Do Warrants Cause Dilution?

Dilution: Warrants cause dilution because a company is obligated to issue new stock when a warrant is exercised. Exercising a call option does not involve issuing new stock since a call option is a derivative instrument on an existing common share of the company.

Do warrants dilute existing shareholders?

Warrants are securities that have payoffs similar to plain vanilla traded call options, but a dilution impact when exercised, similar to employee stock options. ... As the strike price is less than the market price of the stock, this dilutes the interest of the existing shareholders.

Are warrants bad for stock?

If the share price falls, you don't have to buy the shares. However, your warrants will expire and they'll be worthless. Keep in mind that the warrant price will differ from the common stock price (it's usually cheaper). And you'll need to exercise the warrant before it expires if you want to lock in a profit.