ctpoa, page-11

Elvis3577 wrote:
"I'd like to see this explained into a bit more detail as well please( I bought a few this morning )I didn't get the fact that CTPOA is pricedependant in relation to the sp of ctp...
So, is it merely guesswork by the time it gets to 30-06-10, or are there some certainties as well ?"

On the 30th of June 2010 you have two choices with CTPOA - exercise the option, or let it expire. Trading will cease a few days before that, btw.

So, given the exercise price of CTPOA is 25c then the value of the options as time evaporates is CTP-25c. If, for example, CTP was to be trading at 20c then, it would not be worth exercising the option, because you buy the shares for less.

Now I think this is unlikely. CTP wants people to exercise the options because of the cashflow it will give them. They will do everything in their power to get the share price up to exercise price and beyond (as they did when other options were expiring in June 2007).

Given that CTPOA are trading at 3.5c at the moment, then for you to break even on exercising the options would be a CTP price of 28.5; If the shares are at, say, 32c, then you exercise them for 25c, you've saved 3.5 per share.

Looking another way at the current price, I suppose you could see it like this:
Option Price = Share Price - Exercise Price + Time Bonus
or
Time Bonus = Share Price - Exercise Price + Option Price
which works out as
12c = 15.5 - 25 + 3.5

So right at the moment the market is valuing the time remaining on CTPOA as being worth 12c per share.

Using this formula for CTPO:
8.7 = 15.5 - 16 + 9.2

Rather strange, isn't it, that CTPOA has a bigger time bonus than CTPO, even though CTPO has a LOT longer to run.

Hope this help,
- Karl