Ranbaxy: A very short term buy?

6 comments Written on September 2nd, 2008 by
Categories: Ranbaxy
Ranbaxy has this open offer that's ending on Thursday. Tomorrow is a holiday, and delivery is T+2, so the last trade for the open offer would have been yesterday (Monday). Yet, today the spot price was 487, while the future price was 400 - a differential that should only have existed while the open offer was available.

Sure, some clearing brokers might have a T+1 on their prop books, so they might have arb'ed their way in today. But what happens on Thursday?

One choice - Ranbaxy spot goes to 400, to meet the future price. This is what many people are hoping, so they've gone and shorted the Sep future, to hedge the long Ranbaxy they would have taken in the spot and submitted shares.

Yet, I'm not sure - the open offer may end tomorrow, but the shares stay locked till Sep 17. Given that practically every Ranbaxy shareholder would've submitted shares for the offer - and who wouldn't, at an offer of 737 per share - there won't be much shares available for selling in the market.

Okay first law of supply and demand: If there is any demand, and supply is less, prices are going up.

If Ranbaxy goes to even 600 before Sep 17, there's literally no stopping it. If it goes up a lot it will trigger margin calls for the guys that arb'ed this deal - and that will ensure further buying with a short squeeze. So is Ranbaxy a short term buy?

Disclosure: I sure hope so, for I'm long it.

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About the Author:
http://www.capitalmind.in
The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@capitalmind.in.

6 comments “Ranbaxy: A very short term buy?”

>Did you look at Ranbaxy call writing around 500? 540? Remember these are american options they’d face exercise even before an expiry… I doubt whether it’d cross 520.. Its a funny game though.. I offloaded Ranbaxy for 516.. Didn’t want the remaining 20 Rs in it if at all :) (Was holding them from average 380. Unfortuantely, I didn’t understand the mechanics of Open Offer before, otherwise a sensible person would hv dumped them around 600)

>Abhijit, to be honest I got rid of most of my stock at 575, and then took a future to about 600. But I still hold a few stocks I have not sold, because I intend to sell them if the price should go up rapidly.

>http://profit.ndtv.com/2008/09/02155323/Ranbaxy-tumbles-as-open-offer.html

“Japanese drug major Daiichi Sankyo’s open offer for 20% additional stake at Rs 757 per share for Ranbaxy closes on Thursday, 4 September 2008″

“Reports late last month had indicated that the Indian government will re-examine Daiichi Sankyo’s plan to buy a controlling stake in Ranbaxy and is likely to refer Daiichi Sankyo’s deal to the Cabinet Committee on Economic Affairs. A Cabinet review takes place of foreign takeovers of more than Rs 600 crore. “

Deepak
the open offer ends on 4th, does this means that that the market price equals the future price on 4th or 5th?
Secondly Moneyoga.com showed two alerts of insider trading info, of sell of 9000 and 12000 shares from management.
Quite tempting though!!
Thanks.

>Just a small correction to ur analysis….date of refund of shares is 19th n not 17th….though i completely agree with your analysis and have myself taken position in the F&O….

>Siddharth: no, no it should have reconciled on Tuesday. Yes I saw the insider trading deals – but they’re not many shares, these guys own a phenomenally higher number of shares each. It may not be a big deal – in fact it might just be some tax based selling (recently converted ESOPs for instance)

The point is – on Tuesday it went up from 431 to end at 490. The deal is starting.

>Hi,

I am a new member at Money Yoga and hence visited this site.

The Ranbaxy is interesting.

There are few issues.

1. In open offer one has to show the entire ammount as Income for STT is not applicable in buy back hence long term/ short term gains wont apply.
2. The august series and september series had a difference of 140 rs and came down to about 90 and closed around 100.
3. 400 call and 500 put were traded few days back at 120 rs each. An obsurdity.
4. seems to me that some big smart hand has accumulated large stock and likely to rig the price up. Short squeeze would also help.
i did buy a 520 call for 4 sold at 13 and now bot a 560 call for 7.

if there is a run up would be very happy .lets see.
nice work deepak.
keep it up
regards
ranga