Warrants and Exotic Options

Warrants are financial instruments granting the holder the right to purchase a company's stock at a specific price before a certain date.

• Purpose: Raise capital and make securities offerings more attractive to investors.
• Characteristics:
  • Leverage: Gain exposure to stock price movements with a smaller initial investment.
  • Expiration: Longer expiration periods compared to options.
  • Dilution: Exercise of warrants can lead to shareholder dilution.

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Exotic Options

Exotic options are non-standard options with complex features tailored to specific needs.

• Examples:
  • Barrier Options: Activated or deactivated when the underlying asset's price reaches a certain level.
  • Asian Options: Payoff depends on the average price of the underlying asset over a set period.
  • Lookback Options: Allow the holder to "look back" over time to determine the optimal exercise price.
• Purpose: Customized risk management or speculative strategies in niche markets.