What is Right Entitlement?
A company issues a right to buy shares to its shareholders on a pre-determined date called the record date. Right Entitlements (RE) are offered to shareholders as a ratio to the number of securities held on this record date. A shareholder may refuse to subscribe to the rights issue and just let the 'right' lapse. Alternatively, the shareholder can renounce/trade the entitlement in favour of another person for a price. The RE will be trading on the secondary markets as per the dates specified by the exchange.
For instance, Suzlon Energy Ltd. had come up with right issues in the ratio of 5:21 wherein for every 21 shares held of Suzlon, you will get 5 RE in your Demat account. The Suzlon RE traded on the exchange between 11th October and 14th October. The following are the scenarios:
- Shareholders who do not wish to apply for the right issues can sell the RE on the exchange to make a nominal profit.
- Non-Shareholders who wants to apply for the right issues can buy the RE from the open market on or before 14th October and participate in the right issues.
- If the RE is held in your Demat without exercising, will lapse/expire at ₹0.
What is Right issue?
Right issue (Also called right offering) is a framework through which companies raise additional capital by a new issue of Equity shares to the existing shareholders at a discounted price. A company goes for the right issue for various reasons, such ...
Can the buyer of the option execute his right at any time during the lifetime of the contract?
No, the buyer of the option can execute his/her right only at the expiry of the contract.
What is the effect of selling a Call Option?
The seller of the call option has an obligation to sell the underlying asset at the strike price if the buyer of the call option chooses to execute his right. The seller receives a ‘Premium’ from the buyer.
What is the effect of selling a Put Option?
The seller of the put option has an obligation to buy the underlying asset at the strike price if the buyer chooses to execute his right. The seller receives a premium from the buyer.
What are Options?
An option gives the buyer the right, but not an obligation, to buy or sell the underlying asset at a predetermined price (Strike Price) on a specified date in the future (Expiry). The buyer pays the seller a premium at the time of entering into the ...