Like stock options, rights and warrants give common shareholders the right to buy more shares at a certain price by a certain date:
- Rights – are issued to get investors to buy more of a company’s stock by a certain date. The company usually offers them at a price lower than the market price. Rights tend to expire after a few weeks.
- Warrants – are mostly offered to attract investors when a company issues new stock. They tend to have a longer period before they expire, usually a year or 2.
Rights and warrants typically trade on an exchange. They can produce large gains if the stock price goes up by even a small amount. But they can also be risky because they are a type of leverage.