Calculating the value of $BIOF ex-rights

Note: the below post is only relevant for trading of BIOF on 9/24 and does not apply after the stock has gone ex-rights.

Tomorrow BIOF will start trading ex-rights, with each right giving the owner the right to buy 2.25 shares of BIOF at $5 (if the average price of BIOF over the next 10 days is under 6.25 then the $5 strike price is adjusted down to 80% of that 10-day average price — I ignore that in this calculation).

The rights started trading as BIOFR today and tomorrow everyone that owns BIOF today will have 1 share of BIOFR for each share of BIOF they own. Using a little bit of algebra we can determine the correct price of BIOFR for any given price of BIOF today. By my calculations, with BIOF at $9.11 BIOFR should be trading at $2.85 (it is currently $3.10 x $3.18).

BIOFP = BIOF post rights

BIOFR = 2.25 * (BIOFP – 5.00)
BIOF = BIOFR + BIOFP

BIOFP = BIOF – BIOFR
BIOFR = 2.25 * (BIOF – BIOFR -5)

Using Excel’s solver add-in I can then take the current price of BIOF and solve for the price that BIOFR should be trading at.

Of course, if I had just realized early on today that BIOF was not trading ex-rights yet, I could have bought it at about $6.60 or so for easy profits without any algebra.

Disclaimer: I have no position in any stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

 

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