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Bumblemee asked in Business & FinanceInvesting · 10 years ago

Which is better - warrants or exchange trade options?

I understand the differences, ie warrants can't be sold short, have reduced liquidity, etc. But why would one recommend one over the other?

6 Answers

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  • 10 years ago
    Favorite Answer

    There are a lot more options available per stock than warrants which leads to a lot more versatility through the different options strategies that can be performed. So, I would have to go with options.

  • 10 years ago

    Note: the below is from Wikipedia. Also, warrants are similar to CALL options (as opposed to put options). There is a big difference between a call option and a put option.

    Warrants are issued by private parties, typically the corporation on which a warrant is based, rather than a public options exchange.

    Warrants issued by the company itself are dilutive. When the warrant issued by the company is exercised, the company issues new shares of stock, so the number of outstanding shares increases. When a call option is exercised, the owner of the call option receives an existing share from an assigned call writer (except in the case of employee stock options, where new shares are created and issued by the company upon exercise). Unlike common stock shares outstanding, warrants do not have voting rights.

    Warrants are considered over the counter instruments, and thus are usually only traded by financial

    institutions with the capacity to settle and clear these types of transactions.

    A warrant's lifetime is measured in years (as long as 15 years), while options are typically measured in months. Even LEAPS (long-term equity anticipation securities), the longest stock options available, tend to expire in two or three years. Upon expiration, the warrants are worthless unless the price of the common stock is greater than the exercise price.

    Warrants are not standardized like exchange-listed options. While investors can write stock options on the ASX (or CBOE), they are not permitted to do so with ASX-listed warrants, since only companies can issue warrants, and while each option contract is over 1000 underlying ordinary shares (100 on CBOE), the number of warrants that must be exercised by the holder to buy the underlying asset depends on the conversion ratio set out in the offer documentation for the warrant issue.

  • Anonymous
    7 years ago

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  • 5 years ago

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  • Anonymous
    6 years ago

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  • 6 years ago

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