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After I posted answers to “What are warrants”, someone asked about the differences between warrants and options. To fully answer this question, it needs a fairly large amount of words. In the future I may talk about options separately. Here, I’m just listing some essential differences between warrants and options:
1) Warrants are in fact a form of debt. Companies issue warrants in exchange for $ or asset (acquisition). Once the warrants are exercised into stocks, there will be a dilution. Options are trade contracts. Options may also dilute shares when the options are issued by the companies as a kind of benefits (e.g. employee option plan, … from their treasury). However, most of time, options are written by investors or MMs (market makers) only for trading purpose. In this case, the issuer (writer) of the options is responsible to provide sufficient amount of stocks (either shorts or longs) if someone want to exercise the options (puts or calls). In this scenario, no dilution to the company shares is realized.
2) Warrants are one time issue, while options are periodic. Take IBM as example, options are traded everyday and year around (plenty of supply). However, you can’t buy warrants only when IBM issues them (to raise $ or takeover other companies). Some companies never issue warrants.
3) Warrants are traded in unit (like stocks). One unit can be converted into either equal to, less than or more than 1 share of stock. Options are traded in contracts with one contract (usually) entitling to 100 shares.
4) Warrants can be issued against either common or preferred shares. Options are often written against commons. However, options theoretically can be issued against any forms of securities, stocks, indices, …
5) The exercise price of warrants can be any amount as defined in the issuance agreement. Option exercise/strike prices usually are rounded numbers, like $5, $7.5, $10, $12.5, …
6) Warrants can be converted (exercised) into stocks any time during the allowable exercising period. American style options also can be exercised any time during the option life. However, European style options can only be exercised on the expiration day.
7) Warrants expiration can be any date as defined in the issuance agreement. Publically traded options expire on the 3rd Friday of the expiration month.
8) You, as an ordinary investor and retail trader, you can issue (write) options (either calls and puts) of any optionable companies; but you can’t trade warrants only when the warrants are already issued and traded on the market.
….. (a dozen more)
1) Warrants are in fact a form of debt. Companies issue warrants in exchange for $ or asset (acquisition). Once the warrants are exercised into stocks, there will be a dilution. Options are trade contracts. Options may also dilute shares when the options are issued by the companies as a kind of benefits (e.g. employee option plan, … from their treasury). However, most of time, options are written by investors or MMs (market makers) only for trading purpose. In this case, the issuer (writer) of the options is responsible to provide sufficient amount of stocks (either shorts or longs) if someone want to exercise the options (puts or calls). In this scenario, no dilution to the company shares is realized.
2) Warrants are one time issue, while options are periodic. Take IBM as example, options are traded everyday and year around (plenty of supply). However, you can’t buy warrants only when IBM issues them (to raise $ or takeover other companies). Some companies never issue warrants.
3) Warrants are traded in unit (like stocks). One unit can be converted into either equal to, less than or more than 1 share of stock. Options are traded in contracts with one contract (usually) entitling to 100 shares.
4) Warrants can be issued against either common or preferred shares. Options are often written against commons. However, options theoretically can be issued against any forms of securities, stocks, indices, …
5) The exercise price of warrants can be any amount as defined in the issuance agreement. Option exercise/strike prices usually are rounded numbers, like $5, $7.5, $10, $12.5, …
6) Warrants can be converted (exercised) into stocks any time during the allowable exercising period. American style options also can be exercised any time during the option life. However, European style options can only be exercised on the expiration day.
7) Warrants expiration can be any date as defined in the issuance agreement. Publically traded options expire on the 3rd Friday of the expiration month.
8) You, as an ordinary investor and retail trader, you can issue (write) options (either calls and puts) of any optionable companies; but you can’t trade warrants only when the warrants are already issued and traded on the market.
….. (a dozen more)
