The Difference Between a Stock Option and a Warrant
Stock options and warrants are very similar financial instruments but differ in a few key ways.
The key differences:
- Trading – stock options are financial instruments that transact between two, non-principle parties, where as a warrant is issued (created) by the underlying company itself.
- Existing vs New Shares – when stock options are traded, they are based on existing company shares. However, when a warrant is traded, it is based on new shares created by the company. A warrant is therefore an option and an issuance of a new underlying share.
- Duration – while stock options typically only have 2-3 year maximum durations and most often trade within the range of a few months, warrants can last 10 years or more.
Most people know what stock options are and how they behave. Generally, there are two types of stock options: calls and puts.
Call Option – the right to BUY a stock at a certain price, by a certain time.
Put Option – the right to SELL a stock at a certain price, by a certain time.
A warrant behaves like a call option.
…just thought I’d clear that up.