EKOVEST (8877) - The reason I DOUBLE UP Ekovest

EKOVEST (8877) - The reason I DOUBLE UP Ekovest

The reason I DOUBLE UP Ekovest before special dividend and share split

 

If you want to own a company stock with limited fund available in hand, warrants is not a bad option.

Ekovest is one of the companies that I prefer to hold for a long term. Actually, I have 2 options to own the stock either go for the mother share or warrants. Company warrants usually sell with certain % of premium. Since I am not willing to pay for the premium, I went for the mother share. (thinking back, not a very smart move)

 

mother share = warrant + exercise value

warrant = intrinsic value + time value (premium)

 

In my opinion, the premium is the extra money you paid to buy the time before the contract expire. The contract here is the right to convert the warrant to mother share on certain exercise value. As I notice the warrants usually selling at certain premium for a growing stock likes Ekovest. For the past few months the premium is around 6-7% (I considered it quite reasonable)

 

But for the past few days, the warrants was selling at negative premium before ex-date of special dividend and share split.

 

I am thinking to take the advantage on this scenrio. Since, I am not willing to fork out extra money to invest because I already invested heavily on the mother share. The only way I can think of is selling the mother share (that I already made some profit on paper), then I use the fund to buy the warrants that may double up my holding of the company share with almost zero cost (since the warrants has negative premium) as calculation below:

 

The price show below was 2-3 days back:

 

First,

I sold – 10,000 Ekovest share x RM2.97 = RM 29,700

 

then

I bought – RM29700 / RM1.55 Ekovest WB price = 19,160 Ekovest WB share

 

That mean, I sold my 10,000 Ekovest mother share, then I bought back 19,160 Ekovest WB share. Instantly I increased my Ekovest share holding by 91.6%

 

How about the conversion rete of Ekovest share by that time

 

Ekovest Price : RM2.97

Ekovest WB Price : RM1.55

Exercise Value : RM1.35

 

So my Ekovest price RM1.55 + RM1.35 = RM2.90, If I exercise it, still cheaper, I save RM0.07

 

How about if that day is ex-date of special dividend and share split?

 

Ekovest Price: RM2.97 – RM0.25 = RM2.72 x 2/5 = RM1.09

 

Ekovest WB Price: RM1.55 x 2/5 = RM0.62

New Exercise Value: RM1.35 – RM0.15 = RM1.20 x 2/5 = RM0.48

My Ekovest price is RM0.62 + RM0.48 = RM1.10

 

The premium that I paid after conversion as (RM1.10 – RM1.09)/RM1.09, < than 1%

 

Pros

1. you double up your share quantity with same amount of money, and you can exercise it anytime till June 2019 ( you better bullish about the share, in this case, yes, I am bullish about the share)
2. take the advantage of negative premium, though warrants suppose to have time value (indeed, very long time value around 2 yrs+ for this warrants)

 

Cons

1. warrants is like double edge of sword, you can win big, you also can lose big
2. the warrants might stay in negative premium zone for a very long time (yes, sometime Mr Market is crazy and unreasonable)
3. you are not entitle for any company dividend unless is a special dividend (adjustment on exercise value as recently)

 

Am I make the right move??? I am not sure, but I just want to take advantage on cheap warrants during that time.

 

Note: For sharing purpose, my personal view, not a recommendation to buy nor sell the stock

EKOVEST (8877) - The reason I DOUBLE UP Ekovest

http://klse.i3investor.com/blogs/The%20reason%20I%20double%20up%20Ekovest/116480.jsp