Question Details

	Username: Fluffy Rating: Asked to: Dara Madee Date Created: 09 Sep 2015
Category	46
Tag	Forex
Question	How are stock warrants different from stock options?

Advice from Guru

Hello Fluffy,

A stock option is a contract between two people that gives the holder the right, but not the obligation, to buy or sell outstanding stocks at a specific price and at a specific date. Options are purchased when it is believed that the price of a stock will go up or down (depending on the option type). For example, if a stock currently trades at $40 and you believe the price will rise to $50 next month, you would buy a call option today so that next month you can buy the stock for $40, sell it for $50, and make a profit of $10. Stock options trade on a securities exchange, just like stocks.

A stock warrant is just like a stock option because it gives you the right to purchase a company's stock at a specific price and at a specific date. However, a stock warrant differs from an option in two key ways:

1. A stock warrant is issued by the company itself.
2. New shares are issued by the company for the transaction. Unlike a stock option, a stock warrant is issued directly by the company. When a stock option is exercised, the shares usually are received or given by one investor to another; when a stock warrant is exercised, the shares that fulfill the obligation are not received from another investor, but directly from the company.

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