Immediate Gratification
Immediate Gratification
The advantage of subscription rights is that you can make money from them even if you have
no interest in purchasing additional stock. Let's say XYZ issues you 20 subscription rights
and, truthfully, you have no intention of using them. Then let's say I'm an investor who wishes
to purchase XYZ Company stock. You offer to sell me your 20 subscription rights for $1 each.
Yes, you can do that because subscription rights are fully transferable; in other words, you
can use them or dispose of them as you see fit.
I pay you $20 for your subscription rights and then buy the 20 shares at $8 each (20 × $8 =
$160). Adding in the $20 I paid you initially, my total price is $180. I still got the stock $20
cheaper than if I had bought it in the open market at $10 per share. You've just made $20
from selling me something you didn't want anyway. As this example shows, subscription
rights are really popular. They're like getting an unexpected gift. You are, however, still no
longer half-owner in XYZ Company, but then it's not a perfect world.
