heads or options, page-17

Mon,

Depends on whether liquidity is an issue to you. If you want to trade, so want more liquidity, you are probably better off in the heads.

But if you are in for the longer term and believe the SP will increase significantly between now and the end of 2010, you are better off in the options due to the better leverage.

The concept of the options being 'free' is a non-issue. They were part of the 'package' that cost you 1c.

Say the heads SP goes up to 4c. The options should be around 1c less at 3c (except when it gets close to the expiry date, the gap will track to 2c).

At that point your 200,000 heads will be worth $8,000. If you had kept the options, they would be worth $12,000 (400,000 x 3c = $12,000).

What if the heads SP reaches 10c? Then your 200,000 shares will be worth $20,000. But, if you had kept the 400,000 options, they would be worth $36,000 (400,000 x 9c = $36,000). But even if the options tracked the full 10c behind the heads, they would still be worth $32,000 at that time (400,000 x 8c = $32,000)- or $12,000 more than the heads.

But it will be much harder to sell the options. You will have to be careful - and perhaps lucky - with your timing.

So it all comes down to whether you want liquidity or leverage. More potential rewards with the latter - but less opportunities to reap them.