Unlisted Options Transactions, page-46

Today, there has been some interesting discussion on RAC options holding & conversion strategies (however it was on the medical/clinical thread) ... hence I am re-igniting this options thread.

Here is the Black & Scholes option model (Theoretical PRICE) = $1.54

Assumptions: (if anyone has any other (better) assumptions, please do share it)

- Share Price = $3.87 (close for today)
- Risk Free = 1.6% (Approx 10 yr Aust Bonds yield)
- Volatility = 120% (provided by Dr T in a HC post when options were announced)

myStockOptions.com Black-Scholes Calculator




My personal options holding and conversion strategy:

As I would like to maximise my exposure to the upside of RAC over the next 12 months, I am ...

- Buying as much RAC shares on market at high $3s / $4s as my spare cash allows. (Therefore kick-starting the CGT clock for those shares now and not having to wait for when sp is over $4.50 to exercise the options).
- Holding on the the unlisted $4.50 strike bonus options as long as a can (I would not even contempt exercising before 2022, no matter what the RAC share price is). I rather buy more on market between $3 and $10 (and still hold the options for upside).
- In 10 to 11 months time, when I have to exercise the options (if shares are higher than the strike, I will beg or borrow to fund conversion. Final option is to sell RAC shares to fund conversion).
- If these unlisted options were ever to be listed on the ASX ... I would buy the options on market, even selling RAC shares now to do so, e.g. sell one RAC share and buy 2 RAC options. (This strategy worked I charm for me for IMU two years ago).


Worked example:

- Some here on HC are planning to exercise their options when RAC sp hit/exceed $4.50.
- Just say RAC sp is exactly $4.50 now.

Strategy 1) Exercise options:

- Cash outlay = $4.50
- Downside = $4.50 (this is your cash outlay, as sp can only go to zero)
- Upside = 1 x RAC shares


Strategy 2) Hold options as long as possible and buy RAC share on market:

- Cash outlay = $4.50
- Downside = $4.50
- Upside = (1 x RAC shares) + (1 x RAC options)


I pick strategy 2) .... same outlay, same downside, with potentially double the upside!! To each their own.