Spread betting and rights issues

[khris50]

Hi,

I'm trying to make sense of a recent Cineworld rights issue in regard to a long position I took with IG Index in August 2013 at the 400p level.

The right issue went ex-date in 31/01/2014 and immediately the price dropped to 363p from 400p which is where I went long back in Aug 2013. According to IG index I was down -37 points as a loss. At the same time IG opened up another position from 230p which was the new rights issue subscription price, they also sent me an email offering me take up the new shares or decline them.

Details of the rights issue is were:

Ratio of 8 shares for every 25 owned
Subscriptio price of 230p

As the share price was tanking yesterday I closed my original Aug2013 Long position for a loss of -55 points as this was a my risk % allocation when I took out the trade in the 1st place. The 2nd rights issue is still active and I haven't told IG index whether I want to keep the rights issue or not, the deadline isn't for a while yet.

Was I correct in closing my original long position and is it normal for SB companies to put you at a loss during a rights issue when the price drops sharply?

Is it best to take up the rights issue at the 230p subscription price which is shown at + 110 points as we speak.

I'm a bit confused by the whole rights issue thing, as you can probably tell

Any assistance by those who have spreadbetted through a rights issue before would be welcome.

Kind Regards

Chris

 

[malaguti]

Was I correct in closing my original long position and is it normal for SB companies to put you at a loss during a rights issue when the price drops sharply?

Is it best to take up the rights issue at the 230p subscription price which is shown at + 110 points as we speak.

Hi Chris, this is quite normal. The rights issue is effectively pumping more shares into the market, therefore devaluing your current position. The offset of this devaluation (loss to you) is the increase of shares at a lower price and hence why they have opended another position. Apologies if this is confusing
Basically, the price drop was not from normal trading and therefore on the one hand you have a loss, and on the other a profit (from the new added shares pumped into the market). Nett, you should have been zero (notwithstanding any price behaviour)
BUT, now you have just closed your original long and if the price is tanking you can be damn sure your new shares will also tank. What you probably should have done is closed both at the same time, as you will now suffer a greater loss than you might have, unless the price starts to fortuitously recover.
I would take up the rights and close it also, unless you feel support will come in somewhere, but thats your call

Similarly this will happen if you think of shorting a rights issue, even though the price will drop, you have all these new shares on a long and are always nett zero

In your case, you're not nett zero anymore as you sold only one part of your holding.
whats the symbol and I'll see if I can see anything, but im sure your analysis already covers this

 

[khris50]

Thanks for the reply Malaguti,

Your right I should have sold everything at the same time. I've never spread betted through a rights issue before so was trying to read up about it to see if there were any benefits in keeping the rights issue.

The share symbol is CINE (Cineworld cinemas), they recently acquired cinema city international which is a large european cinema chain. It's going to cost them a lot of money hence the rights issue of 47m of new shares at 230p.

The news of the rights issue came out on the 10/01/14 which I missed at the time, probably because the article headline said 'acquisition' and not 'rights issue', so by not paying attention I missed what the smart money was doing and that was to sell.

If you look at the chart for CINE of the 10/01/14 you can see that the 'acquistion' news drove the price up to 440p resulting (hindsight) in a large double top.

As far as support goes, there is a little around the 332p area but I dont think it will be enough to halt the slide in share price, especially as the market is a bit jittery at the moment. I think at best I could get back up to 360p (neckline of double top) before the price stalls again. It could take a long time to get past the 440p level.

I'll definately try and pay attention next time to the news coming out and look for rights issues as they appear.

Regards

Chris

 

[malaguti]

Thanks for the reply Malaguti,

Your right I should have sold everything at the same time. I've never spread betted through a rights issue before so was trying to read up about it to see if there were any benefits in keeping the rights issue.

The share symbol is CINE (Cineworld cinemas), they recently acquired cinema city international which is a large european cinema chain. It's going to cost them a lot of money hence the rights issue of 47m of new shares at 230p.

The news of the rights issue came out on the 10/01/14 which I missed at the time, probably because the article headline said 'acquisition' and not 'rights issue', so by not paying attention I missed what the smart money was doing and that was to sell.

If you look at the chart for CINE of the 10/01/14 you can see that the 'acquistion' news drove the price up to 440p resulting (hindsight) in a large double top.

As far as support goes, there is a little around the 332p area but I dont think it will be enough to halt the slide in share price, especially as the market is a bit jittery at the moment. I think at best I could get back up to 360p (neckline of double top) before the price stalls again. It could take a long time to get past the 440p level.

I'll definately try and pay attention next time to the news coming out and look for rights issues as they appear.

Regards

Chris

A potential downside of 201 possible support around 245-260
Not enough to keep hold of them. That obvious double top is the real giveaway as you say.