1. Warrant is a call option issued by a company limited by shares to subscribe for its shares. It gives the holder the right to buy certain shares of the issuing company at a pre-agreed price within a certain period of time. For financing companies, issuing warrants is a special means of financing. The warrant itself contains an option clause, and its holder has neither creditor's rights nor equity rights to the issuing company before subscribing for shares, only the right to subscribe for shares. Nevertheless, the issuing company can raise cash by issuing warrants, and it can also be used as compensation for underwriters when the company is established.
2. Covered warrants are generalized warrants, which also give the holder the right to buy a certain stock at a certain price, but unlike general warrants, covered warrants are issued by a third party other than listed companies. Issuers are usually reputable financial institutions, or hold a large number of shares of the target company for investors to exchange at that time, or have strong financial strength as a guarantee, and can be responsible to investors in accordance with the terms listed in the covered warrants.
1. Similarities between covered warrants and equity warrants:
1. The holder has rights but no obligations, that is, both of them have the characteristics of options. In the case of insufficient funds and uncertain stock market situation, investors can buy warrants and postpone buying stocks to reduce the possible losses caused by decision-making mistakes.
2. Both have leverage effect. The holder can reserve the right to subscribe for shares as long as he pays the price of the warrant. Because the market price of warrants is much lower than the stock price, subscription warrants provide an opportunity to grow from small to large.
3. The fluctuation range of both prices is greater than that of stocks. The price of warrants and covered warrants fluctuates in the same direction as the market price fluctuation of stocks, and its volatility is greater than that of stocks due to leverage effect.
Second, the difference between covered warrants and equity warrants:
1. Release time. Equity warrants are generally issued by listed companies at the same time as issuing corporate bonds, preferred shares or placing new shares. There is no time limit for issuing covered warrants.
2. Subscribe to the target. Holders of equity warrants can only subscribe for shares of listed companies that issue equity warrants, and holders of covered warrants can sometimes subscribe for a group of shares. At the same time, for a company's stock, there will be multiple issuers issuing covered warrants, and their exchange conditions are also different.