Ann: SWISH AOI Acreage Acquisition, page-140

Ok so BRKOB is a ‘call’ option on BRK and if you search BRKOB you may see a result like this:

Brookside Energy Limited Options @ 0.011 EXP 30.06.2022

So what does this all mean?

Ok a ‘call’ option gives the holder the right, but not the obligation, to purchase a given security at a specific price, up to (or on) a particular date in the future.

So let’s look at BRKOB:
The ‘@ 0.011’ above refers to the specific price an option holder would pay for a share of BRK, 1.1c, this is known at the ‘strike price’ or ‘exercise price’.
The ‘EXP 30.06.2022’ above refers to the expiry or maturity date of the option. As BRKOB is an American style option this means at any time from purchasing the option up until the expiry date the holder is able to convert the options to BRK shares by paying 1.1c per option.
If held to maturity there are basically two outcomes for a call option:
a) they expire worthless, if the stock is trading below the strike price (in this case BRK would need to be trading at/below 0.011 on 30th June next year), or
b) the options expire ‘in the money’ with some intrinsic value (say BRK trades at 3c on 30/06/22, then the intrinsic value of the option would be 0.03 - 0.011 = 0.019). In the money options are generally automatically assigned, so the holder would incur an obligation to purchase the corresponding number of shares. (Generally a single option contract represents 100 shares however I don’t believe this is the case with BRKOB, it is simply 1:1)

How to price a call option?
The value of an option has two components, an intrinsic and a time component.
The intrinsic component is simply the difference between the current share price and the option strike price.So in the case of BRKOB, as I type BRK is trading at 3.1c, less the option strike price of 1.1c —> an intrinsic value of 2c (and BRKOB also happens to be trading at 2c but this isn’t always the case).
The time component is much more complicated (and consists of a risk component that changes with the volatility of a share and another component relating to the time value of money) but basically it represents the additional value that the option carries due to the fact that it has nearly 1 year to expire.
You can read up on Black-Scholes to get a better idea of these components.

So why do I prefer BRKOB to BRK?
Note: This is not financial advice, please DYOR, everyone’s situation is unique.

The options (BRKOB) provide leverage, and sometimes price arbitrage, due to lower liquidity/interest IMHO.

Let’s look at an example, say I was interested in buying BRK yesterday and willing to spend ~$3k.

At a share price of 3c I would have been able to purchase ~100,000 shares.
If I was interested is purchasing options (BRKOB) I may have been able to buy them for 1.8c (due to price mis-match/arbitrage) and my $3k could have got me ~166,000 BRKOB options.
Note: I would not own any shares and the options could expire worthless at 30/06/22 if BRK trades below 1.1c. That said, assuming BRK continued to trade at 3c at expired, the options would be exercised and I would be obligated to pay ~$1,800 (166,000 * 1.1c) but I would then own 166,000 shares of BRK. So if I was happy with the 3c per share price this would give me almost 1 year to save save an additional $1,800 but get the rights to an additional 66k shares straight away.

Back to the leverage…Today the price of BRK has moved (up, yay!) to 3.1c as I type.
Assume I had purchased the 100k shares yesterday at 3c, I’d now be up about 3% or $100. ((3.1c - 3c) * 100,000 = $100)
Assume I had purchased the options at 1.8c, price is now 1.9c (moved down from the 2c earlier so arbitrage opportunity has returned, i.e. IMO the options are mis-priced, too cheaply by 0.1c at present) So I’d be looking at an ~5% gain, $150 on the $3k deployed or ((1.9 - 1.8) * 166,000) = $166).
And you can imagine the additional benefit if the options were trading at fair value 2c, that would be ~10% return or ~$320.

Anyway, I hope this has made some sense and helped you understand options a bit better. As I said this is NOT financial advice, and it does not take into account any of you personal circumstances, tax and additional price mis-matches/lack of liquidity are just a few of the additional things to consider.