I agree with you, there should not be a delta. But there HAS been a delta and that is what has created this opportunity. If TIM would remain above 50 cents, TIMPB should be trading at $2. But the share price collapse in TIM has brought on a significant delta. This is because there is a maximum conversion ratio of 4:1 which occurs at or below 50 cents;
This max conversion is defined in prospectus. So you get 4 shares at market price in Sep09 (VWAP=10, 20 30, 40 and 50 in my examples); Above that you get $2.00 VALUE in shares whatever the share price (at higher share prices you get around 0.9). So just think "value" of shares:
I think if you work through each example you will understand what I am trying to explain:
e.g. IF TIM=20 cents VWAP in Sep09, you get 4 shares in TIM at 20 cents = 80 cents "value" if sold in market at same price as VWAP (maybe =/- % or so for risk between VWAP and when it hits your comsec a/c); and loss on short CFD is 4 cents per share from shorting at 16. (times 2.5 shares for my ratio of 2.5 TIM per TIMPB);
These TIMPB have a face value of $2 and you get $2 worth of shares whatever the price provided that below 50 cents you only get 4:1.
So in theory there should be no delta but there has been and this is what creates this opportunity;
Please work through the examples above.
TIM Price at posting:
17.5¢ Sentiment: LT Buy Disclosure: Held
