What is a Call Warrant?

A call warrant is a type of warrant that is somewhat like an option. An investor who is holding the warrant is granted the right to purchase underlying shares for a specified price. The purchase can take place at any point between the date of issue and the final date noted in the text of the agreement.

In most situations, a call warrant is made available by a company that is attempting to raise some type of capital. The investment carries many of the same characteristics as any investment option, in that there is a chance for the investor to secure the warrant and eventually earn some type of return above and beyond the initial investment. In this scenario, the goal is to time the purchase of the underlying stock so that the price that is guaranteed in the warrant allows the investor to secure the shares just before they are anticipated to begin increasing in value.

The structure of a call warrant is different from that of a put warrant. With this type of warrant, the holder has the ability to sell the underlying shares associated with the transaction. While the call warrant allows the holder to exercise the right to buy at a stated price, a put warrant makes it possible to sell those shares at a set price that is agreed upon at the time the warrant is established. Like the call warrant, it is possible for the holder to exercise the put warrant at any time from the point of issue until the final date identified in the terms associated with the warrant.

A call warrant is also limited in scope when compared to a covered warrant. Covered warrants grant wider powers for the holder to buy or sell specific investments. Like a call warrant, a covered warrant does identify a specific price for the transaction, and also requires that the transaction be executed within a specific time frame. The greater versatility of the covered type of warrant is often attractive to investors, although both the put and call warrants are also extremely effective in certain situations.

Potential investors should note that a call warrant or any other type of warrant is a guarantee of earning a return from the transaction. As with any investment activity, the movement of the marketplace will have an impact on the value of the underlying shares. In some instances, this is a positive event that does in fact lead to earning a return. At other times, the market value of the shares may fall below the price named in the warrant. Should that market price remain at a lower level that the specified warrant price until the warrant expires, the investor will not realize a return.