Warrant
A company-issued derivative giving the holder the right to buy shares at a fixed price before a set expiration date.
What is Warrant?
A warrant is a derivative security issued directly by a company that gives the holder the right, but not the obligation, to purchase the company's stock at a predetermined exercise price before a specified expiration date. Unlike stock options, which are created by exchanges, warrants are issued by the company itself and typically have longer maturities of one to several years. Warrants are commonly attached to bonds or preferred stock as sweeteners to attract investors.
Example
A startup issues $5 million in convertible notes and attaches warrants allowing lenders to purchase up to 500,000 shares at $5.00 each. When the company later IPOs at $18/share, warrant holders exercise, buying shares at $5 — a $13 per share gain versus the market price.
Source: SEC — Warrants and Rights