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Compare between options and warrants
Both options and warrants are derivatives traded in exchange and give investors an option to buy at pre agreed date and price. The main differences between two are warrants are financial instruments whereas options are contracts. Values ascertained from livestock’s, bullion etc.
Options
These are derivative securities in the fundamental category in which one party acquires right buy or sell but not right to obligation buy or sell at strike price at a particular date. Option buyer has the right to buy or sell security whereas option seller is the one who confers.
Option premium is charged by seller to buyer. The underlying asset may be bonds, shares, future contracts etc. the price at which both buyer and seller agreed is called exercise price or strike price.
Maturity date is the date on which the contract expires.
Exercised can be done in two ways as follows −
- Any time before maturity date (generally follows in America).
- On maturity date (generally follows in European).
Options are divided into put and call options. In call option buyer buys asset at pre-agreed date and price, in put option buyer sells asset at pre-agreed date and price.
Warrants
Investors can also get their rights to subscribe their required number of shares at a particular price at a particular date. They have to register separately for warrants.
By acquiring the right, the company issues more shares which results in dilution of their equities. To attract investors companies attach warrants to security premium notes. These can be issued independently also.
Differences
The major differences between options and warrants are as follows −
| Sr.No | Options | Warrants |
|---|---|---|
| 1 | Buyers can buy or sell underlying at predetermined date and price. | Holders will be given the right to get identified shares at a predetermined date and price. |
| 2 | Standardised contract. | Non standardised security |
| 3 | Underlying assets are domestic shares, bonds etc. | Underlying assets are international shares and currencies. |
| 4 | Issuer options exchange. | Specific company issues. |
| 5 | Employees attain ownership. | Investors, companies, partners attain ownership. |
| 6 | Equity exchanges set terms and conditions. | Issuers set terms and conditions. |
| 7 | Equity and index calls/put are types of options. | Various capital guaranteed investments and other high risks or returns trading warrants are types of warrants. |
| 8 | No dilution (not involved in issuance of new stock). | Dilution is there. |
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