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Author: NODWfool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2201  
Subject: Re: warrants vs. stocks - questions - Date: 3/6/2000 12:05 AM
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Hi all - I have a lot of questions regarding warrants

A warrant is the right to buy a stock at a specified price (up until the warrant expires).

Let's say Stock A was selling for $50, and you had a warrant that lets you buy the stock at $45/share... The warrant will perhaps sell for around $5.

You don't buy the warrant with the goal of trading it in for the "real" stock. What you are hoping is that the price of the common stock rises to $55 per share, and then the warrant is worth $10 per share. Had you purchased the stock, you return would have been 10% - with the warrant, your return is 100%.

Just remember that leverage works both ways - if the stock went down to $45, the warrant will lose most (but not all) of its value.

A warrant has some similarities to a "Call Option", except that it is issued by the company itself, and generally has a much longer life.
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