Week Ahead (6-10th July), page-99

This is a very newbie way of explaining it and I hope more advanced investors correct me if I'm wrong.

I understand it as this

An option is the right to buy the share at a certain price.

For example.

You buy 1,000,000 options of MPJ, MPJO in this case. The strike price for these options are 1c. What this means is you have the right to convert these options your hold before the expiry date at one cent per share.

It sounds confusing and it is to begin with.

Lets say you buy MPJO these 1,000,000 at 0.3c. You have spent in total $3000 + brokerage for these options.

Now let's say MPJ is currently at 0.8c and gets a terrific piece of news that increases the share price to 1.5c.

Now, with your options, you have the right to exercise these at a strike price of 1c each. Lets say you do so. you spend $10,000 + brokerage to exercise your options.

Congratulations! You now hold 1,000,000 shares of MPJ worth as we previously mentioned 1.5c! 1.5 x 1 million = $15grand!