Warrants
A warrant gives the right, but not the obligation, to buy (call warrant) or sell (put warrant) a share at a fixed price, the strike, by a certain date.
Companies often give warrants to their shareholders for free or attach them to new shares during a capital increase: if the stock later rises above the strike, holders can buy shares at a discount. SPACs use them a lot too, which is why many US warrants have the stock's ticker followed by a W. A warrant is listed and traded on the exchange as a security in its own right, costs much less than the share and moves much more (leverage effect). At expiry, if the share is below the strike, a call warrant is worth nothing: you can lose everything you paid.
How it's calculated
Intrinsic value of a call warrant = (share price − strike) × conversion ratio, if positive; otherwise zero. The market price is usually higher than the intrinsic value: the difference (time value) pays for the chance that the share rises further before expiry, and it shrinks as expiry approaches. The conversion ratio tells you how many shares one warrant lets you buy (for example 0.5 = two warrants per share).
Worked example
A call warrant on a share worth €10 has a strike of €8, a 1:1 ratio and expires in one year: the intrinsic value is 10 − 8 = €2 and it trades at €2.50 (€0.50 of time value). If the share rises to €12 (+20%), the warrant is worth at least €4: +60%. If at expiry the share is at €7.50, below the strike, the warrant is worth nothing and you lose 100%. A put warrant with an €8 strike works the other way round: it gains if the share falls below €8.
How to read it
The closer the share price is to the strike and the further away expiry is, the more the time value weighs on the price. The leverage is calculated as (share price ÷ warrant price) × ratio: in the example 10 ÷ 2.50 = 4. It is an indicative figure: in practice the warrant usually moves a little less (in the example +60% against +20%, three times as much), and it works both up and down.
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