Stock Warrants: What They Are and How They Work

By Kristi Waterworth – Updated Apr 17, 2025 at 12:36 AM

Key Points

Stock warrants provide a right to buy a stock at a set price, similar to options but are company-issued.
Warrants can offer high profits if the stock price rises, though they also carry a risk of dropping to $0.
Unlike options, warrants can have up to 15 years' term, giving more time for the stock to surpass strike price.

Stock warrants are an alien concept to many investors, but for seasoned investors, they can be one of the most lucrative ways to invest in a stock. Like options, they offer leverage on a stock's price. However, unlike options, they are directly issued by the underlying business.

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Warrants can work for some investors

Stock warrants aren't as popular in the U.S. as they once were. Stock options are popular enough that the market for warrants isn't robust, and companies are able to raise capital without the added costs of warrants. That isn't a bad thing for seasoned investors. The less volume and interest in arcane financial instruments, the better because it's more likely that you can find good values. Warrants can be a great investment as long as you pay attention to position sizes and keep in mind how the leverage inherent in the warrant can make it go to zero in a flash.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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Bank of America is an advertising partner of Motley Fool Money. Kristi Waterworth has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.

Types of stock warrants

There are different types of warrants that have subtle tweaks from the type discussed above. Let's go over the different types.

Traditional: Traditional warrants are calls that give investors the right (but not the obligation) to buy the underlying stock from the company at a set strike price before the expiration date.

Put warrants: Put warrants operate like traditional warrants but give investors the right to sell their stock back to the company at a strike price. This type of instrument allows investors to hedge their stock position. If the stock price falls below the strike price, they can still sell at the strike price.

Wedded warrants: Wedded warrants are attached to another security, usually bonds or preferred stock issued by the subject company. If the investor chooses to exercise the warrant, they must also relinquish the bond or preferred stock to the company.

Covered warrants: Also known as naked warrants, these aren't issued by the underlying company. Instead, they are issued by a financial institution that holds stock of the underlying company on its balance sheet. Covered warrants effectively act like stock options where the counterparty is a major financial institution.

Stock Warrants: What They Are and How They Work

Key Points

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