Stock rights provide current shareholders with the opportunity to purchase shares of a company’s stock to preserve the shareholder’s ownership interest in the company for a specified period of time. Rights offerings are the sale of new shares of common stock to rights holders.
Typically, a certain number of rights may be used to buy a share of common stock at a specified price that is often lower than the current market price.
Stock warrants provide the opportunity to purchase common stock for a specified period, usually one to five years. Rights typically have a shorter expiration than warrants. Stock warrants are similar to stock rights, but warrants typically have an exercise price above the current market price.
Stock rights and warrants protect current shareholders from dilution of ownership when the company issues new shares of stock.
Stock rights and warrants are offered directly from the company, so it is difficult to find offerings and pricing for the instruments. Various third parties offer lists of warrants and rights, but these sources can be inaccurate. The most reliable method is to call the company's investor relations department.
Rights and warrants are similar in many ways to call options, but rights and warrants are usually only issued to current shareholders. Call options give the buyer the right, but not the obligation, to buy an underlying asset at a specific price on or before a specific date.
When an option is exercised, the option seller must deliver shares to the call option buyer. When a stock right or warrant is exercised, the company directly issues the shares of stock to the right or warrant holder. In this way, rights and warrants are a source of capital for corporations.
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