Understanding Warrant Coverage: A Guide for Investors

Warrant coverage is an option that allows a shareholder to purchase additional shares of a security for a predetermined amount. Many corporations will offer warrant coverage as an incentive for investors to purchase large shares in the company.

How Warrant Coverage Works

Let's say that you decided to invest $100,000 in a company that had stock selling at $2 per share. This means that you now own 50,000 shares of this particular company. The company currently provides 10 percent warrant coverage. With this, you would be able to purchase another 10 percent's worth of your original investment at the same price that you paid originally. This would mean that if the price of the stock increased to $5 a share, you could still purchase another $10,000 worth of shares at $2 per share.