Agreed that you should be short the rights.
This sort of situation, with rights, arises fairly often with closed end funds. The fund manager wants to increase his funds under mgmt., so that he can raise his fee income, which is a percentage of funds under management. The way he accomplishes this is give all shareholders rights to purchase more shares, at a discount to the market price. The fund manager can thus buy his bigger yacht, but this generally shafts the shareholder.
That's because shareholders, upon learning of the rights distribution, realize that they will have to either pony up more cash, or face dilution. They have their original shares, plus the rights which trade just like the shares. Typically people will sell the shares, or the rights, or both, and drive down the stock price.
Anyway, if your situation is anything like the closed end fund rights situations, as a short seller you will probably come out fine, but you might face some hassles dealing with being short the rights. |
