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Sri Lanka Equity Forum » Stock Market Talk » What is called Exercise price?

What is called Exercise price?

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1What is called Exercise price? Empty What is called Exercise price? on Fri Apr 18, 2014 10:11 pm

Jayashantha

Jayashantha
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
What is called exercise price in the case of share warrants? I wonder if one of you'd kindly educate me on it. For example, in the case of a warrant trading at Rs. 1.00 at the moment, if it has an exercise price of Rs.36.00, what is meant by that?

2What is called Exercise price? Empty Re: What is called Exercise price? on Fri Apr 18, 2014 11:24 pm

Jiggysaurus

Jiggysaurus
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@Jayashantha wrote:What is called exercise price in the case of share warrants? I wonder if one of you'd kindly educate me on it. For example, in the case of a warrant trading at Rs. 1.00 at the moment, if it has an exercise price of Rs.36.00, what is meant by that?

Normally Exercise is at the gym

But when you buy warrants one day they stop trading and on that day you have to pay the exercise price to convert the warrant into a share. in your case you pay Rs 1 to buy the warrant but at a future date you have to Rs 36. If the share is trading below 36 the warrant becomes zero.

3What is called Exercise price? Empty Re: What is called Exercise price? on Fri Apr 18, 2014 11:29 pm

SHARK aka TAH

SHARK aka TAH
Expert
Expert
@Jayashantha wrote:What is called exercise price in the case of share warrants? I wonder if one of you'd kindly educate me on it. For example, in the case of a warrant trading at Rs. 1.00 at the moment, if it has an exercise price of Rs.36.00, what is meant by that?
The simple definition would be that you bought warrants @ 1Rs expecting the Share price would appreciate over exercise price of 36Rs during the term period (2 or 3years). Say if it goes over Rs 40 then you will make a profit. But trading warrants would be more riskier

4What is called Exercise price? Empty Re: What is called Exercise price? on Fri Apr 18, 2014 11:51 pm

SHARK aka TAH

SHARK aka TAH
Expert
Expert
Characteristics of Warrants

To better understand what a warrant is, common stock must be understood first. Common stock is actual ownership of a publicly traded company. It is equity. Its value is determined each time it trades in the open (stock) market. The holder of common stock has an actual stake in the profit (or loss) of the company. Warrants simply give the holder a right to purchase the common stock at a later time, but warrants also have a finite lifetime and will expire. They have no equity stake in a company, but they do have value.


Risk Factors of Warrants

Any stock will carry some amount of risk, but the risk factors of warrants differ. Common stock value is directly tied to the profitability of the company. As the worth of a company increases, the value of the equity--and stock--increases. The opposite is also true; if worth declines, the value of the stock declines. Since warrants are not equity, they cannot directly participate in the profitability of the company. However, their value is dependent on the price of the stock and the term remaining until expiration. Warrants are typically used to entice potential financial commitment from investors. They are often initially attached to a company-issued stock or bond offering when a company has an unusual need to raise capital. That unusual need is an additional risk factor.

Example
While this is a simple illustration, it is representative of warrant offerings.

Company ABC needs to raise money and is about to make an initial public offering (IPO). It has filed to offer three million shares of stock at $10. The company is unsure if it can sell all shares, so it attaches one warrant to each share at no additional cost to make the offering more attractive. This warrant will permit the purchaser of this initial offering to buy one additional share at the same initial price within ten years--in this example--of the IPO.


Possible Results
First, the new company may fail, in which case the stock and warrant are worthless.

Second, the new company may succeed, but not as much as anticipated. If the common stock does not appreciate above $10 per share at the expiration of the warrants, the warrants have become worthless, and the stock is worth the current market value.

Third, the company is very successful, and its share price for the common stock rises to $40, for example. Within the first ten years, the investor who purchased the IPO can exercise his warrants and take possession of the additional shares with a gain in value.

Liquidity
Occasionally, warrants have no secondary market in which to make a transaction. However, warrants can also be registered by the issuer and traded on an exchange. In this event, the value of the warrant can be tracked through quote sources online or in print, or through a broker. The security usually has the symbol of the underlying stock with an additional "w." or "wt." attached to it.

Warrants are similar to options with respect to rights of ownership or transfer of risk. They can be a useful tool, but it is important to realize that they have no inherent value unless converted to common stock.

5What is called Exercise price? Empty Re: What is called Exercise price? on Fri Apr 18, 2014 11:52 pm

SHARK aka TAH

SHARK aka TAH
Expert
Expert
The link given below for further reading and understanding...

www.ehow.com/facts_6955461_share-warrant_.html

6What is called Exercise price? Empty Re: What is called Exercise price? on Sat Apr 19, 2014 8:19 pm

stevenapple


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Thanks SHARK..

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