What is a warrant?

Introduction

Certain corporations in the U.S. issue publicly traded warrants. A warrant gives you the right to buy a company's stock at a specific price during a specific date range referred to as the exercise period. Most warrants give you the right to buy one share of common stock, but that can vary by the warrant. For example, some warrants only give you the right to buy 1/2 of a share of common stock, so obviously you have to buy two warrants to fully exercise the right to buy one common share.

A warrant is very similar to a stock option, but the difference is that warrants are issued directly by the company, whereas stock options are securities that are bought and sold between individual investors. Issuing a stock warrant is one way for a company to raise additional capital. Warrants are also different than stock options in that warrants can have longer time periods than stock options, which often expire in one year or less. Warrants often have a five year exercise period and can have much longer exercise periods, sometimes as long as 15 years.

Our database currently contains 195 warrants that are traded on U.S. stock exchanges, with a total market capitalization of $3,923,011,033. See our list of warrants.

Unfortunately, we don't have very good information on warrants right now. For example, we don't currently have very good information on the number of outstanding warrants and resulting total market capitalization, nor do we have good information on the terms of each warrant (i.e. the exercise price and expiration date). We are working on trying to better information on warrants.

Issuing Entities

Warrants can be issued by various types of entities. Here's a breakout:

Entity Type# of SecuritiesMarket cap%
1$00.0%
ADRs5$468,465,23511.9%
Common stocks189$3,454,545,79888.1%
REITs1$00.0%
Total195$3,923,011,033100%

When the entity type is "Privately held", that means that the security was issued by an entity that does not have common shares that are publicly traded on a stock exchange.

Here's a breakout of the common stock issuers by GICS sector:

GICS Sector# of SecuritiesMarket cap%
Communication Services1$929,5200.0%
Consumer Discretionary9$255,447,9207.4%
Consumer Staples1$49,154,9041.4%
Energy10$704,402,94720.4%
Financials112$1,063,437,04330.8%
Health Care26$1,298,237,11537.6%
Industrials14$29,472,2020.9%
Information Technology10$47,279,4021.4%
Materials1$335,6450.0%
Minerals1$00.0%
Unknown3$00.0%
Utilities1$5,849,1000.2%
Total189$3,454,545,798100%

Most Warrants Are Issued By Small Companies

Warrants are difficult to analyze and risky to invest in, for various reasons, including the fact that most warrants are issued by small companies. Here's a breakout of the common stock issuers based on the size categories of the issuing company:

Size# of SecuritiesMarket cap%
Small cap56$2,122,794,94561.4%
Micro cap124$1,242,654,21936.0%
Large cap3$83,247,5342.4%
Mid cap3$5,849,1000.2%
3$00.0%
Total189$3,454,545,798100%

Warrants Are Often Issued By Shell Companies

Warrants are often issued by shell companies, which are newly formed public companies that are not yet operating as a business. They are formed to enter into a merger or purchase of an operating company. Here's a breakout of the warrants based on whether the issuer is a shell company or not:

Type# of SecuritiesMarket cap%
Operating companies87$3,038,355,20588.0%
Shell companies84$884,655,82825.6%
24$00.0%
Total195$3,454,545,798100%

You Can Lose All Of Your Investment

Similar to certain types of options, you can easily lose all of your investment buying a warrant. If the warrant expires and the warrant is "out of the money" -- i.e. the exercise price is below the value of the stock -- you lose all of your investment. Think about that. There aren't that many investments you can make that can easily result in you losing all of your investment. We probably shouldn't call it an "investment" as buying a warrant is more like gambling.

Warrants are so risky because it is very difficult to time the stock market. Let's look at an example. Let's say you are considering buying a warrant that has two years left on the exercise period. The warrant allows you to buy stock in XYZ company for $10 per share when XYZ's stock is currently trading at $8 per share. Even if you believe that XYZ's stock is currently undervalued, and should "easily" be trading at $12 to $15 per share, it is extremely difficult to predict/know that XYZ's stock will increase in the next two years, before the warrant expires. Anything can happen. If you are correct that the stock is "worth" $12 to $15 per share, you will still lose all of your investment if it doesn't increase to more than $10 per share before the warrant expires. It is a very difficult thing to time.


All data is a live query from our database. The wording was last updated: 05/25/2020.

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