A warrant gives its holder the right to buy a security at a set price for a specified time.
Warrants are frequently given as a “sweetener” along with new stock issues to persuade investors to buy them.
Stock warrants are very similar to stock options but they differ in a couple of ways. Stock warrants are issued by the company whose stock the warrant is exercisable into. In contrast, an exchange-traded stock option is trade between two investors and has no connection with the underlying company. Warrant issues are granted from the company itself. The longest term for an option is typically 2 to 3 years, while warrants can have an expiration of up to 15 years.
Warrants are also traded on stock exchanges such as the Toronto Stock Exchange or the New York Stock Exchange.
Unlike common shares, warrants have built-in drawbacks that add considerable risk. These include:
No ownership rights. While stock ownership provides the holder with a share of the company, voting rights and rights to dividends (if any), warrant owners participate only in the potential benefit of the stock’s price movement.
Risk of total loss. Stocks can, and do, become worthless. But a warrant holder runs a much greater risk of losing the entire amount paid for the option in a relatively short period. This risk reflects the nature of an option as a wasting asset which becomes worthless if it expires without being exercised.
Limited room for error. Because a warrant has a fixed life, it loses some of that time value every day (that’s why it is considered a "wasting asset.").
We think you should invest directly in stocks by following TSI Network and using our three-part Successful Investor strategy:
Our new report, 10 Stocks to Buy and Hold Forever, identifies 10 stocks you can hold for the long term and shows you exactly how to profit from a portfolio that’s built to last. And it’s yours FREE!
AeroMechanical Services Ltd., $0.56, symbol AMA on Toronto (Shares outstanding: 87.0 million; Market cap: $48.7 million), supplies a number of products and services to the aviation industry. These include a data-collection device that records flight information as it happens. It then relays the information to… Read More
GABRIEL RESOURCES, $3.35, symbol GBU on Toronto, shot up over 30% this week after it added a new investor with experience in permitting and building large industrial projects in Romania. That’s where Gabriel’s 80.23%-owned Rosia Montana project is located.
Rosia Montana contains an estimated 10… Read More
COMPTON PETROLEUM $1.24 (Toronto symbol CMT; SI Rating: Speculative) (403-237-9400; www.comptonpetroleum.com; Shares outstanding: 263.6 million; Market cap: $326.8 million) explores for oil and natural gas in western Canada. About 83% of its production is natural gas.
In the three months ended June 30, 2009, Compton’s cash… Read More
Focusing on natural gas production is riskier than diversifying between gas and oil, because gas can stay depressed for much longer. However, gas has begun rising lately. If that trend continues, it could pay off hugely for gas-focused stocks like these two.
DELPHI ENERGY $1.68 (Toronto… Read More
ATLANTIC TELE-NETWORK, $50.19, symbol ATNI on Nasdaq, has raised its quarterly dividend by 11.1%, to $0.20 a share from $0.18. The shares now yield 1.6%. This was the company’s eleventh consecutive annual dividend increase.
In June, Atlantic agreed to buy more than 800,000 wireless accounts from… Read More
Acadian Mining, $0.07, symbol ADA on Toronto (Shares outstanding: 325.0 million; Market cap: $22.7 million), holds 100% of ScoZinc Limited, which owns the Scotia zinc/lead mine, located at Gays River, Nova Scotia.
Acadian mined ore at Scotia by open pit, and processed it in a mill… Read More
INTUITIVE SURGICAL, $222.53, symbol ISRG on Nasdaq, jumped almost 31% this week after it reported improved results in the latest quarter.
Intuitive makes the “da Vinci,” a computerized surgical system. Guided by a miniature camera connected to a 3-D monitor, surgeons use the da Vinci to… Read More
BREAKWATER RESOURCES, $0.26, symbol BWR on Toronto, reports that it lost $0.01 a share in the three months ended March 31, 2009, compared to a gain of $0.02 a share a year earlier. Cash flow per share was slightly positive, at $0.001 a share, compared… Read More
TAHERA DIAMOND CORP. $0.88 (Toronto symbol TAH; SI Rating: Speculative) (1-877- 777-2004; www.tahera.com; Shares outstanding: 209.8 million; Market cap: $184.6 million) has sold 22.5 million units at $1.00 per unit to raise $22.5 million. Each unit is made up of one Tahera share, and one-half… Read More
Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' FREE Special Report from The Successful Investor.
How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.
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