Can someone please enlighten me on what exactly this SENS means please. Thanks ELI Dealings in Securities by a Director of the company and by a Director of a Major Subsidiary ELLIES HOLDINGS LIMITED (Incorporated in the Republic of South Africa) (Registration number: 2007/007084/06) JSE code: ELI ISIN: ZAE000103081 (the ?company?) DEALINGS IN SECURITIES BY A DIRECTOR OF THE COMPANY AND BY A DIRECTOR OF A MAJOR SUBSIDIARY Shareholders are advised of the following information relating to the dealings in securities by a director of the company and by a director of a major subsidiary: Name of director: Ryan Otto Transaction date: 31 January 2013 Class of securities: Ordinary shares Nature of transaction: Off-market collar hedge over 1 340 797 company shares at a put strike price of R9.30 and a call strike price of R11.33 and with an expiry date of 30 January 2015. Nature and extent of director?s interest: Direct beneficial Clearance to deal received: Yes
The way I understand it, is that he is buying (call) an option at a strike price of R11.30 and wants to sell(put)that option at R9.30 i.e going short. Note: strike price and spot price not the same. The collar I think is some sort of insurance but, could be wrong.
Thanks Wino. Excuse my ignorance, but how can he short it if the current price is approximately R8,80? Surely he would have to buy it at the current market price an then short it or does shorting operate along different rules to normal investing?
The guy is a big holder, and wants protection against a shareprice collapse - so he buys a put (i.e. the right to sell) at 9.30 - which lets him sleep at night for two years (expires 2015). Now, to pay for this insurance, he could pay cash, or he could sell a call option - and use the sale proceeds to buy his put (hence "zero cost" ). So bingo, if the price collapses he is covered by his put; and if the price rockets his call will be called and he will surrender this block of shares, but he is going to be deep in the money anyway.
The investment banks take a comm on both put and call, but it is cheap insurance for a large holder.
Thanks DST. Does this mean that at 11.33 he will be selling a whole bunch of his shares? what is the benefit to this kind of trade as opposed to using something like a stop loss? Couldn't he just put his shares for sale on the market at 11.33 and put a stop-loss in place at 930, r is this what he is doing?
So, what you are saying is that the bank, if the price rockets, sells his call at 11.30, pays him out 9.30 and pockets the rest. If price drops, bank sells the shares at low price, buys his put and pays him out at 9.30 and takes the loss. Am I following your explanation?