A warrant’s value consists of:
1
Intrinsic Value
When the exercise price of a call warrant is below the underlying’s current share price, it is said to have ‘intrinsic value’. Have a look at the example below. In this case the exercise price of MYR 3.00 is at a MYR 0.30 “discount” from the current share price, this is its intrinsic value. As such, this warrant will have a minimum price of MYR 0.30 – its intrinsic value. All call warrants with an exercise price lower than the spot price should always be worth at least the intrinsic value.
2
Time value
A warrant will usually be worth more than its intrinsic value. As you can see in this example, the warrant is priced at MYR 0.40, which is MYR 0.10 more than its intrinsic value. This remaining value is called ‘time value’.
