Something for Option Holders to Consider, page-17

On the 5th Jan I wrote about the risks of holding AVZO in large quantities say >200,000 oas you may struggle to sell them quickly if you were required for any reason such as you needed some cash quickly.

#Doc questioned whether or not this triggered a CGT event to which I responded I didn't know and #Long Pier advised that it did in fact trigger a CGT event. I have since checked this with my tax accountant (gun accountant would be a better description) and he advised that the cost of converting an option DOES NOT trigger a CGT event. The additional 3c cost of the conversion merely adds to the cost base established when the options were originally purchased.

A few more points on this matter:
I did some analysis of options traded in the past 12 trading days including today up to 3pm today.

Key data # Shares issued = 1.788922B
# Options issued = 220.2M that gives a ratio of 8.1 to 1

# shares traded in last 12 trading days = 152.703M
# options traded in last 12 trading days =6.999M that gives a ratio of 21.8 to 1

Clearly the turnover of options is very very low in relation to the turnover in shares. From a liquidity perspective that is a concern IMO.

There is another potential issue when it comes to trading options other than the very low daily turnover and that is that the price difference is often more than the 3c cost to convert. Quite often the trade price is 3.5c lower than the head share price. Implications of this are not good if you need to trade options (even in relative small quantities) you may miss out on getting the current heads SP minus 3c. Quite often the difference is 3.5 cents. Now 0.5 cents is not a lot but multiply it by 100,000 and it amounts to $500. Multiply it by 500,000 shares and its $2,500 etc etc. There could be profit forgone if you want to sell quickly.

The main trigger for me converting my options was not to be trapped in a "Hotel California" stock so named after The Eagles huge hit from the seventies in which they sang:

"You can check out anytime you want.... but you can never leave"

In AVZO you may check out (place a sell order) but when will you be able to leave?? (actually sell)

Lastly an unintended positive consequence of converting your options to shares is that AVZ will receive some additional cash which given the intention to drill a second round of 20,000m of drilling after the first round is completed, will come in very very handy.

Finally if this low level of liquidity concerns you and you don't have spare cash to convert, don't panic as there is no crisis on the horizon nor do I expect one. I am just pointing out an anomaly in the relatively low trading pattern of the AVZO options which means a low level of liquidity should you wish to "check out".

All the best. I am expecting drilling results to drive this monster hard in the coming weeks and months.
Cheers w2