Warrants vs Options

Warrants and options are similar in that they are both derived from shares, bonds, indices or other investment products. Like warrants, options also have a lifetime, an expiration date and an exercise price, and their prices depend on the same factors and develop in the same way as warrant prices.

There are, however, some key differences between warrants and options:

  • Options are contracts, warrants are financial products. Options are contracts created and traded on the options market. When you buy an option, you are buying a contract that entitles you to buy the underlying asset at a specified value. If you want to trade in options, you must conclude a special agreement with your stockbroker. Warrants are traded on the stock market, and you do not have to conclude an agreement to trade them. They are not created by the exchange like options, but by banks aiming to meet the demands of the market.
  • Standardized and non-standardized contracts. Option contracts are standardized, which means that nearly all options that are issued have to comply with specific rules regarding their lifetime, contract size, exercise price and trading unit.
  • Warrants are more flexible. they do not have to comply with any standards for their maturity, strike price or parity. Banks can issue warrants with any specifications they like when there is sufficient demand. This means there are many different types of warrants in circulation, with a wide variety of times to maturity, exercise prices, contract sizes and parities.
  • Underlying values. Warrants are issued on many different types of securities (such as currencies, international shares, etc.) whereas the options market focuses on domestic shares, indices and bonds.
  • Options are always available. An unlimited number of contracts can be created in every option series, and the number of options in circulation does not affect the price. The number of warrants issued per series, however, is limited, and this can affect the warrant price.