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Warrents explained - these are similar to long-term call options

By Jakob Jelling
Cashbazar.com

Warrents are similar to call options, although there are a few key differences. However, the most important thing to keep in mind is how much they are similar to call options. Just like buying a call option, when you buy a warrant, you are buying the right to purchase a particular security (stock, bond, or otherwise) at a particular price and during a certain time frame. Even if the stock is worth more at the end of the timeframe, you are still able to buy it at the lower price – which means that there is a chance for profit if the stock rises above the warrant price.

However, one major difference between warrents and call options is that warrents are not just issued on the stock exchange. These agreements are actually sold by the company itself. This means that the warrents are guaranteed by the company itself. This means that the warrant is generally a bit safer than call options for the buyer. This does not mean that you are guaranteed to save money, but if the stock you are planning on buying does go over the price you agree to, you will definitely be able to buy that stock at the end of the timeframe.

Another thing that you should keep in mind is that warrents do not have the same type of timeframe as a call option. Basically, there is a good chance that you’ll have to wait for a year or two before you can exercise the warrant. However, these warrents are less risky than call options, and there is more time for the stock to rise above the price that was agreed to.

Warrents are not always sold on their own. In a lot of cases, companies will sell the warrents with other securities. This is done so that the securities that they’re trying to sell are more likely to go than they would be otherwise.

One thing that you should keep in mind about both warrents and call options is that neither one of these will give you any dividends. Basically, the warrents and call options will remain completely worthless until the stock rises above a particular point. However, when the call options do rise above that point, they are worth as much money as you stand to gain from the stock.

About the author
Jakob Jelling is the founder of http://www.cashbazar.com. Visit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.

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