Difference Between Options and Warrants

Although we could classify warrants as a type of financial option, they have certain characteristics that differentiate them. It is very important to know the differences between the two. To do this, we are going to see the similarities and differences between warrants and options.

Both options and warrants are financial derivatives . The two financial derivatives grant the right to buy (Call) or sell (Put) an underlying asset and both are leveraged products. See leverage in derivatives

The main difference between options and warrants is that while options are freely bought and sold on the market, warrants are issued by a warrant-issuing company and are OTC (over the counter) options. This means that they are not negotiated with a chamber in between, but that the negotiation is bilateral. For this reason, while with options we can freely sell calls and puts in the market without having previously acquired them, with warrants we can only sell a call or a put if we have previously bought it from the issuer.

Investment possibilities in options and warrants

The result is that with the financial options, we have 4 investment possibilities:

  1. Buy calls.
  2. Sell ​​calls.
  3. Buy puts.
  4. Sell ​​puts.

With warrants we can only:

  1. Buy calls.
  2. Buy puts.

The expiration date of options is usually a few months, while warrants can have an expiration date of several years, which can be very useful to reduce investment risk and make more varied investments.