peaking- too high, page-9

Hi Anne

When assessing the value of an option, you must remember to price in the opportunity cost of the dividends you are foregoing by not owning the physical stock.

For example, CIY have said they will pa 14c in dividends this year...and a higher level is likely in '04, '05 & '06. If we to take an average value of 20c pa in dividends ( remember, there is value in the franking credits) ...then:

The real cost of CIYO = 3 x 20c + 30c + 125c = 215c

(these are very rough figures...i haven't calculated exactly how many dividend periods exist between now and expiry, and have estimated the dividends average value, and haven't discounted their value to present time)....but you get the idea.

So the options are infact not cheap. You also need to consider liquidity...which do you think will be easier to exit from CIY, or CIYO & CIYOA? The options need to trade at a discount to factor in their lack of liquidity too.

Hope this clears up the issue...


nickoo