Warrant

A warrant is a financial instrument that gives the holder the right, but not the obligation, to buy shares of a company at a specified price before a certain expiry date. Unlike options, warrants are typically issued directly by the company and result in new shares being created when exercised. They are often attached to bonds or preferred stock as an incentive for investors.

A company raising capital might issue bonds with attached warrants, giving bondholders the option to purchase shares at a fixed price over the next five years. If the company's stock price rises above the warrant's exercise price, the warrant becomes valuable and can be exercised for a profit. Traders who track warrant activity in a company's capital structure can gain insights into institutional sentiment, as large-scale warrant exercises may increase the share count and dilute existing shareholders, potentially pressuring the stock price.