SPAC 101 · Question 4 of 6
How do I exercise warrants — and should I?
Compare selling, holding and exercising before you ask your broker to act.
Exercising uses a warrant to acquire shares under its contract. It is not the same as selling the warrant, and being “in the money” does not automatically make exercise the best choice. Start with the issuer’s warrant agreement and any current redemption notice.
Can I exercise it yet?
Many public warrants become exercisable only after the later of two dates: 30 days after the merger and 12 months after the IPO. Terms vary, so confirm the exercise ratio, current strike, expiration and whether the underlying shares are registered or an exemption permits exercise. Corporate actions can adjust the original $11.50 strike.
Would selling the warrant be better?
Compare the economics
Illustration: one warrant buys one share at an $11.50 strike. Ignore fees and assume the share can be bought for $9.
These examples are not live quotes or valuations. Holding preserves your exposure, along with the risk of expiration or an issuer call. Selling depends on finding a buyer. Exercising commits more capital and turns the position into shares. Compare all three choices using prices you could actually trade at.
What does cashless exercise mean?
When the contract allows it, you surrender warrants and receive fewer shares without paying the strike in cash. The agreement may use a formula or a table based on share price and time remaining. Some issuer calls use a capped table. A registration failure can trigger a different formula. Cashless exercise is not always available when you want it.
What do I ask my broker to do?
- Contact the corporate-actions team. Supply the warrant name, ticker or CUSIP, quantity and the issuer’s current notice.
- Ask which exercise methods are available, the fees, required cash, share-delivery timing and the broker’s submission cutoff. Its deadline may be earlier than the issuer’s.
- For cash exercise, arrange enough settled cash for the strike payment and fees. For cashless exercise, confirm the applicable ratio and rounding.
- Submit the broker’s required instruction and obtain confirmation. Then check that the warrants were removed and the correct number of shares arrived.
Can I ignore a warrant redemption notice?
No. Many warrants can be called early if contractual conditions are met. The notice gives the deadline and remaining choices. Unexercised warrants may be redeemed for a nominal amount, such as $0.01, even if they previously had substantial value. A scheduled five-year expiry does not protect you from an earlier call.
Share redemption and warrant redemption mean different things. Share redemption is an eligible cash exit from a SPAC share. Warrant redemption is the issuer calling in warrants. Read the notice and contact your broker promptly.