Happy with my maths on this one.
Quote:
Originally Posted by
percy
Above posted on 7-10-2016.
Bonds brought at $1 are now trading at $1.065.
And remain "well positioned."
And I thought that was a very kind offer from Peat.The trust brought via Macquaries.I did not buy any for myself as my Craigs broker did not have any.
Hello hello hello,I think Roger is trying to be a very naughty boy,buying 20,000 TNRHB at $1.065 this morning and trying to sell them at $1.40 this afternoon.!!..lol.
The hound would never admit to such a thing but he has been known to be a fairly cunning on the odd occasion. Rumor has it the cunning dog is keen for PLENTY more at $1.065 or less :D
Using the following inputs into my favored Black and Shoals option pricing model, (for which I posted a link earlier today) Strike Price $3.95, (must be at or above $3.95 to get greater than the stipulated 5% discount on share conversion $3.95 x .95 = $3.75) Stock price $3.74, (I am using the spot stock price here, others might use a VWAP over 30 days or longer), time to expiry is 620 days, volatility, I am using the same 25-30% rating used in the original independent valuation for which I also posted a link earlier today) and using a risk free rate of 3%, (some would argue using a lower risk free rate for shorter N.Z. Govt bonds) I get a fair value for the pure call option of 47.81 - 57.39 cents per bond depending upon whether one uses the 25 or 30% volatility.
Option pricing isn't well understood by many investors and I don't intend to dig deeper into the subject after this post other than to suggest if people are interested they have a look at the original independent report and then make their own enquiries of their broker or use their own option pricing model. There is a small dilution effect which is referred to in the original report, (new shares are issued) so this needs to be accounted for. Assuming everyone redeems their bonds for shares at the SP is above $3.95 approx. 6.8m new shares will be issued at $3.75 = $25.5m. There are currently 74.5m shares on issue so the dilution factor appears to be just on 9.1% (6.8 / 74.5). In my opinion as new shares are issued the pure call option value noted in the paragraph above needs to be discounted by 9.1% so using that Black and Schoals Option model after accounting for the dilution effect of new shares issued I see fair value of the bond at $1.435 - $1.52 using current spot price for Turners shares.
Inputting the same date using the lowest volatility at 25% and using a current share price of $3.50, (has been at or above this for 60 days) still gives $1.31 per bond adjusted for the dilution.
My conclusion...the market does not understand the value of the option carried within this convertible bond and appears to be pricing it as a pure bond only...well at least until the hound started bidding it up.