Giddy, I think we arrive at the same conclusion which is that SSNO should trade at a "premium" (that is, SSNO should trade at something less than 1.5c lower than SSN).
What my calcs do is set a basis for that premium, and I did point out at the end that other factors will mean it's not exactly that - "gapping down" was meant to include your first point (ie. if SSN suddenly went to 0, you lose the $20k instead of $34k as you said). Your 2nd point actually is the same as my idea that you should effectively "pay the premium" to get the leverage (so the leverage with SSNO is not "free"), just as if you were to get a margin loan/mortgage and need to pay interest on that loan.
As to your question of why using margin loans, I can only say that at a certain point where the premium on SSNO is too high (extreme example: if SSN is @ 7c and SSNO is @ 6.8c), then it would make sense as you're buying the cheaper form of leverage. Of course, with the caveat of the "other factors" as previously stated.
I guess my question to everyone is, what is that magical point? I think it's 1.1-1.2c (ie. SSNO is 1.1-1.2c lower than SSN), which means the market is getting it pretty right at the moment. But love to hear your thoughts
SSN Price at posting:
7.1¢ Sentiment: Buy Disclosure: Held
