A right issue means giving fresh new shares to the existing share holders at a discounted price.Now the share price automatically gets reduced in the ratio of allotting right shares after the Ex-date.In this circumstance investors may ask for a Future sell to make a profit from the position if that particular share has derivatives contract in market.but i afraid that is not a proper strategy to make profit because it may end in a loss.
Let me give an example: Say, On 16th February share of xyz ltd is trading on 170.It has decided to give right share at a price of 103.The record date has been fixed on 18th Feb.hence the ex-date will be 16th of February.
On 16th Feb, Future of XYZ is trading at 174.One may thought that it is obvious that after Ex-date,the price will come down,and he can go for a future short on 16th February.On 17th February the price will actually come down to 150 level.Hence the future will also come down to 155 level.If investor wants to book his profit by squaring off his short position,his profit may go for a toss because of the fact that from 17th February(Day after the Ex-Date) the lot size of the particular future contract will increase.
hence if he short the future @174 (Lot size-1000) on 16th Feb,then total sell value= 174*1000= 174000
& if he squares it off @ 155(Lot size-1180) on 17th Feb, then total buy value= 155*1180= 182900
Now we know that Net Profit = Sell Value- Buy Value
= 174000-182900
= (-)8900
Hence ultimately that investor will loss 8900 in this particular transaction.
INFERENCE: Corporate action never gives instant profit.
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