option enq, page-9

PK9,
Good overview, probably the only other key aspect to include in the calcualtion is the funding cost which is central to Option valuation. In simple terms - If you were to buy 1 VPE share it would cost say 30c, buying one option costs you 13c, the funding of the difference (17c) is an advantage of buying the option. Buying the share would cost you (at 10% interest) an extra 1.7c per year more tha the option either as funding or opportunity cost. So over 20 months this is worth about 2.9c. Not a huge amount per share but when we are talking 30c shares this represents 10%.

To put the above into a basic example - on fri i sold a small holding of 25k VPE, with the proceeeds I bought an additional 50k VPEO @ 13c and still had $1200 left over. For less outlay I doubled my exposure. (only good if you have strong expectations for the underlying share).

Volatility and share price expectation are the other two major factors DRIVING the option price. My expectations for VPE, VPEO are strong - VPEO providing the greater leverage.