warrant leverage ratio

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Warrant Leverage Ratio

A measure of the sensitivity of the price of a warrant to a change in the price of the underlying security. A high warrant leverage ratio indicates that the price changes significantly when the price of the underlying security changes. Therefore, investing in the warrant carries high risk and the possibility of a high return.
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warrant leverage ratio

An indication of the degree of change in a warrant price for a given change in the price of the underlying stock. If a warrant doubles for a 50% increase in the stock that the warrant can be used to purchase, the warrant leverage ratio is 100%/50%, or 2. A warrant with a high leverage ratio offers large potential profits at the expense of relatively large potential losses, because the leverage operates in both directions.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.