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What are SPAC warrants?




March 15, 2022

Jump to heading What are warrants?

A warrant is similar to an option, except it is traded on the stock exchange. Warrants provide the holder the right (but not the responsibility) to buy one share of the underlying corporation at a set price per warrant, which is usually $11.50.

After a merger is completed, almost all SPAC warrants have a five-year duration, but they are a binary wager on a five-year warrant on a hypothetical future firm that expires and becomes worthless in the case that the SPAC wasn't able to complete a merger.

Only if the SPAC completes a business combination deal before the designated date do warrants become exercisable. Warrants can only be exercised one year after the SPAC's IPO or 30 days following the merger, according to several SPACs.

Many SPACs additionally stipulate that the corporation can redeem the shares if the price of the underlying common share trades over a specified threshold, generally $18, for 20 out of 30 trading days. This can be done with cash (the $11.50) or without cash. You would just trade your warrant for a fraction of a share if you were working on a cashless basis.

To learn more about SPACs, check out our other articles.

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