Stock warrants give options to holders to purchase shares of a company at a set price prior to an expiration date. If, by then, a stock price is higher than warrants’ exercise price, then warrants are likely to be exercised or sold to other investors. (Warrants also trade on the market.) On the other hand, if warrants’ price is higher than stock’s market price, then warrants expire worthless. Stock warrants are an additional way to raise money by companies as those who acquire them need to pay for these exercise rights.
Stock options are typically issued to employees of a company. They also have a set price and an expiration date. Stock options are awarded as an extra compensation and a way to motivate employees. Stock option awards are generally free, but employees need to pay an exercise price once they decide to buy stocks of a company. Employee stock options should not be confused with option contracts on stocks such as calls and puts.
Stock rights are given to existing shareholders so they can preserve their fractions of ownership. Often this happens when a company issues additional shares through a secondary offering. Stock rights give an option to shareholders to buy shares directly from a company, usually at a lower price. Stock rights also trade separately and can be sold in the market prior to their expiration. These rights typically have shorter lifespans than stock warrants and employee stock options.
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Warrants, options, and rights benefit from rising stock prices
On this page, you'll find out what are stock warrants, employee stock options, and stock rights. There are some similarities and differences among them.