Warrant

A warrant is an option related to a security that is officially traded on a securities exchange (such as stocks). It grants its holder the right, but not the obligation, to buy (a call warrant) or sell (a put warrant) an amount (ratio) of an asset (e.g., shares) at a pre-established price (known as the strike), on a predefined date or range of dates, in exchange for paying a premium. The warrant's value (premium) fluctuates as the variables that affect its composition change: the quote for the underlying asset, implied volatility, time remaining until maturity, etc.

Types of warrants:

  • American warrant: a warrant that can be exercised at the discretion of its owner, at any time from its acquisition until its maturity date.
  • European warrant: a warrant that can be exercised by its owner only on its maturity date.

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