Glossary - Warrant

A warrant is a derivative that confers the right, but not the obligation, to buy or sell a security, most commonly equity, at a certain price before expiration. The price at which the underlying security can be bought or sold is called the strike price or exercise price. Warrants are often issued by companies in conjunction with a bond or a preferred stock issue as a sweetener to make the issue more attractive to investors. They can add considerable value to investors by giving them the right to purchase shares at a predetermined price, which could be lower than the market price at the time of exercise.