jkaob is on drugs, page-7

Heraclitus,

My point is if you were buying shares yesterday at $0.17 and the options were going for &0.008 there is not one scenario of the spot price where the heads beat the BOBs.

Assume you buy 100,000 options (for example). Outlay =$800
Assume you also buy 4,706 heads. Oultlay =$800

Consider stock price stays at $0.17
Convert options, sell for profit of $1,200 ($17,000 - 15,000 - 800)
Shares have a profit of $0 ($800-800)
$1200 better option.

Consider a stock price is $0.24
Convert options, sell for profit of $8,200 ($24,000 - 15,000 -800)
Share have a profit of $330 (1130-800)
Option is just under $8,000 better.

Consider the stock price goes back to $0.10
Don't convert options, lose $800
Sell shares for loss of $330 (470-800)
Option is only $470 worse.

If you believe in efficient markets (pfft) and the market operates on a random walk then the high and low scenarios above are equally likely scenarios. Let's say, for arguments sake there is a 60% chance of heads at 0.17, 20% chance of 0.24 and 20% chance of 0.10 (I made these up completely, a proper Monte Carlo simulation based on expected volatility would be much more appropriate but I'm late for going for a surf) then the probability weighted outcome:

For the options = profit of $2,080
For the heads = profit of $160
1300% difference

You could then do some math to work out if the extra risk you take on the options is worth this 13 times more return (using this rate of return against a risk adjusted WACC) but again I have to go for a surfand any finance graduate with an inkling of risk can see the much much better option. There is the small time gap between converting bobs to heads which isn't accounted for here but my point remains, can anyone quantifiable refute that the heads are a better buy now than the bobs?

Cheers, off to the beach! (also let me know my mistakes in my working, I'm on the iPhone).