Call warrants

From Financial Literacy Wiki

Call Warrants give the holder the right, but not obligated, to buy a certain underlying security for an agreed upon price (known as the Exercise Price or Strike Price) not later than (American style) or at a future date (European style).

Call warrants can be bought if an investor is optimistic on the outlook for the underlying stock. When the underlying stock price does go up above the strike price, in theory, the investor can exercise his warrants to purchase the underlying asset at the strike price and sell it in the market to earn the difference. But in practice, warrants are traded on cash settlement basis and investors will be paid the difference directly. In the event that the underlying price goes below the strike price or the investors does not exercise his warrants, the warrants will expire worthless and investor will lose the money he paid for the warrant.