WMLOB and WMLOC options, page-6

thanks for sharing your research Disclosure, but i might add some points of caution for everyone, especially those new to options like yourself.

black scholes doesn't work at this end of the market where it's pretty much impossible to price the key input - volatility. i would very firmly advise against trying to justify a price using this method here. further, its a company option (only calls on the two strikes/expiries) so the model falls apart more since there's no way to hedge (buying puts/shorting stock) so the arbitrage component is irrelevant. you aren't trading volatility here, you're just straight punting the delta. options are a complex business, but this type of option trading is a pretty simple game.

at the current price you're paying a pretty large premium - i would say it's relatively too expensive given the lack of liquidity that should discount it further, and the fact that your upside convexity only really realises after a large move, rather than early in the move. at a 3c strike, paying 1c for the WMLOB where it closed you need the stock to be 4c just to break even if you hold through, and that premium you pay will decay as it goes into the money and closer to expiry, and even flip negative as there is the added element of conversion risk (the time between converting and settlement, as well as the capital required to convert). you'd be much better off just putting that premium in up front to buying the stock at the current price.

these kind of options are typically used as a way to get some leverage into the stock - you can buy more units for the same amount of capital, and as they go into the money your delta goes to 1 (in tick terms - every tick the stock goes up, your option will go up as well but will be a higher percentage due to the lower price). however given all of the above, this trade isn't a high value trade at the current level imo. also need to remember they were given out as free options...

don't get me wrong, i'm very bullish WML and even got filled some more near the close this afternoon at 2.2, but relatively speaking the options are not a great price to buy it at. (note that doesn't mean i think you'll lose by buying them)