how a warrant works
warrants are in many ways similar to options but a few key differences distinguish them warrants are generally issued by the company itself not a third party and they are traded over the counter more often than on an exchange investors cannot write warrants like they can options unlike options warrants are dilutive when an investor exercises their warrant they receive newly issued stock rather than already outstanding stock warrants tend to have much longer periods between issue and expiration than options of years rather than months warrants do not pay dividends or come with voting rights investors are attracted to warrants as a means of leveraging their positions in a security hedging against downside risk for example by combining a put warrant with a long position in the underlying stock or exploiting arbitrage opportunities warrants are no longer common in the united states but are heavily traded in hong kong germany and other countries types of warrantstraditional warrants are issued in conjunction with bonds which in turn are called warrant linked bonds as a sweetener that allows the issuer to offer a lower coupon rate these warrants are often detachable meaning that they can be separated from the bond and sold on the secondary markets before expiration a detachable warrant can also be issued in conjunction with preferred stock wedded or wedding warrants are not detachable and the investor must surrender the bond or preferred stock the warrant is wedded to in order to exercise it covered warrants are issued by financial institutions rather than companies so no new stock is issued when covered warrants are exercised rather the warrants are covered in that the issuing institution already owns the underlying shares or can somehow acquire them the underlying securities are not limited to equity as with other types of warrants but may be currencies commodities or any number of other financial instruments 