This makes them much like an option, giving the holder of the warrant the right, but not the obligation, to buy or sell shares in the company. Warrants can be attached to a stock, bond, or other security. Here’s an example. Let’s say Jane owns a bond issued by XYZ company. The bond comes with a warrant giving her the right to buy a share of XYZ at $50. She may choose to use that warrant to take that action, leaving her with both the bond and one share of XYZ purchased for $50. When Jane later decides to sell the bond, she has to indicate that it is XW, or being sold without the warrant, because she already exercised it.
How Does XW Work?
Companies often sell warrants as a way to raise additional capital. For example, a company with a stock price of $10 might sell warrants for 50 cents each that allow the holder to buy a proportionate amount of shares for $15 each at a set date in the future. Investors who believe that the stock will rise in price will buy these warrants to try to profit from future price increases in the stock.One strategy that companies use is to bundle warrants with other securities they sell, such as stocks or bonds. This can make those securities more appealing to investors, which helps the business raise additional capital. If a warrant is bundled with a security, investors need a way to understand whether the warrant is included with a security they buy on the secondary market. Adding XW to the ticker of securities being sold without the warrant adds clarity for investors.
Warrant vs. Option
Warrants and options function quite similarly, but it’s important to understand the differences. Buying a stock ex-warrant may be a benefit, depending on how you value the related warrant. The use of XW to indicate ex-warrant securities makes it easier for you, as an investor, to fully understand what’s included in the security you’re intending to buy. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
