Written by:
Image
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades.

Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

View all posts
Updated August 12, 2020

What is a Detachable Warrant?

A detachable warrant is a warrant that can be sold separately from the security to which it was originally attached.

How Does a Detachable Warrant Work?

Warrants are securities that give the holder the right, but not the obligation, to buy a certain number of securities (usually the issuer's common stock) at a certain price before a certain time.

Occasionally, companies offer warrants for direct sale or give them to employees as incentive, but the vast majority of warrants are "attached" to newly issued bonds or preferred stock.

For example, if Company XYZ issued $100 million of bonds with warrants attached, each bondholder might get a $1,000 face-value bond and the right to purchase 100 shares of Company XYZ stock at $20 per share over the next five years. Warrants usually permit the holder to purchase common stock of the issuer, but sometimes they allow the purchaser to buy the stock or bonds of another entity (such as a subsidiary or even a third party).

Warrants are often detachable. That is, if an investor holds a bond with attached warrants, he or she can sell the warrants and keep the bond.

Warrants are not the same as call options. Call options are not detachable and they often expire far before warrants do (usually less than a year, versus five or more for warrants). Warrants are also not the same as stock purchase rights. The exercise price of a stock purchase right is usually below the underlying security's market price at the time of issuance, whereas warrant exercise prices are typically 15% above market price at the time of issuance. Also, companies often issue stock purchase rights only to existing shareholders and they also have very short lives -- generally two to four weeks.

Why Does a Detachable Warrant Matter?

Warrants trade on the major exchanges. In some cases where warrants have been issued with preferred stock, stockholders may not receive a dividend as long as they hold the warrant. Thus it is sometimes advantageous to detach and sell a warrant as soon as possible if the investor expects to earn more from dividends.

Ask an Expert about Detachable Warrant
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Detachable Warrant.
Be the first to ask a question

If you have a question about Detachable Warrant, then please ask Paul.

Ask a question

Read this next

Don't Know a Financial Term?
Search our library of 4,000+ terms
 - profile
Ask an Expert about Detachable Warrant

By submitting this form you agree with our Privacy Policy

Share
close