FINANCE

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KembaraXtra – Islamic Derivatives: Warrants vs Call Options (Simplified Explanation)


🔹 What is a Warrant?
 
👉 A warrant is a financial instrument that gives the holder:
  • The right (not obligation)
  • To buy shares directly from a company
  • At a fixed price (exercise price)
  • Within a certain time


🔹 Key Features of Warrants
  • Right to buy company shares
  • Issued by the company itself
  • Has:
    • Exercise price
    • Expiry date
    • Number of shares


🔹 Similarity with Call Option
 
👉 Warrants are similar to call options because:
  • Both give the right to buy shares
  • Both have:
    • Fixed price
    • Expiry date
  • Buyer is not obligated


🔹 Case Example (Warrant)
  • Exercise price = RM5 per share
  • Current price = RM7
 
👉 You exercise warrant:
  • Buy at RM5
  • Market value = RM7
 
👉 Profit = RM2 per share ✅


🔹 Key Difference: Warrant vs Call Option
 
🔸 1. Who Issues It?
  • Warrant → issued by the company
  • Call option → created by investors/traders


🔸 2. Where Shares Come From?
  • Warrant:
    • Shares come from the company
    • New shares are created
  • Call option:
    • Shares come from other investors
    • No new shares created


🔸 3. Effect on Company
  • Warrant:
    • Company receives money
    • Number of shares increases
  • Call option:
    • Company not involved
    • No change in total shares


🔹 Important Insight
 
👉 Warrants affect:
  • Company capital
  • Share ownership
 
👉 Call options affect:
  • Only investor trading


🔹 Simple Summary
  • Warrant = company-issued right to buy new shares
  • Call option = market-traded right to buy existing shares
  • Both give right, not obligation


🔹 Shariah Insight (Brief)
  • Warrants:
    • ⚠️ Still debated
    • Must avoid speculation
  • Call options:
    • ❌ Generally not permissible
 

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