(2) Refrain From Subscribing Rights Issue To Pick Up The Stock In Open Market At A Latter Date
It is one of the most significant strategies to deal with rights issue of a company. Rights issue introduces additional new shares in the market. This act of enhancement in the number of floating shares of the underlying company reduces earnings per share provided profits are constant.
This ultimately puts pressure on the share prices of the underlying company when new shares arrive in the market. As a result, share price of the underlying company plunges to a significantly lower level.
Mostly, the new share price stabilizes well below the issue price. It is particularly true when the difference between the issue price & prevailing market price is almost negligible.
Therefore, several investors & traders prefer to buy more shares from open market at a latter date rather than buying from issue itself. This strategy helps them to accumulate more shares even at a price much lower to issue price.
Thus, one can expect better returns from this strategy due to availability of cheaper shares at a latter date.
(3) Subscribing Rights Issue To Accumulate Shares Of Promising Company With Absence Of Liquidity In Underlying Stock
It is one of the most surprising strategies to deal with rights issue of a company. Like other issues, rights issue is also a great means to increase number of floating shares of a company. This purpose gains significance when the underlying script is an illiquid script of a fundamentally strong company.
These types of companies are often considered as breeding grounds of potential multibagger stocks. Shareholders can subscribe for rights issue of such companies with long-term scenario.
However, shareholders have to ignore day-to-day fluctuations in such scripts. It is because price fluctuations can be wild on either side of issue price due to absence of desired liquidity.
Thus, shareholders can seek rights issue as a cheaper means to accumulate more shares of a potential multibagger in-making.
- Best Trading Strategies To Make Money In Rights Issue: Shutterstock