Börsenlexikon: Warrant

Warrant is the English term for warrant. A warrant gives the holder the right to buy (call warrant) or sell (put warrant) the underlying asset specified in the warrant within a certain time frame at predefined conditions. However, the holder is not obliged to exercise his right. He can allow it to lapse if he deems it expedient to do so. The buyer pays a premium (fee) for the warrant, which is called a "premium". Example: An investor buys a warrant that gives him the right to buy a certain amount of shares in public company XY at a fixed price within the next few months. If the price of the shares rises on the stock exchange, the investor will exercise his right to demand delivery of the shares from the warrant seller. He only has to pay the warrant seller, for example, CHF 100,000 for the shares whose market price is, for example, CHF 130,000. His profit is the difference in value minus the premium he had to pay to the warrant seller for the warrant transaction. If, however, contrary to expectations, the price of the shares falls, the investor will forfeit his right to buy the shares. He would have to pay a higher price to the warrant seller than on the stock exchange. His loss corresponds to what he had paid as a premium at the time of purchase. Warrants are often derived from warrant bonds. They are attached to these interest-bearing securities as an incentive to buy, since the interest on the warrant bond is lower than the capital market interest rate for simple bonds. Warrants can be sold by the investor separately from the warrant bond. This means that the investor can keep the warrant bond itself and sell the warrants. However, warrants are also traded separately from warrant bonds. Warrants offer the chance to make a much higher profit than by buying the asset outright. This is offset by the risk of losing all the money invested (to buy the warrants) in one fell swoop.