Is a warrant with the same strike price and maturity as the corresponding call option priced in the same way as the call option? Suppose I find a strike X warrant with T years to expiry and a call option on the same stock with the same strike X and T years to expiry. If they both entitle me to buy 1 share will they be priced in the same way? What contract specifications and complications regarding the warrant could cause the prices to deviate?
$\begingroup$
$\endgroup$
-
1$\begingroup$ The slight complication is that if the warrant will be exercised, new shares will be issued by the company, if a call is exercised you just get existing shares that someone already has (or buys in the marketplace) and delivers to you. $\endgroup$ – noob2 Feb 20 '20 at 16:58
-
$\begingroup$ So when warrants are exercised there is dilution to the current shareholders? $\endgroup$ – roz Feb 20 '20 at 17:18
-
1$\begingroup$ So would it make sense to divide the BS call price by 1+the ratio of warrants to stock to obtain the BS warrant price? $\endgroup$ – roz Feb 20 '20 at 17:20
-
2$\begingroup$ Only before the warrant is issued. After it has been issued it is accounted as a liability so there is no stock price dilution on the exercise date, and the warrant and the call should be priced the same way. $\endgroup$ – Antoine Conze Feb 20 '20 at 17:34
-
$\begingroup$ I see. Wouldn't the time of exercise of the warrants play a part though? Suppose they were all exercised simultaneously vs slowly over a 5 year period. $\endgroup$ – roz Feb 20 '20 at 17:39
