While I was reading an article “demystifying options part 7” by a fellow trader (Wayne) whom I’d followed and learnt, it sets me thinking does LEAPS resemble warrants? You can find the link to his article all the way at the bottom. So options and LEAPS, rights and warrants, do they look uncannily similar at a glance, or are they not?

My brief understandings as follow,

Options:

An option is a contract that grants investors the right, but not the obligation to buy or sell specified amount of shares over a scheduled period of time, which has a tenure usually from weeks to months. Simply for a shorter term.

LEAPS:

An abbreviation for Long-term Equity Anticipation Securities, is a derivative of options, which has a tenure usually in a year or 2. Simply means longer term options.

Rights:

A right also gives holders the right, but not the obligation to buy or sell specified amount of shares over a scheduled period of time, which has a tenure usually from weeks to months, similarly to an option.

Warrants:

Akin to options and LEAPS, warrants are similar to rights just with a longer tenure, usually in a year or 2 and sometime up to 5 years or even more.

So what’s the differences? Here’s my brief understanding again. Rights and warrants are bespoke instruments mostly traded between underlying company and shareholders, so its more like a B2C/C2B whereby options and LEAPS are publicly traded between investors, more of a P2P. Also, rights and warrants dilute the price of the shares as new shares are being churned out upon exercise whereas options and LEAPS don’t, as it exchanges on existing shares on the market. While options/LEAPS price is mostly influenced by Time/IV/Share price, more factors such as Gearing/Entitlement ratio will further amplifies the influence on rights/warrants price.

By and large, these are just my interpretations, so what’s your take or what had I missed? Kindly comment below to help with my learning journey. Peace

(PS oh oh encourage to follow Wayneqq for more tips on options[Grin] )