Keyword: Warrants

Warrants are derivative securities issued and guaranteed by a company that give the holder the right to purchase other securities (usually stock) from the issuing company at a set price within a specified time period. Warrants are often attached to a new securities issue to sweeten the offer. When a stock, bond, preferred share or some other security is too speculative, too low-yielding, or unattractive for some other reason, a company will often attach a warrant to it. It’s a little something extra to entice you to buy. Warrants are detachable after the initial sale, either immediately or after a stated length of time. Eventually you can trade them separately. Some–but not many–high-quality stocks have warrants. Sometimes that’s because they issued them before they reached their current status. Or, they may have issued warrants as part of a merger or acquisition. The important thing to remember is this: in most cases (though not always), warrants give you the right to buy lower-quality shares.