Forum Archive Index - June 2001

["Gary Rountree" <gary.rountree@xtra.co.nz>]

Thanks to all. No I wasn't refering to margin trading, although I guess you might describe the concept  as a form of warrant.

 

Renting shares as I have been told is where you (the renter) effectively sell an option to a buyer to sell your shares at a predetermined price within a time period (generally a month).

 

The following example is my understanding of how it works:

 Current share price 100c, you sell option to a speculator for 5c at a price of say 110c close 30 days.

First Scenario

 If after 30 days the price is lower than 110c, the renter takes an effective dividend on their shares of 5c for the period.

The speculator has lost his 5c

Second Scenario

 If the price is over 110c the speculator (at his option) will purchase the stock at 110c.

 If the price is say 120c, the speculator has made a tidy gain without having to finance the stock at the expense of the renter who  has not maximised his profits. 

 

The rental price is market driven and but will obviously vary according to what strike price is set.ie the higher the strike price the lower the rent.

 

I noted in an annual report of a UK listed investment trust that in their revenue they had a line describing "income from renting shares" which is presumably this.

 

As mentioned in my previous post, it would be interesting to find the names of any brokers in Australasia that offer a such a market, and whether anyone knows anything about it. I somehow doubt that there is a market in NZ unless it is offered for say Telecom although perhaps stock exchange rules prevent it in NZ. There are aparently a very small number of brokers in Australia that are registered to trade in this market. That's all I know

 

Thanks

 

Gary