What is Warrant Coverage?

Warrant coverage is a tool that is often utilized whenever purchasing securities. Here are the basics of warrant coverage and how it works.

Warrant Coverage

Warrant coverage is basically like an option in that it allows you to purchase a certain amount of shares of a security at a particular price. Many corporations will offer warrant coverage as an incentive for investors to purchase large amounts of shares in the company. This can be a very enticing incentive whenever you are a prospective investor of a company that is going public.

How They Work

Let's say that you decided to invest $100,000 in a company that has stock selling at $2 per share. This means that you now own 50,000 shares of this particular company. The company that you are investing currently provides 10 percent warrant coverage. This means that you would be able to purchase another 10% of your original investment at the same price that you paid the first time.

This means that if the price of the stock goes up significantly whenever it is originally offered, you can still purchase another $10,000 worth of shares at $2 per share even if the price is trading for $5 per share in the market.