Im sure you've all heard about RIO's Rights Issue which goes ex rights on 17 June 09.
Shareholders can subscribe for 21 shares for every 40 @ $28.29.
Using RIO's price at time of writing ($77.60), in theory RIO should be trading @ $60.62 cum rights.
So Im considering buying a put option, similar to this:
Expiry: 25 June 09
Exercise Price: $79.00
Last Traded Price Today: $4.600
Now I know theory and reality are two different things, but the rights issue is going to dilute the current shares quite alot and I would have thought have a material impact on the share price.
This should be priced into the option price though right?
Using the above prices RIO only needs to drop to $74.40 cum rights for the trade to break even, alot higher than the theoretical price of $60.62.
I have never traded an option in real life before, but I am studying them in 3rd year uni.
Does anyone have any opinions on this trade?