Ann: Application for quotation of securities - VR1, page-7

Converting an option can be either a positive or negative event, depending on the specific circumstances and the type of option involved. Generally, converting an option to acquire shares is considered positive for the option holder as it results in them owning the underlying asset. However, this can also be a negative event if the conversion is unfavorable in terms of price or terms compared to the market.

Here's a more detailed breakdown:

Positive Outcomes:

Equity Option Conversion:

When an option to purchase shares is converted, the holder gains ownership of those shares. If the market price of the shares is higher than the option's strike price (the price at which the option can be exercised), the conversion results in an immediate profit for the option holder.

Positive Conversion Premium:

In some cases, such as with convertible bonds, a positive conversion premium means the bond is worth more when converted into stock than the bond's current market price. This is a desirable outcome for the bondholder.

Negative Outcomes:

Unfavorable Conversion Terms:

If the conversion terms are less favorable than the current market conditions, it can result in a loss for the option holder. For example, if the strike price is higher than the current market price, converting would mean buying the shares at a higher price than available elsewhere.

Negative Conversion Premium:

When convertible bonds are trading at a negative conversion premium, it means the stock's conversion value is less than the bond's trading price. This suggests that the bondholder might be better off selling the bond rather than converting it.

Loss of Privileges:

Converting preferred stock into common stock might mean losing certain privileges and rights associated with the preferred stock.

In Summary:

The nature of converting an option (positive or negative) depends on the context of the option and the market conditions at the time of conversion.While converting can be a way to gain ownership of an asset (like shares), it can also lead to losses if the conversion terms are unfavorable or if the market price of the underlying asset is lower than the conversion price