Definition of piggyback transport orders

What are piggyback orders?

Piggyback warrants are typically acquired after the exercise of other warrants. Piggyback warrants are a type of sweetener that is used to attract investors to invest in the company that provides the primary warrant and piggyback warrant.

Piggyback warrants also provide future capital potential to the issuing company if exercised.

Key takeaways

  • Piggyback warrants are stock warrants that are activated after the exercise of existing warrants.
  • They are used to attract investment and generate potential cash for the company if its share price increases.
  • Piggyback warrants come with a higher strike price than the primary warrant and can have the same or later expiration date.

Understanding Piggyback Warranties

Piggyback orders go into effect when another court order is exercised. This acts as a sweetener for an investor because, once they exercise the original order, the supplemental guarantees give them the opportunity to acquire even more shares at a fixed price if the company continues to perform well and the share price rises.

The original or primary guarantee is what an investor buys or receives from the issuing company. The piggyback order is attached to the primary order. It comes into play if the primary order is exercised. The piggyback warrant will typically have a different (and generally higher) strike price than the primary warrant. Therefore, the piggyback warrant may become profitable if the price of the underlying stock continues to rise after the exercise of the primary warrant. The piggyback order can have a later expiration date than the primary order, or it can be the same.

Order basics

A warrant is a type of guarantee issued by a company that gives the holder the right, but not the obligation, to buy shares in the company at a specific price within a specific period of time.

Warrants can be bought or sold, with their value fluctuating as the price of the underlying share fluctuates. Once the underlying share price moves above the warrant’s strike price, holders may be tempted to exercise the warrant and buy the shares at the strike price. For example, if a company issues warrants of $ 9 and a year later its shares are trading at $ 10, investors can exercise the warrant to buy shares at $ 9 even though the stock is currently trading at $ 10.

This is possible because the company issues new shares when a guarantee is exercised. Therefore, warrants are dilutive in nature, increasing the number of shares outstanding. The company uses the funds it receives from the people who exercise the warrants to finance its business.

A piggyback order works the same way. However, this type of court order is attached to a primary court order and will take effect after the primary court order is exercised.

Example of a piggyback order

Suppose a company has attached a supplemental order to a primary order of $ 9. The piggyback order generally has a higher strike price than the original order, so suppose that the piggyback guarantee can be exercised at $ 12. The original guarantee and the supplementary guarantees may have the same expiration date, or the supplementary guarantees may expire at a later date.

If the holder exercises his warrant at $ 9, because the price of the underlying shares is above $ 9, then the piggyback warrants of $ 12 become effective. The holder now has the option to sell those warrants to another investor, or can hold them and wait for the share price to exceed $ 12. If the share price moves above $ 12, it is worth exercising the order. buy and buy the shares at $ 12.

If the original warranty is not exercised before it expires, then there is no supplemental warranty. If the price of the underlying shares does not reach $ 12 before the transport order expires, then the order loses value and ceases to exist. Before they expire or are exercised, warrants can be bought or sold, similar to an option contract.

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Mark Holland

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