2.1.5 LEAPS and warrants

For the holders, long-term equity anticipation securities (LEAPS) and warrants have a strong similarity with European call options, with the slight difference that they have usually a much longer time to expiry of up to 10 years and can sometimes be exercised intermittently on several occasions before they expire.

Rather than referring to an underlying that already exists, companies can however issue a new share each time a warrant is exercised, leading to a dilution of the underlying asset value on exercise. Warrants are a convenient way for companies to raise new capital and are sometimes distributed as an incentive for company executives to link their benefit with the appreciation of the share value sought by the shareholders.