ABSTRACT
Warrants are long-term options. They may have expiry dates that lie as much as five years or more in the future (in contrast to stock options which often have a maximum life of nine months). Most warrants are issued by the company upon whose shares they are based. If they are exercised, the company will issue new shares. So, unlike options, warrants are usually used as a means of raising corporate finance. The issuing company receives the money from the sale of the warrants and subsequently receives the money paid upon exercise. In contrast to options, warrants entail the expansion of the number of shares in issue. This can be to the disadvantage of existing shareholders in that future profits are divided among a larger number of shares (this is known as dilution); in consequence dividends per share may be reduced.
