• Skip to primary navigation
  • Skip to content
  • Skip to primary sidebar
  • Skip to footer
EDUCBA

EDUCBA

MENUMENU
  • Resources
        • Investment Banking

          • Investment Banking Jobs Offer
          • Current Ratio
          • Discounted Cash Flows
        • Investment Banking
        • Finance Formula

          • CFA vs FRM
          • Net Working Capital Formula
          • Free Cash Flow to Firm
        • Finance Formula
        • Valuation

          • Equity Research Career
          • Return on Equity
          • Methods to calculate WACC
        • Finance Valuation
        • Others

          • Resources (A to Z)
          • Accounting Fundamentals
          • Corporate Finance Basics
          • Financial Modeling in excel
          • Credit Research Fundamentals
          • Asset Management Tutorial
          • Trading for dummies
          • View All
  • Free Courses
  • All Courses
        • Certification Courses

          Financial Analyst Course
        • All in One Bundle

          Financial-Analyst-Bundle
        • Investment Banking Training

          Investment-Banking-Training
        • Others

          • Financial Modeling Course
          • Equity Research Course
          • Private Equity Training Course
          • Business Valuation Course
          • Mergers and Acquisitions Course
          • View All
  • 250+ Courses All in One Bundle
  • Login

Option vs Warrant

Home » Finance » Blog » Trading for dummies » Option vs Warrant

Option vs Warrant

Difference Between Option vs Warrant

“Options” are derivative products which allow the buyer a right to exercise an action (of buying or selling) for the underlying asset on or before a specified date at a specified price (also called as the strike price), and an obligation to the seller to fulfil the transaction once the buyer exercises its right. “Warrants” are derivative products as well, which allow the buyer to buy or sell stocks of the company issuing warrants, at a specified price on a later date prior to the expiration of such a warrant. They are very similar to Options, with the 2 basic types being “Callable” and “Puttable” warrants.

Head To Head Comparison Between  Option vs Warrant Infographics

Below is the top 8 difference between Option vs WarrantOption vs Warrant Infographics

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

Key Differences between Option vs Warrant

Both Option vs Warrant are popular choices in the market; let us discuss some of the major Difference Between Option vs Warrant:

  • There are 2 basic types of options – Call and Put. A “Call” option gives the buyer a right (and not the obligation) to buy the underlying asset at a particular strike on a particular date. A “Put” option gives the buyer a right (and not the obligation) to sell the underlying asset at a particular strike on a particular date.
  • Depending upon the then-current spot price of the asset at maturity of the option, the buyer can make a decision whether to exercise the option or not in order to make profits (or limit the loss).
  • Both Option vs Warrant products gives the buyer a right to exercise the required action (of buying or selling the underlying) on a future date at a specified price, however before the maturity date of the respective product.
  • Option vs Warrant, as both provide special rights to buyers, they are sold with a premium charged to the buyer. The premium is determined based on the time value and intrinsic value of the underlying in the market in both cases.
  • Both Options vs Warrant products have a respectively fixed expiration date, a fixed strike price for the underlying, and are traded with similar procedures if the buyer wishes to exercise its right.
  • The price of the warrant, as similar to the price of an option increases with the time to maturity and goes on decreasing as the maturity nears. Moreover, if these products are not exercised by the maturity date, they expire leaving the buyer with a loss equal to the premium it paid to buy the respective product.
  • Both Options vs Warrant products intend to minimize the risk of losses to the buyer, limited only to the premium paid by them, and if a market is favorable and the buyer exercises its rights they can make unlimited profits.
  • Option vs Warrant, both come with time to exercise features; and thus being either American style or European style. With an American style the buyer can exercise its right at any time before maturity, while with a European style, he can exercise its right only at the maturity of such a product.
  • Both Options vs Warrant products are derivatives with a particular underlying, and are priced based on the price of their underlying asset; both of these are created for the benefit of selling the underlying asset.
  • Both give the buyer liberty to only purchase the derivative (option or warrant), without necessarily having to buy the underlying. The buyer may or may not buy the underlying asset and be able to hedge the risk with buying a suitable option or a warrant.

Option vs Warrant Comparison Table

Below is the topmost comparison between Option vs Warrant

Options Warrants
Options are exchange-traded products. They are regulated by the exchange, and features of the different options are also fixed by the exchange. Warrants are generally over-the-counter (OTC) products. A few companies may list them on an exchange as well though in order to publicize the underlying stock for marketing purposes, mostly they are traded by broking firms.
Options have a variety of underlying products like, bonds, equities, interest rates, currency or even commodity, and sometimes secondary derivatives having swaps as underlying (in which case they are called swaptions). Warrants generally have to underlie as stocks of the company which issues warrants.
The seller of an option can be any party trading on the market, need not necessarily be the issuer of the underlying security. In case of warrants, the seller is the company itself which issues the underlying stocks that buyer can buy on a future date.
As the product is exchange-traded, the price of the option can be discovered and tracked. Price of the warrant is difficult to be discovered as it is an OTC product, and may be based on the discretion of the seller.
Options may be traded for a shorter period of time, as they are very volatile products. Warrants are generally traded for long periods (in years).
Options are standardized products since they are exchange-traded, and the features are set by the exchange. Warrants are not standardized – features depend upon the issuer or the seller, and accordingly profits to be made are determined by the buyer.
There is no intention by the seller to market the underlying by selling the option. It may just be for the purpose of hedging their risk, or speculation or even arbitrage. Upon selling a warrant, the issuing company may link it to their bonds issued or to publicize selling of the underlying share which is to be introduced into markets in future.
Options can be easily traded by approaching the exchange or hiring a broker/intermediary party. They can be traded in volumes with a purpose of hedging risk/speculation/arbitration, and which may also lead to a bubble in an economy. Issuance of warrants is very much controlled by the issuing entity and does not lead to uncontrollable trading.

Option vs Warrant – Final Thoughts

Trading into options or warrants must be done with proper and in-depth analysis by investors. Such products move with market sentiments and hence need to be regularly tracked. As each product has its own merits and demerits, they need to be carefully studied and then invested in.

Recommended Article

This has a been a guide to the top difference between Option vs Warrant. Here we also discuss the Option vs Warrant key differences with infographics, and comparison table. You may also have a look at the following articles –

  1. Future vs Option
  2. Accounting vs Bookkeeping
  3. EBIT vs EBITDA
  4. Hedge Fund vs Mutual Fund

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

250+ Online Courses

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

3 Shares
Share
Tweet
Share
Reader Interactions
Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar
Finance Blog Tutorials
  • Trading for dummies
    • Floating Stock
    • Option Adjusted Spread
    • Penny Stocks
    • Contango vs Backwardation
    • Investing vs Trading
    • Features Of Convertible Bonds
    • Confirmation Bias Example
    • Currency Trading
    • Indian Stock Market
    • Invest in Fundamentals
    • Futures Trading
    • Options Trading Strategies
    • Technical Analysis Indicator
    • Forex Trading
    • Commodity Trading
    • Forex Trading Strategies
    • Futures Fundamentals
    • Play the Stock Market Game
    • Binary Options Trading
    • Commodities Stock Market
    • Trading Tools
    • Mistakes to Avoid While Day Trading
    • Bitcoin vs Ethereum
    • Contango and Backwardation
    • Future vs Option
    • Option vs Warrant
    • Stock Market Trading
    • Proprietary Trading
    • Employee Stock Options
    • Litecoin vs Ethereum
    • Forex Trading For Beginners
    • Variance vs Covariance
    • Trading Securities
    • Stock Futures Trading
    • Above the Line vs Below the Line
    • Stock Market Chart Patterns
    • Swing Trading Strategies
    • Currency Exchange Market
    • Forex Brokers
  • Accounting fundamentals (288+)
  • Asset Management Tutorial (36+)
  • Banking (34+)
  • Corporate Finance Basics (24+)
  • Credit Research Fundamentals (6+)
  • Economics (36+)
  • Finance Formula (307+)
  • Financial Modeling in Excel (10+)
  • Investment Banking Basics (30+)
  • Investment Banking Careers (30+)
  • valuation basics (23+)
Finance Blog Courses
  • Online Cryptocurrency Certification
  • Online CFA Level 1 Training
  • Equity Research Training
Footer
About Us
  • Who is EDUCBA?
  • Sign Up
  •  
Free Courses
  • Free Finance Course Online
  • Free Online Course Accounting
  • Free Tutorials on QuickBooks
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course
  • Venture Capital Course
  • CFA Level 1 Course
  • CFA Level 2 Course
  • IFRS Course Training
  • Project Finance Course
  • Hedge Funds Course
Resources
  • Resources (A To Z)
  • Investment Banking Jobs Offer
  • Finance Formula
  • Valuation
  • Accounting Fundamentals
  • Corporate Finance Basics
  • Financial Modeling in excel
  • Credit Research Fundamentals
  • Asset Management Tutorial
  • Trading for dummies
Apps
  • iPhone & iPad
  • Android
Support
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions

© 2019 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

By continuing above step, you agree to our Terms of Use and Privacy Policy.
*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

By continuing above step, you agree to our Terms of Use and Privacy Policy.
*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

By continuing above step, you agree to our Terms of Use and Privacy Policy.
*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

By continuing above step, you agree to our Terms of Use and Privacy Policy.
*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA

By continuing above step, you agree to our Terms of Use and Privacy Policy.
*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA Login

Forgot Password?

Let’s Get Started
Please provide your Email ID
Email ID is incorrect

Cyber Week Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More

Cyber Week Offer - Cyber Week Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More