How to profit from stock rights?

October 2, 2013 at 3:23 pm 1 comment

Philex mining will have a 1:2 stock rights @ 5.60 come ex-date Oct 11.

to be cont.

and now we continue from yesterday’s pabitin (as i was swamped with work)

PX closed yesterday at 8/share. Rights is peg at 5.60 a piece with a ratio of 1 rights per 2 PX shares.
Fast forward, now is the exdate. PX’s adjusted price will be (8+8+5.60)/3 = 7.20

So how do we profit from it? This type of idea is not about PX, nor how bright its prospects will be. This is just pure arbitrage play using the flucts on your advantage.

To know more about arbitrage plays recently and the not so long ago, here’s 2 articles to get you started
https://spyfrat.wordpress.com/2012/01/04/dgtl-tel-tandem-the-arbi-play/

https://spyfrat.wordpress.com/2013/06/26/the-smdc-smph-arbi-play-part-1/

Now back to PX.

Say i bought 20k of PX at 8, thats 160,000 worth (wala muna added expenses para madali sa math).
Come the exdate which is today (example lang, sa Oct 11 pa ang exdate), I am now entitled to avail the rights at 5.60, all 10k shares of them (ok hope this is clear, 1 get 10k rights coz i have 20k px shares).

that’s an additional 56,000 from my pocket “IF” I pay it using added fund making may PX shares a total of 30,000 shares (10k rights + 20k original).

As i said before, this is fast forward, now is the exdate. PX will likely trade to the adjusted price which is 7.20 or so (look above for computation).

Here’s the nice thing.

I got 20k px shares. I will sell right away my 10k shares at the market, say at 7.20a. selling 10k shares will yield me 72,000 bucks. Crazy right? Talo na ako agad, binili ko sa otso, benta sa 7.20

But the trick is, you will use that 72,000 proceeds of your selling to buy 56,000 worth of px rights (which by the way is 10,000 shares rin). In that process you will gain 16,000 right away.

Wait, you only now have 10,000 shares BUT your also own px rights of 10,000 shares to be given to you come payable date (no date yet). In all parang babalik lang yung benenta mo na 10,000 shares, right? Ok lets move forward then.

Your total capital was 160,000 pesos (20k at 8). You sold 72,000 pesos but paid 56,000 leaving you 16,000 of say, a gain? Not yet. Here’s the tricky part.

We deduct the 16,000 out of your capital 160,000, leaving you 164,000 in cost (for 20k of px shares).

164,000 / 20k is 8.20 which is your breakeven price. So where’s the profit?

yan ang pabitin ulit dahil mag start na ang trading. *ngisi*

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Entry filed under: Phisix's Closet (PSEi).

Reference Chart – CPG Star Wars invade the PSE

1 Comment Add your own

  • 1. boypalengkero  |  October 3, 2013 at 10:58 am

    pwede! mejo tricky nga! maaral nga yan para dagdag kaalaman. 🙂

    Reply

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