Warrants

Warrants are another form of alternative investments. A warrant is a security that entitles the holder to buy stock of the company that issued it at a specified price, which is much higher than the stock price at time of issuance, for a period of years or to perpetuity. You might ask, why would you want the right to buy more stock at a higher price? Well, warrants are usually a throw in to sweeten a deal. They are essentially given away at the time of a transaction, with the possible expectation that the stock is worth substantially more in the future. With a warrant, the investor can redeem that warrant and buy additional stock for a lower amount.

For example, as part of a pre-ipo stock purchase of XYZ stock at $0.20 per share, the company offers 2 warrants for every share purchased at $0.50 per share good for 10 years. In 2007, the company goes public and the share start going up and reach $4.50 per share. With the warrant, the shareholder can now redeem the warrant at $0.50 per share, even though the market price is $4.50, a 900% gain. The shareholder can now hold or sell the share when he wants. Warrants, like stock options, can also be traded as an investment because they are transferable.

A journey of a thousand miles begins with one step. Always continue to add to your knowledge.

Information is not knowledge without action.
Knowledge creates choices.
Choices allow us to change our lives.

How long will you simple ones love your simple ways? How long will mockers delight in mockery and fools hate knowledge? Proverbs 1:22

More on alternative investments tomorrow. Stay tuned ...