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Brent Frackowiak
Brent Frackowiak's picture

Hi guys,

I wanted to ask what are the advantages and disadvantages of buying a Warrant rather than just buying a share?


Jason Pride
Jason Pride's picture

Hi Brent,

The primary difference between a stock warrant and a stock option is that the warrant is for the purchase of newly issues stock directly from the company and the option is for the purchase of existing stock on the secondary market. In both cases there is a strike price and an expiration date.

To the buyer, there is no significant advantage or disadvantage. In both cases they are able to purchase a share at the strike price if that price is favorable to them. To the market and the value of the shares the option is a better choice. When a warrant is executed the company issues new shares. While this generates cash for the firm it also dilutes the share price by increasing the number of shares outstanding.