Hello YouTube, Todd Ault here, and Welcome to Wall Street Words! Today's Wall Street term is "Warrant"

Now, when you're buying a stock at a private company or doing a private placement, generally you can get warrants depending on the transaction. What does the warrant allow you to do? Let's get a simple definition here so that everyone can understand. So, let's say you're going to invest in company "Y" and you're going to buy their stock at $2.00 a share. They may issue a warrant to buy another share at $4.00 and they may give you the right to buy it for up to 5 years. That's called a "Call Warrant," future value. And now you have the right to buy it, but not the obligation for 4 years or 5 years, however long the warrant is good for. This is considered an "equity sweetener." Now, if you have a Warrant at $4.00 and the stock goes to $10.00 and you can sell it, you may want to buy it at $4.00 and sell it at $10.00 and make the profit. Now, generally, the company gets the $4.00 a share, you sell it for the $10.00 and the $6.00 profit is yours. Warrants are a very important part of financial structure. I bought warrants myself, privately. I participated in transactions where I got warrants in deals, and they could be a big sweetener in making money. Really for the shareholders, for the company, it's a great way of raising extra capital and allows the investor to have upside for the risk they take. Today's word is Warrant.

Definition - A derivative that gives the right, but not the obligation, to buy or sell a security, most commonly an equity, at a certain price before expiration. The price at which the underlying security can be bought or sold is referred to as the exercise price or strike price. An American warrant can be exercised at any time on or before the expiration date. Warrants that give the right to buy a security are known as call warrants; those that give the right to sell a security are known as put warrants. Warrants are inducements to motivate the recipient to do something.

Warrants are in many ways similar to options, but a few key differences distinguish them. Warrants are generally issued by the company itself, not a third party, and they are traded over-the-counter more often than on an exchange. Investors cannot write warrants like they can options. Naked warrants are issued on their own, without accompanying bonds or preferred stock. There are a variety of warrants such as traditional, naked, wedded, and covered. Investors may find trading warrants to be a complex endeavor. Unlike options, warrants are dilutive. When an investor exercises their warrant, they receive newly issued stock, rather than already-outstanding stock. Warrants tend to have much longer periods between issue and expiration than options, of years rather than months.

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