anytime after said date so long that said business doesn’t go out of business regardless of number of buyouts, merges, etc. PEPSICO has since bought out Quaker Oats.
    Thank you so much for your help,

    • says

      Hi Ben,

      That is some history! Since the underlying shares do not exist anymore, the warrants will not have any value. Not sure how the company would have retired the warrants (in 1983), perhaps some consideration was paid. If it was, it is not likely to be much since most warrants are callable under certain conditions for nominal value (even if issued as perpetual).

      That being said, I hope you hold on to the document for its historical and collection value.


  7. Christopher Ryan says

    What happens to warrants in a takeover in Canada. Everything I have read talks of compulsory acquisition of outstanding “shares” being permitted once a bidder acquired 90% of the shares. Does the compulsory acquisition apply to warrants? If not, what happens after a bidder gets to 100% and there are still warrants outstanding – can the holders of warrants then exercise and keep their shares?

    • says

      Not sure if the warrants are treated the same in Canada as in the US, but in most cases, a takeover would invalidate existing warrants via one of the following 2 ways

      1. The prospectus of warrants specifies M&A as one of the invalidating events. You will have to read the prospectus carefully to figure out how warrants are to be treated when something like this happens, as this can be different for different issues.

      2. The takeover premium may push the stock price above the threshold when the warrants become callable at a nominal consideration by the company.

  8. Michael Bayo says

    Hey Mr. Kumar!

    What if insiders do exercise the warrants well below the strike price of the warrant? Like in situation 1 of the examples where you said “it does not make sense.” I agree with you, but I own common stock with warrants where this happening and I’m wondering how this may affect the PPS of the common stock. Should it cause it to rise towards the strike price?


    • says

      Hi Mike,

      Any warrant exercise causes new stock to be issued, which would be dilutive to the existing stock holders. This would be a drag on the stock price.

      It really does not make financial sense to exercise warrants well under the strike price. If insiders are doing it, in some ways it is the same as insider buying on the stock, but without the associated stock price rise as the stock being purchased is now newly issued and not from the existing pool. The only reason I can think of is to maintain or expand their ownership stake in the company and gain voting rights (warrants do not have any voting rights).


  9. Ben says

    Hi Shailesh,

    I have some shares in a company group that have warrants attached to them. In order to exercise the shares an acquisition company have said I need to pay a lump sum in order to exercise the shares and then I will receive a larger amount for my shares. Does this sound right or more of a scam and how can I tell? Is it normal to have to pay money first to exercise shares and get them released in order to sell and get money back?


    • says

      Hi Ben,

      You will need to pay the exercise price for the warrants to convert them to shares. I assume the acquisition company only wants to buy the shares and not the attached warrants and this is why they are suggesting you exercise the warrants first. Sounds legitimate but make sure they are talking about exercising warrants (not shares).


  10. Matthew Cullen says

    What does forced redemption and cashless exercise mean? Why would a company want to do either of these….this question stems from Hemisphere Media (HMTV and HMTVW)…..from their most recent prospectus:

    Each warrant entitles the holder to purchase one-half of one share of our Class A common stock at a price of $6.00 per half share. At March 31, 2015, 14.7 million warrants were issued and outstanding, which are exercisable into 7.3 million shares of our Class A common stock. At the option of the Company, 10.0 million warrants may be called for redemption, provided that the last sale price of our Class A common stock reported has been at least $18.00 per share on each of twenty trading days within the thirty-day period ending on the third business day prior to the date on which notice of redemption is given. The warrants expire on April 4, 2018.


    • says

      Warrants are typically issued along with equity as a sweetener to parties who are not very comfortable with the equity alone. Essentially what the company is saying is that to assuage some of your reservations, we will throw in a kicker in the form of warrants along with the equity. However, if the equity price goes beyond a certain level and stays there, we would have delivered appropriate level of return on the equity and the warrants would no longer be necessary.

      At a practical level, existence of warrants serves as a dampener on the stock price (since as warrants are exercised, new stock is issued). The primary responsibility of the management is to the shareholders, and therefore once the warrants become unnecessary, the company would like to remove them from circulation.

  11. Tony says


    I’m trying to understand if the expiration of a warrant is a positive thing or a negative thing for a particular company. Below are the press release and my question. Thank you in advance for your help.

    07.21.2015 | Press Release
    Liquidmetal Technologies Announces Expiration of 30 million warrants

    My question is can these share be reissued at a lower exercise price and if so must shareholders vote for this to happen or can management just reissue the shares, which obviously would cause more dilution due to the PPS being much lower today than when the shares were issued?

    I haven’t had time yet to fully research the meaning of the press release from today, but these are my concerns. Would you please help me clarify or tell me where to look to confirm.

    I’m seeing this from two different perspectives. 1) (Positive) Meaning these shares (30M) can no longer be exercised at the exercise price of: between $0.48 and $0.49. 2) (Negative) if these shares are able to be reissued and purchased by insiders at the current PPS of .1380 this is not a good thing.

    • says

      Tony, it just means that the warrants will cease to exist and therefore the potential for 30 million new shares being issued (as the warrants are exercised) goes away. This would be a positive for the share holders as the risk of dilution is no longer there. This would be negative for the warrant holders as their warrants will have no value in the future.

  12. Dean says

    I am attempting to understand warrants. I currently hold 115 AIG.WS warrants. The option price is $45 set to expire in approx 6 years. The warrant value has well surpassed the AIG value. For it to be worth while to exercise on the $45 option, would it not be necessary for the sum of the Warrant value, currently $27.51, plus the $45 option cost to be less than the current AIG stock value of $62.94, which it is but only by $0.43? Would there also be the benefit of a dividend on the AIG holding, should one be issued? Also, in the case of a split, are the warrants unaffected by the split? Thank you.

    • says

      Dean, the warrant prices may at times lag or lead the stock price so you will see small variances open up ($0.43 in this case). If there is a long time left for expiration, in this case you have 6 years, than the variance can be large as it also reflects the probability that the stock price for AIG would be at a different level in 6 years than today (similar to your normal Black Scholes model for option pricing)

      Warrant holders are at a disadvantage if there are dividends paid on the AIG equity, as the exercise price is not adjusted for the dividend.

      In case of a split, the warrant exercise price should be adjusted to reflect the split.

  13. Lukasz Wicher says

    I wanted to get some info on warrants and what happens to out of money warrants in the event of a buyout or merger. Do they simply remove themselves or are the terms adjusted.


    • says

      Depends. If the warrants are for the acquiring company, they should not be affected. If the warrants are for the company that is being acquired, they will be nullified unless special provisions are made in the merger agreement.


  14. Balbir says

    Hello Mr. Kumar.
    I never tried to understand warrants until a foreign stock I currently hold recently issued 1 warrant for every 10 shares owned. I now see the added line for these warrants in my portfolio (online), but there is no mention of the warrant’s strike price or expiration date as you mentioned above. Is this because they were bonus warrants? How would I determine the missing info above in order to better understand or plan its eventual exercise?
    Thanks in advance

    • says

      Hi Balbir,

      The company should have filed some paperwork with the securities regulator (e.g SEC filings) describing the warrant. This should have the details. If this is hard to find, often times the companies list all the warrants and details in their Annual Reports (may not do it in quarterly or semi annual reports).


  15. Alex says

    Hi Mr Kumar,

    I’m not clear on the subject as I am new to investing, but I came across the option to buy TACOW for $6 or TACO for $16, the merger will complete mid june/ early july. What’s the difference? What will happen if I buy either one?

    Thanks for your time.

  16. Jimmy says

    If an investor has a warrant—for example—they received in a transaction in December 2013, would exercising today reset the purchase date to today? Meaning would this reset the clock on achieving long-term tax status? Or would the original December 2013 purchase date carry over?

    • says

      Hi Jimmy,

      Yes, exercising the warrant resets the purchase date to the date of exercise. At the same time, the cost basis is reset to equal the cost basis in the warrant + the price paid to acquire stock in the exercise.

      On the other hand, if the warrants were sold and not exercised, they would have carried the original purchase date and cost basis.

      Please note that this is with the US tax laws. Other jurisdictions may treat this differently.


  17. John says

    Hello, I own a stock. An insider just exercised 3Millions warrants (at 0,60$ and they would have expired in 6 months, the current shareprice is 1,50$). He has not sell any share after that. What is his benefit to exercise it now if it’s not for selling it now?

    • says

      Hi, maybe he just wants to hold the stock as ownership in the company and wait for the stock to appreciate if he thinks the company is doing well. This is better than letting the warrants expire as then he would have no value left.

      • John says

        Thank you for your prompt response. The warrants would have expired in 6 months, no need to exercise them now. I see two possibilities, he wants to have more vote in case of a buyout (the company is in a quiet period right now), or he wants to sell it quickly when the quiet period will be over (I am not sure if he could sell the shares at the same time he exercise the warrants?). Does it make sense, should I read it negatively or positively? Hard to say!

  18. says

    I need your Advice Urgently
    Which Of The Three $lEVY $lEVYW $LEVYU Would You Choose To Hold On TOO?
    I Need to Make A Decision ASAP
    Much Respect

    • says

      Hi Joe,

      I would hold on to LEVYW to maximize my gains in the shortest time. The same investment thesis will hold true for all 3 instruments. The only thing to keep in mind is that you will need to sell LEVYW in case LEVY stock gets close to $24/share as LEVYW is callable by the company beyond this at $0.01/warrant.

      Hope this helps.

          • says

            Hi Joe,

            Do you mean at $24/share? No you do not have to sell the common (LEVY). However, the stock might stall at that price for some time as people will be busy exercising the warrants (a little before $24/share) which will cause new stock to be issued and come to the market (dilution).


      • confetti says

        Mr. Kumar, Could you please clarify about how the 1-cent redemption works in TACOW’s plan? If the company gives notice of redemption, will the warrants become worthless immediately? I’m hoping they won’t. The language in the prospectus sounds like warrant-holders may be given notice and a window of time in which to either exercise their warrants or sell them before they become worthless. Here is the language from page 30 of prospectus:

        “We have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of our common stock equals or exceeds $24.00 per share for any 20 trading days within a 30 trading-day period ending on the third trading day prior to proper notice of such redemption provided that on the date we give notice of redemption. … Redemption of the outstanding warrants could force you (i) to exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants.”

        • says

          Yes, your understanding is correct. When the notice of redemption is issued the warrants will be worthless. However, there is a 30 day period prior to this notice when the stock price needs to consistently close at $24 or above for 20 out of these 30 days. Including weekends, this implies 38-39 total calendar days. If stock price approaches $24 and appears to be heading higher (due to improved business performance), warrant holders will start redeeming their warrants. There will be tremendous liquidity for a short while and you will be able to redeem or sell your warrants. During this period of 30 trading days before the notice, the warrant price should correlate with the stock price (meaning they should be priced appropriately without discount).

  19. blue sky says

    Hello Mr. Kumar,

    Thank you for answering our questions! Here is mine:

    If Company A announces that they have accepted an offer to be acquired by (or merged into) Company B before Company A’s common stock warrants expire in 30 days, and the announcement of the buyout causes the stock price and the warrant price to increase well above the strike price, will holders of Company A warrants typically have the ability to either sell the warrants or exercise the warrants up to, and including, the date that the Company A warrants expire (since buyout deals usually take more than 30 days, after being announced, to be completed)?

    Expressed differently, does the news that Company A has agreed to be purchased by Company B (at a price higher than the current stock price for Company A) ever cause the price of Company A’s warrant to decline or become unsellable or unexercisable, given that the expiration date of Company A’s warrants will occur in 30 days, well before the completion of the buyout?

    Again, thank you very much for answering our questions and concerns.

    • says

      As long as the warrants are not expired, they will remain exercisable or sellable. Unless the acquisition/merger is at terrible terms for the Company A’s shareholders, it is unlikely that the warrant price should decline on the announcement of the buyout.

      There is an exception though that depends on the terms of the warrants. There may be a clause written into the warrant offering document that makes it redeemable by the company above a certain stock price. This maybe something like “if the price of the common stock rises above $X and stays above this level for 20 days in the previous 30 trading days, the company has the right to redeem the warrants at $0.01/warrant”. If the acquisition causes the stock price to go above $X and stay there consistently, the value of the warrant may decline and the company may choose to call it in if this clause exists.

      This is because the warrants are normally issued as a sweetener with a stock or debt issue. The idea is to entice the investors to purchase the equity by promising a leveraged return with the warrants. If the company can get its stock price above a certain level, this enticement is no longer necessary and the company would like to retire the warrants to avoid further future equity dilution.

      • blue sky says

        Thank you, Mr. Kumar, for your very fast and informative reply!

        I’ll be studying your past and future articles, and reading your questions and answers sections further, as you are clearly very knowledgeable, considerate, and helpful to your readers.

        Best regards to you!

  20. Tony says

    Dear Shailesh,

    I’ve some bonus share warrants, the exercise price is 8p and the share’s are currently trading at 28p, I’ve 400,000, but I don’t have the finance to exercise the warrant in one go, can I exercise the warrants in trenches e.g 100,000 at a time

    • says

      Hi Tony,

      I am sure you can exercise in tranches. Are these warrants listed on an exchange? If they are, you could just sell them instead of exercising so you will not need to put up any of your own capital. If not, please check with the company that issued them and they should tell you the minimum quantity, but I expect 100,000 at a time should be fine


  21. Bob says

    I do not fully understand these stock warrants. I have 4000 shares in NAK Northern Dynasty Mineral. I just read yesterday that that as of March 4, 2015,…looking at the following article, what happens to my 4000 shsres. I purchased them at .56 cents per shsre. Thank you

    Northern Dynasty Completes Prospectus to Clear Special Warrants
    Published: Feb 25, 2015 5:00 p.m. ET


    VANCOUVER, Feb. 25, 2015 /PRNewswire/ – Northern Dynasty Minerals Ltd. (NDM)(nyse mkt:NAK) (“Northern Dynasty” or the “Company”) reports that further to the Company’s news releases of January 13, 2015 announcing the sale of 35,962,735 special warrants to raise of $15,499,939, the Company has now filed and received a receipt from certain Canadian securities regulators for the final short form prospectus qualifying the distribution of the 35,962,735 common shares (the “Common Shares”) of the Company issuable upon exercise of the special warrants. A copy of prospectus can be downloaded from Accordingly, these Common Shares when issued in accordance with the terms and conditions of the special warrant certificates will not be subject to resale restrictions in Canada. All special warrants, except those held by US holders and one principal shareholder will be automatically exercised at 4:00 p.m. on March 4, 2015 and such holders will automatically receive the underlying Common Shares without any further action on their part. The balance of the special warrants can be exercised over a period of up to 24 months from their issuance.

    The issuance of the Common Shares by the Company has not been registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) and such Common Shares will be issued pursuant to available exemptions from registration. The Company has filed a registration statement under the U.S. Securities Act to register the resale of Common Shares to be issued to certain U.S. holders of the special warrants. The registration statement was declared effected by the United States Securities and Exchange Commission on February 24, 2015. A copy of the registration statement can be downloaded from

    • says

      Hi Bob,

      If you only own the shares and not the warrants, there will be no change for you. You will continue to hold 4000 shares. However, since 36 million new shares are being issued and they will come into circulation on the market, that might pressure the stock price downwards.


  22. Peggy Lin says

    Hi Shailesh,

    I am a bit confused on my stock situation and appreciate if you can explain it to me?

    Purchased 6,000 shares of ABC common stock at $ 5.75 per share and stock ABC represented units of common stock ABB. They are going through a mandatory separation wherein I will receive common stock and warrants. The expiration date on the warrant is Dec 2017 but no indication on the warrant price. So my questions are:

    1) As usual practice, will the warrant price lower than my purchase price $ 5.75? How they determine the price of warrant?
    2) If my warrant price is $4.75 and the current price is $ 6, will I still get a gain of $ .25 per share or $ 1.25 per share? How does it calculate?

    Your advice is a great help to me!
    Many thanks,

    • says

      Hi Peggy,

      Let me see if I understand the situation. Essentially, the stock ABC, that you purchased for $5.75/share and is currently at $6/share, will be replaced by a combination of new stock + warrants attached to the new stock after the spinoff. And when you say warrant price, you are referring to the warrant strike price?

      1. The warrant strike price will usually be higher than the current stock price ($6). The reason being that warrants are issued as a payoff if the company is able to raise the stock price with its performance in the future. At the same time, the price of the new stock that you will receive should be less than $6 if this is a 1 to 1 share deal (1 new share issued for 1 old share of ABC stock)

      2. If the warrant strike price is $4.75 and the current stock price is $6 (this will refer to the stock price of the new stock that you are getting in the spinoff, not the old ABC stock), if you exercise your warrant or sell it in the market, you should get approximately $1.25/warrant. However, this is NOT your gain, as you still have 1 share of new stock that you need to consider. If you sell the 1 share of new stock at $6, you will in total get $7.25 ($6 for share and $1.25 for the warrant). Since your cost basis is $5.75, your gain is $1.5.

      However, remember I said “approximately” for the warrant price. This is because there is still time left for expiration, and the warrant price will be higher that $1.25/warrant if the market thinks the stock price can rise above $6 before the warrant expires. So if we changed the example and take the case where the warrant strike price is $6, and the current stock price is also $6, the warrant will still be worth more than $0 if there is still time left before the expiry during which the stock price can go higher than $6.

      Let me know if I misunderstood something and I will revise my answer.


  23. Daniel says

    Hi there. I am in the current situation: (stock) today announced a non-brokered private placement equity financing of up to 100,000,000 Common Shares in the capital of the Company at a price of $0.02 per Common Share for gross proceeds of up to $2,000,000 (the “Offering”). Each Common Share subscribed for will be entitled to a one-half (1/2) Share Purchase Warrant at a price of $0.05 per share for a period of 2 years.

    The share price is currently $0.025 per share. Do you think something like this would be a good idea?


    • says

      Daniel, it would depend on whether the stock is likely to reach anywhere close to $0.05/share price in the next 2 years. While the warrants have some value, they are derived from the stock price. If you think the company is likely to use the proceeds from the offering to generate a positive return, than this may be attractive. If the company is doing this for other reasons such as servicing debt they cannot afford, than most likely not.


  24. Vidar says

    I have warrants that will soon expire. The warrants have a positive value, letting me buy the stock at about 20% discount.

    What will happen on the exersice date, if I do nothing? (Do not trade the warrants) will they become worhtless, or will I get automaticly paid?

    • says

      Hi Vidar,

      If you choose to not exercise your warrants, you forfeit your rights when they expire. There is no one on the other end to pay you unless you make a trade (or exercise).


  25. Pieter Smit says

    Hi Shailesh

    I urgently require some advice from a professional. I recently bought shares a brokage firm. We acquired the shares on (what I understand) was the 2nd market at the price of $17.50. The IPO price was $92.70 and currently trades at aprox $88. We instructed our broker last week to sell half our shares which seemed to be a good deal at that time, only to be notified the next day that the selling of the shares was rejected due to a warrant that was attached to our shares.
    This came to us as a huge shock since we were never at any stage informed about the warrants attached.
    My question is this, should they not have informed us before buying the stock that there was warrants attached or could they also not have known about the warrants??
    Please can you advise on this matter?
    Hope to hear from you soon

      • says

        Hi Pieter,

        I do not know of a case where shares are not sellable due to a warrant attached to it. It is possible, just not something I have seen before your situation. In this case, you mention that the warrant price is $50. I am assuming this is not the “strike price” but the actual price that you would receive if you were to sell the warrants.

        Have you checked with your broker and the possibility of selling the shares and the associated warrants together?

        If the broker is unable to sell the warrants (sometimes the market for the warrants is too illiquid), you may have to request him to first exercise the warrants you own, and then once this is complete you can than sell the shares (along with the new shares you receive with the warrants exercise). Exercising the warrants will require you to purchase new shares in exchange for the warrants at the specified “strike price”. The cost of exercising the warrants will be the “strike price” plus transaction costs. This will add time to the process but may be necessary to complete the sale.

        In either case, please confirm the prices you will receive before issuing firm instructions to ensure that the entire transaction (warrants + shares) is profitable for you. Please let me know if you need additional help once the cost/price picture is clearer and you know what the broker is able to do.


  26. Faisal says

    hi, Shailesh

    I had purchased X no of shares on Sep 07, 2014 via private placement @$1.65 per unit which consist of 1 share & 1/2 warrants. I received the X no of warrants with an expiration date of Sep 07, 2015 & excercise price of $2.20 per unit.

    Now I would like to know if I dont want to excercise the warrants what would I loose in this scenario.

    Thank you

    • says

      Faisal, if you do not exercise the warrants, the warrants will expire and you will lose whatever the value is for the warrants on Sep 7, 2015. The value depends on the share price and if it is below $2.20/share, the value of the warrants will be small and will become smaller as the date approaches. If the share price is above $2.20/share, the value of the warrants will be roughly the difference between the stock price and $2.20.

      Generally, if the chances of the warrants to be in the money (i.e share price above the exercise price) are small, it might be worthwhile to sell the warrants in the open market.

  27. Tejas Mehta says

    Can the warrants be sold without being exercised (meaining traded for a stock at strike price)? If I have warrants which I purchased at $2 couple of years ago with a strike price of $40, and today, the warrants are trading at $4 and the strike price of $40 has hit, can I just sell the warrants (as if I were to sell any common stock in the market) and make the profit of $2 per warrant? OR is it mandatory for the warrants to be exercised and traded with a stock?

    Also, can warrants be sold if the strike price does NOT hit? Let’s say the warrants are $3 and the strike price hasn’t hit, but warrants are about to expire in few months. Can I just sell the warrants for $3 per piece and still make some money although the strike price of $40 hasn’t hit?

    • says

      Hi Tejas,

      Warrants can always be sold regardless of whether the strike price is hit or not. The price you receive will of course vary based on the stock price vs strike price. If you hold the warrants in a brokerage account, the process is just like selling a stock. If you do not hold it at a broker, i.e you have physical warrants, check with your broker for the process to transfer them to your account with the broker.


  28. Su says

    Hi Shailesh Kumar,

    So, basically a warrant can be bought and sole in the market just like a share without mandatorily be exercised? The only difference is that the warrant allow the holder to own the underlying share at the pre-defined exercising price? but the profit generated still the same whether exercise warrant or not?

    • says

      Generally yes. Like any instrument, the actual price you get depends on how liquid the market for that warrant is. The commissions for selling versus exercising might also be different depending on your broker (selling is generally cheaper). Other than these transaction costs, there is no difference in whether you sell it or exercise it.

  29. james morgan says

    what happen to warrants if company is bought out at a high pps do you get the stike price of the warrant or closer to the pps

    • says

      Hi James,

      Please refer to my answer to Lorne above. You are talking about a public company so the purchase method is equity. In this case, how the warrants are treated are based on the methods laid out in the offering document. If the offering document is silent on this, than it may be subject to the negotiated treatment between the acquirer and the acquired companies.

      But lets say the acquisition is not closed yet. In this case, you should be able to get the value of the warrant that is derived from the pps (assuming as you state the the pps is high and above the strike). The reason is that if you do not, you should go ahead and exercise the warrant, forcing the company to issue new stock, and then sell the stock in the market to make up the difference.

  30. Anmum says

    Thanks a lot for the insight! Shailesh… Now I’m quite clear about the warrants. May I ask about premium and gearing, which I found in announcements? What are those? Are those showing significant information.

    Best regards,

  31. Lorne says

    This was somewhat helpful learned lots,but a private company being taken over by another private individual in order for the sale to go threw do you have to exercise your warrents to complete the transaction,thankyou

    • says

      Hi Lorne,

      If the take over is being done as an asset purchase, then most likely the existing warrants will be nullified. Essentially, the current business is being closed and the assets are being sold. If it is done based on the equity method, it is quite possible to negotiate the treatment of the warrants and have them carry forward. Please consult a M&A attorney for better detail and things might be a little different in Canada from US.

      Should add that if the warrants are in the money (i.e, the stock/company value is worth more than the strike – not sure how this is determined in the private market) and if you are a holder of the warrant, you are better off exercising them and taking the equity in the business prior to the sale.


  32. Allan Tan says

    Gaming company Leisure & Resorts World Corp. expects to raise P437.5 million in fresh funds from the issuance of preferred shares and warrants.Leisure & Resorts, based on the registration statement approved by the Securities and Exchange Commission, will issue 250 million preferred shares for P1 apiece and 12.5 million warrants at P15 per share.The buyers of preferred shares will be entitled to a dividend rate of 8.5 percent per annum.Meanwhile, the warrants will be issued to buyers of preferred shares on the fifth year from the issuance of the preferred shares.Under the plan, an investor buying 20 preferred shares will be entitled to purchase 1 warrant share at P15 apiece.  The offering period for the preferred shares will start from March 13 to 21, while the listing date is set on March 31.

    Ir, kindly explain this to me… the current price of the warrant is 0.90/share. Is it advisable to by warrant at this price?
    Thank you

    • says

      Allan, I assume the warrants are convertible to common shares even if they are being issued along with the preferred. What is the current price of the common shares and do you expect the common shares to do well in the next 5 years based on the business prospects?

      Finally, I may be misunderstanding this, but are you saying that the warrants have already been issued (since they are trading at 0.90/share) but the preferred shares will be offered in March?

      I generally do not like to buy the warrants when they are issued as it indicates a negotiating weakness on the company’s part. In a year or two, the business might be much stronger making the warrants compelling.

    • says

      Jen, the offering document for the warrants will have the detail. Should be a document filed with the SEC. Alternatively, most companies do mention these details in their annual reports for the outstanding warrants so that is a quick way to check.

      • jen dahl says

        Thank-You!!!! I bought ICLDW today at 2.17. It closed at $4.64. The exercise price (I think is $5). ICLD is currently at 10.10 after hours. I’m usually hold stocks for a long time. Today is the first time I have ever purchased a warrant issue.

  33. Maxwell says

    Thank you for the breakdown. However, I am still a little confused about the process. Here is the scenario I am in…

    On October 18, 2013, I purchased 3,973 warrants at a price of $1.18 ea. With an exercise price of $5.00 a share and an expiration of June 2018.

    As of Nov 1, 2013, the stock itself is at $3.69 and the warrant price is $1.38

    Lets say on Nov 15, 2013, the stock went to $14 a share and I decided to exercise the warrant. Here is where I am confused, when I exercise the warrant do I have to pay additional $5 for each share even though I purchased the warrant at $1.18?

    Any help is appreciated. Thank you in advance!

    • says


      Yes. The warrant gives you the right to purchase the stock at $5/share. You bought this right when you paid $1.18/warrant. If the stock goes to $14 and you exercise the warrant, you will pay $5/share for each warrant exercised. Presumably, you will turn back and sell the stock at $14 and keep the difference ($7.82/share) as your profit.

      Alternatively, at the stock price of $14, the warrant itself would be valued quite a bit, closer to $9/warrant. You could just sell the warrant back into the market without going through the exercise process.

  34. says


    As a startup issuing warrants to a founder as part of an acquisition, my client wants to issue said warrants without an expiration date. Can that be done, legally? Thanks.

    • says


      Perpetual warrants are possible and there are no legal restrictions around these. They are not very common though but I see no reason why they cannot be issued. Even if they do not have an expiration date, they may de-facto expire when the rest of the terms of the warrants are met.


    • says


      Warrants listed on NYSE can be found at

      for Nasdaq and OTC, you will have to print out (download) a list of all stocks or issues trading on those exchanges and then manually filter for warrants. Typically warrant symbols end in W or WS

      Some sites have tried to compile a database of currently active stock warrants. These include and However, I cannot vouch for their services and accuracy.

      Also, I have not read Wall Street Journal recently (I know, blasphemy!) but I think they do have a listing of commonly traded stock warrants in there.


  35. Dennis Brower says

    I am being offered stock and warrants as settlement in a bankruptcy case. I am told I have to pay US tax on the stock and the warrant before the stock can be sent to me. Why pay income tax on something that may be worth $0?

    • says


      You should be able to take a capital loss later when the warrant (and possibly stock) turn out to be worthless. Taxation is outside my expertise but be sure to keep the paperwork to help you figure out the cost basis (the current worth of the stock and the warrants, probably through an appraisal if this is being done under a legal process). Also, if the stock and the warrants are being offered to you in lieu of your original ownership stake in an asset, you might be able to take a capital loss right away if the value of what is being offered to you is less than your initial investment. A competent tax advisor should know the exact rules.


  36. Amaigus says

    Great, intelligently written article. I knew they were like options in some way, so you explained it perfectly by making a direct comparison.

    What is strange is the motivation for issuing them. Seems like a weak way to raise money. Take in a small premium in exchange for lots of dilution later. At least Employee stock options motivate the employee, making the giveaway more worthwhile. On the other hand, the company raises cash early from the process of diluting at higher prices, and implicitly doing a buy back at lower prices (at expiration). But why not do that with the real thing, dealing with real money.

    It doesn’t make me want to hold stock (or warrants) in a company that issues warrants. What is the management saying about their optimism?

    • says

      Thank you! Warrants do reflect the weak position company is in when they are raising money. Most of the time, they are thrown in as a sweetener to make a deal (private stock offering or a bond issue or just simple loans) go through and are almost always privately negotiated. Regular options are traded on public options exchanges whereas warrants can be very illiquid over the counter and may not be standardized. For example, when Buffett came to the aid of Goldman Sachs a few years ago, warrants were the carrot that made the deal go through.

      Dilution is a valid concern for the stock if there are warrants outstanding. Warrants themselves may actually make sense as an investment depending on the current stock price, business fundamentals and expiration date. Some of these warrants may have been issued so long ago that the business fundamentals may have materially changed by now so do take that into account.

  37. Brent says

    So I was issued x number of warrants of a gold mine as a buy out offer. The current price of the stock is $15 and change, however the warrant is exercise date is May 2017 at $29 and change. I believe the stock will never get to that price level, so basically the company didn’t give me anything as I am sure the warrants will just expire at the due date…. correct ?

    • says

      Brent, the warrants will still have value since the expiry date is in the future and there is some probability (however small) that the stock might get up to $29 and above before the expiry date. The value though will be very little today if the stock price is so much under the exercise price. If the stock price does not reach $29, then the warrants will expire on the due date and if you hold it until then than your value will be zero.

      Depending on what the warrant value is (you can try and find the ticker for the warrant to find out what they are trading at) and how many you have, it may not even be worthwhile to sell them as commissions might eat up a big part of your proceeds. So in that sense, it may be advisable to just hold on on the off chance that the stock might appreciate enough to make this worthwhile. There is still about 4 years left, so why not!

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