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Naked Warrant

What is 'Naked Warrant'

A warrant that is issued without a host bond. A naked warrant allows the holder to buy or sell a particular financial instrument, such as a bond or shares, but unlike a normal warrant, it is not sold with an accompanying bond. Naked warrants are typically issued by banks or other financial institutions that are not also issuing a bond, and can be traded in the stock market.

Explaining 'Naked Warrant'

Normal warrants are issued with an accompanying bond (a warrant-linked bond), giving the investor holding the warrant the right to exercise it and acquire shares of the company that issued the underlying bond. The company writing the bond is typically the same company issuing the underlying bond. Naked warrants, on the other hand, can be backed by a variety of underlying investments, including stocks, and are considered more flexible.


Further Reading


Aa adequate" financial architecture'for new economy firms
www.inderscienceonline.com [PDF]
… the use of bond-plus-equity warrants (Bagella & Becchetti, 1998, without referring to option terminology), or by using naked warrants … Take the financing strategy of bonds-plus-equity warrants, as represented in panel 2 of figure 3. The maturity date of the warrant will be …

Warrant economics, call-put policy options and the fallacies of economic theoryWarrant economics, call-put policy options and the fallacies of economic theory
papers.ssrn.com [PDF]
… the use of bond-plus-equity warrants (Bagella & Becchetti, 1998, without referring to option terminology), or by using naked warrants … Take the financing strategy of bonds-plus-equity warrants, as represented in panel 2 of figure 3. The maturity date of the warrant will be …

Issuers' credit risk and pricing of warrants in the recent financial crisisIssuers' credit risk and pricing of warrants in the recent financial crisis
www.emerald.com [PDF]
… the use of bond-plus-equity warrants (Bagella & Becchetti, 1998, without referring to option terminology), or by using naked warrants … Take the financing strategy of bonds-plus-equity warrants, as represented in panel 2 of figure 3. The maturity date of the warrant will be …

Warrant pricing: a review of empirical researchWarrant pricing: a review of empirical research
www.tandfonline.com [PDF]
… the use of bond-plus-equity warrants (Bagella & Becchetti, 1998, without referring to option terminology), or by using naked warrants … Take the financing strategy of bonds-plus-equity warrants, as represented in panel 2 of figure 3. The maturity date of the warrant will be …

Warrant price responses to credit spread changes: Fact or fiction?Warrant price responses to credit spread changes: Fact or fiction?
www.sciencedirect.com [PDF]
… the use of bond-plus-equity warrants (Bagella & Becchetti, 1998, without referring to option terminology), or by using naked warrants … Take the financing strategy of bonds-plus-equity warrants, as represented in panel 2 of figure 3. The maturity date of the warrant will be …



Q&A About Naked Warrant


What is a covered warrant?

A covered warrant is a type of warrant that has been issued without an accompanying bond or stock.

What makes them attractive to speculators?

They can be used as speculative tools because they have lower capital requirements than other types of financial instruments.

Why would someone buy a covered warrant instead of buying stock or bond directly?

Warrants can offer more flexibility than buying shares directly, as they allow investors to speculate on price movements in the underlying asset without having to pay for all of it up front.

What is a naked warrant?

A naked warrant is a type of financial instrument that allows the holder to buy or sell a particular financial instrument, such as a bond or shares.

What does it mean to be "covered"?

The term "covered" means that the issuer of the security has already purchased the underlying asset.

How are normal warrants different from naked warrants?

Normal warrants are issued with an accompanying bond (a warrant-linked bond), giving the investor holding the warrant the right to exercise it and acquire shares of the company that issued the underlying bond. The company writing the bond is typically the same company issuing the underlying bond. Naked warrants, on the other hand, can be backed by a variety of underlying investments, including stocks, and are considered more flexible.

Are there any advantages to using naked warrants over normal ones?

Yes, there are several advantages to using them over normal ones.

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