The basic concept of warrants is to give investors the right to buy or sell the underlying at the pre-determined strike price on the pre-determined date.
Company Warrants are issued by companies to raise funds or to reward employees or shareholders.
Upon maturity of a Company Warrant, provided that the stock price is higher than the strike price at the time, the holder is entitled to buy a certain number of shares of the company at the strike price.
When the holder does exercise the warrant, the company must issue new shares to meet the promise.
So, when Company Warrants are exercised, the shareholding of the company will be diluted.
Company Warrants normally have lower liquidity, and there is no way to compare their prices.
This is because the price of a Company Warrant is mainly determined by the board of directors.
Therefore, the warrant price is very likely to deviate from the underlying price.
Put another way, Company Warrants are less transparent and, sometimes, more speculative.
Investors should study the relveant information carefully and bear in mind their own risk tolerance in making the decision whether to invest in Company Warrants.
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