What happens to warrants as the value of the stock appreciates?

When the value of the stock appreciates, warrants become more valuable because they provide the holder the right to purchase the underlying stock at a predetermined price, known as the exercise or strike price. As the market price of the stock increases above the strike price of the warrant, the potential for profit increases. This incentivizes holders to exercise their warrants before expiration, as they can buy the stock at the lower strike price and potentially sell it at the higher market price.

Warrants are often seen as a leverage mechanism: if the stock price rises significantly, the gains from exercising the warrant can be much larger than the initial investment in the warrant itself. Thus, as the stock's value appreciates, warrants typically gain market value rather than lose it or become worthless, and they remain distinct financial instruments for stock acquisition rather than being convertible into bonds.