There are many meanings to the word warrant.
The marshal can show up on your doorstep with a warrant for your arrest.
Many army helicopter pilots are warrant officers, who have received a warrant from the president of the US to serve in the Army of the United States.
The State of California ran out of money earlier this year [1992] and issued things that looked a lot like checks, but had no promise to pay behind them. If I did that I could be arrested for writing a bad check. When the State of California did it, they called these thingies “warrants” and got away with it.
And a warrant is also a financial instrument which was issued with certain conditions. The issuer of that warrant sets those conditions. Sometimes the warrant and common or preferred convertible stock are issued by a startup company bundled together as “units” and at some later date the units will split into warrants and stock. This is a common financing method for some startup companies. This is the “warrant” most readers of the misc.invest newsgroup ask about.
As an example of a “condition,” there may be an exchange privilege which lets you exchange 1 warrant plus $25 in cash (or even no cash at all) for 100 shares of common stock in the corporation, any time after some fixed date and before some other designated date. (And often the issuer can extend the “expiration date.”)
So there are some similarities between warrants and call options for common stock.
Both allow holders to exercise the warrant/option before an expiration date, for a certain number of shares. But the option is issued by independent parties, such as a member of the Chicago Board Options Exchange, while the warrant is issued and guaranteed by the corporate issuer itself. The lifetime of a warrant is often measured in years, while the lifetime of a call option is months.
Sometimes the issuer will try to establish a market for the warrant, and even try to register it with a listed exchange. The price can then be obtained from any broker. Other times the warrant will be privately held, or not registered with an exchange, and the price is less obvious, as is true with non-listed stocks.
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Contributed-By: Art Kamlet