Sorry mate didn’t see the reply.
Looks like it’s already all been explained, but here’s the summary :
Buying 1 x NRZOA gives you the option to pay 28c to convert it into a “head” (NRZ). There is an expiry date of OCT 2024, so if the NRZOA units aren’t converted into NRZ prior to that date, then they expire/disappear.
Since NRZOA are classed as “listed options”, you can buy/sell them as NRZOA on market.
Now you might ask, “why TF would you buy an NRZOA for 7c, that then costs 28c to convert into an NRZ….. when you can just buy NRZ for 21c (vs 35c total) ?”
Leverage. You’re banking on the SP moving significantly prior to the expiry date.
Let’s assume I have $210k to spend. I can either:
1. Buy 1M NRZ @ 21c
2. Buy 3M NRZOA @ 7c
Now let’s assume the price of NRZ runs to $1 within the expiry timeframe ….
1. 1M NRZ now = $1M = $790k profit (pre-tax)
2. 3M NRZOA = approx $2.1M (pre-tax, assuming option lagging the heads by the exercise price of 28c-30c).
Or else you pay $840k (3M x 28c) to convert all the options and are left with $3M worth of NRZ. $3M - $210k (initial investment) - $840k (conversion cost) = $1.95M profit
So at $1 NRZ, you’ve effectively more than doubled your potential profit (hope that math on the fly is correct lol).
Of course, the risks are :
1. The SP doesn’t appreciate much before expiry
2. Your NRZOA expire
Now with converting these options, you simply get in touch with the company and they’ll send you out some paperwork to fill in (as well as their bank account details).
You return the paperwork and transfer the funds, and they’ll be converted by the company for you
Hope this helps !
Disclaimer: I hold mostly NRZOA, all IMO etc etc
Cheyne
(20min delay)