is fdl overpriced, page-5

from memory the options have a $0.10 strike and expire in Sept 2008. If they are priced at $0.04 or there abouts they are out of the money by $0.03. So if you are buying the options at $0.04 and have to pay $0.10 to exercise your effective price is $0.14 per share while the closing price was $0.11 today.

over the next few months as it approaches expiry the option price will decay. in affect if you are paying $0.03 for the option you are paying a massive time value of money premium.

As an indication of the level of premium you are paying for the opton i checked an ETO over BNB with a strike price the same price as its current price ($16.50 sept 08) (BNBFP is the ETO code) and you can buy that for around $3.90. ie it is priced at a premium of around 23% to the strike price. For stock like BNB that is very volatile you would expect that.

The premium for FDL is 30%.

while you might be getting the leverage effect you are playing a dangerous game with the option. if you get to september and the FDL's price is close to $0.10 the option will be worthless and you would have blown 30% of your capital. The better option would be to borrow the other $0.07 you need to get to fully paid price (say it costs 10% to finance) and buy the fully paid share. It will cost you less and you wont get the decay in capital.

the only people pushing the option trade are the ones that want the extra liquidity so that when they get to their sale date they dont lose to much in decay.

while i dont have any interest in this stock, its a safer bet to buy the ordinary shares. leave the options for the sepeculators because as the liquidity drops so with the amount you can sell the option at.

time value of money at work!!!