Interdum stultus opportuna loquitur...

Thursday, December 09, 2004

All Hail the Red Menace.

Note - from June 24th 2009, this blog has migrated from Blogger to a self-hosted version. Click here to go straight there.

Seriously - how good is our "oil" on the SPP front? (OmegaOil, that is... Red Gold... Warrandyte Tea)

Under very well-crafted instructions from The Red Menace, I wrote a little piece a few days ago (December 5th, to be precise).

It concerned a Share Purchase Plan that we expected to be announced this week (from National Hire), pointing people at some free money. You can view it here . It is absolutely explicit as to what was expected:

  • An announcement of a Share Purchase Plan at the shareholders' meeting today; and
  • the likely price of the SPP ($0.35 - the same price as the insto placement) - a significant discount to the last traded price.

Correct, and Correct.

The only identifiable risk was that the record date for the SPP could be backdated to November 1st (that didn't happen).

Also canvassed was the best way to involve oneself in the possible SPP - at minimal cost and minimal risk, namely by availing yourself of a one-lot (a single share). RedMenace has actually helped people get hold of one-lots recently (in another forum... in other stocks where the SPP is worth getting into) by offering single units in market depth. Folks then just have to place an order for $500 worth at the price in question (i.e., where RedMenace has his one-unit offer). Once they get their single-unit fill, cancel the rest of the order.

Anyhow... Let's look at what could be done today if someone had taken us up on our "get one unit" idea.

The stock is currently at $0.46 - and given that anyone who bought since our post is now on the register as of the record date (and therefore eligible for the SPP), the following possibility arises: if your broker permits it, you could actually SHORT $5000 worth of the stock, in the full knowledge that you're guaranteed to be able to cover with an effective price of $0.35 - which means that you've got the gain locked in (assuming you get the full $5k allocation).

I do not recommend that course of action, in case the SPP allocation is scaled back. But if it was me, I would certainly short $1000 or so worth of the stock, and thus pick up $300 free, and ride the rest of the SPP allocation until I felt like cashing it out (at a premium). Anyone who went into a 1-lot in this stock is now sitting on $1571 of profits (assuming a full $5k allocaiton in the SPP). Not a bad return for $0.35 plus brokerage.