All Credits of this post to BullyTheBear.
I have no intention of using the advanced strategies covered, but post here solely for my reference.
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Now that the basic is covered, let's talk about strategies. There are strategies for existing shareholders who already holding shares before the rights exercise is announced, and there are also strategies for people who want to take advantage of the rights to get into the company at a favourable time. These are the wannabe shareholders. I must say rights issue favour the latter rather than the former. That's just the way it is.
I further define two types of player: the casual and the advanced one. Casual ones are usually newbies, but need not be, and quickly wants to get over the rights issue as soon as they can. Advanced players want to hack the rights and get a more favourable price, meaning getting their average price below the theoretical ex rights price (TERP).
w: no of mothers shares before XR
x: no of rights shares successfully subscribed
y: price of mother shares before XR
z: subscription price of rights shares
TERP = [(w*y)+(x*z)] / (w + x)
As you can see, to get a lower average price, you need to get much more excess rights beyond the rights ratio. If the rights ratio is 166 shares for every 1000 shares held before XR, to get a lower price than TERP, you need to get more rights shares than 166.
Link for casual rights player: here
Link for advanced rights player: here
For existing casual shareholders:
a. Just wait for offer information statement (OIS) to come in. It'll inform you of the number of entitled rights shares you have.
b. Go atm and subscribe to the entitled rights
c. At the same time, apply for the excess rights. There's also a $2 admin fee charged by every bank.
For existing advanced shareholders:
1. Sell all your mother shares before XR, buy back after XR and after the price drops lower than TERP
2. Buy more mother shares before XR and take adv of the drop in price, be entitled to more rights, apply for excess
3. Buy nil paid rights during nil paid rights trading period, esp when there are opportunities for arbitrage, subscribe to entitled and also apply for excess
* 2 and 3 can be combined, but make sure you know what you're doing
For casual wannabe shareholders:
a. Buy the mother shares before XR
b. Wait for OIS to inform you how much entitled rights you have. If you bought too close but still before XR, the OIS might not reach you on time. So calculate manually.
c. Go atm and subscribe to the entitled rights
d. At the same time, apply for the excess rights
For advanced wannabe shareholders:
1. Buy in after XR, at or below TERP, and skip all the rights exercise
2. Buy in before XR, get your entitled rights, apply for excess by maximizing rounding
Since preference is given for excess rights applicants to round off odd lots, and assuming that the rounding of odd lots is for 100 shares per board lot, it make sense to change the number of shares you want to buy before XR to maximise the odd lots rounding. For example, if you get 1000 shares before XR, you are entitled to get 166 excess. To round off to the next nearest round lots, you are almost guaranteed to get 34 excess rights (to round to 200 shares). Can we maximise that rounding so that you can get the best out of it?
In the past, where the board lot is 1000 shares, there's some savings to be had, but not anymore.
Just ignore this method safely, knowing that you are not going to hack a lot to get a lower average price using this method.
3. Buy nil paid rights during nil paid rights trading period, subscribe to entitled
* 2 and 3 can be combined, but make sure you know what you're doing
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