What is Warrants

Warrants are often issued alongside a loan stock to provide the right to buy ordinary shares, normally over a specified period at a predetermined price, known as the ‘exercise’ or ‘strike’ price.

They are also issued by some investment trusts. Since the paper therefore has some easily definable value, warrants are traded on the stock market, with the price related to the underlying shares:the value is the market price of the share minus the strike price.They can gear up an investment.

For instance, if the share stands at 100 rupees and the cost of converting the warrants into ordinary shares has been set at 80rupees, the sensible price for the warrant would be 20rupees. If the share price now rises to 200rupees, the right price

for the warrant would be 120rupees (deducting the cost of 80p for converting to shares). As a result, when the share price doubled the warrant price jumped six-fold.