'm getting a few inquiries about how the heck do these options work...what do they mean, are they a good deal?
Let's take a brief look at what they mean and indeed, are they a good thing?
Please enjoy.
An option is the right, but not the obligation to purchase the underlying. The decision is yours.
What this means is that if you have an option, it's up to you as to what you do with it!
Yeah, the decision is entirely yours...the great thing about PAR's options is that they are listed.
This confers an extra bonus which we will cover in a sec after the mechanics...
MECHANICS
So how does an option work?
Well we are dealing effectively with what is known as a Call. This means that you have a right (but not the obligation) to be able to exercise the options which controls the underlying share.
In this case one option = one share.
So as I said, it is up to you dear reader...do you want to exercise the option? You could turn around straight away and exercise it...you could wait a month.,..you could wait 11 months...that decisions is yours. You would really only exercise an option once it is "In the money" Meaning that the underlying price is greater than $0.65 and you think it's worth converting it to a share, ie pay the $0.65 per share to OWN the share.
The best thing about this is that it is effectively free... You aren't paying anything to BUY the option, you are granted them free if you take up the offer to buy shares at $0.43 under the rights offer.
Every 4 shares you apply for, you are granted 3 free options.
The strike price is $0.65...we will get to what that means in a sec..
The expiry date is 24th of Nov 2024.
So how do they work? Well at the end of the day the options price and intrinsic value INCREASES as the underlying share price increases. We obviously want the share price to increase. But when you are an option holder, you ideally want the share price to increase earlier...or certainly increase to greater than $0.65 per share as we approach expiry.
TIME VALUE
An option has two basic components...Intrinsic (inherent value)...and time value...let's cover both briefly...
Inherent...so we have an option with a strike price of $0.65....let's pretend that we get a deal soon (Go Par, you can do it)....(ok let's say it happens in err....ummm...Feb 2024....let's say it's a good regional deal and the market likes it and the share price goes straight to $1.00 on the news (C'mon Mozz...can't it go to $3 ?) Well let's go conservative and hope for the best...but plan for something conservative, yeah?
So in my little case example..it goes to $1.00..the intrinsic value is then $0.35...ie $1.00 - $0.65 = $0.35...we have essentially $0.35 of REAL value because to exercise that option it will cost us $0.65. We will have to pay $0.65 and then we receive the one share...but the share is worth $1.00 so we have made $0.35 profit...this is called the intrinsic value...it might not sound like a stack...but remember...you really paid $0.65 for it and so $0.35 / 0.65 is 53.8 % profit, by Feb? Not bad...how many years in the bank is that?
Not a happy Piggy...We getting 5% in the bank for cash and inflation is about the same...that's literally decades to earn anything close to 50% return!
But the thing I haven't told you about yet is time value...
If the underlying PAR share value goes to $1.00 early (eg Feb 2024 for instance)...we also get a time value competent built into the option...so what I'm saying to you guys is that in theory, the option price won't just go to $1.00 IF the underlying goes to $1.00 nice and early like Feb or even April......it will go higher...because there is a time value component built in...this time value does decay...it doesn't decay in a LINEAR fashion though, it is an exponential decay...let's take a rough look at this time decay, diagrammatically.
We want our share price to go up, certainly the higher the better, that's obvious..but when we are dealing with options we want it to go up earlier...the bonus here is the time value...so in our little example if we do get a $1.00 underlying share price for whatever reason (see below)...our option, that's listed on the ASX, will not just go to $1.00 in value in theory, it will go to something a bit more....perhaps $1.10...maybe $1.20...why? Because we have the time value built in.
The real bonus here for us is that they are listed, this means they are tradable...you not only can exercise them....you could just sell them! If you have a few of these options...well like a hybrid car that has alternative sources of fuel...you could sell some and exercise some...you have a decision to make!
Dual motors, dual power trains...gives us multiple, well, options! If the petrol price is up, use a bit more of the battery...
And it's a good problem to have if the share price does go up a bit...let's see what our alternatives are then:
1) You could simply exercise the option, get receipt of the underlying share and pay $0.65 for it and it's worth $1.00 (the underlying share price in this example)...your profit? $0.35 - nice.
2) You could actually SELL the option itself! Don't forget it might be worth $1.20 if the underlying share price is $1.00 AND you have a good amount of time left before expiry....remember you paid NOTHING FOR IT! So all of a sudden you could have $1.20 for each and every option IF the share price goes up and it goes up 'early'.
The bonus for us is that shares do not have a time value component...there is no expiry...but options do...this can make the option more valuable than just the intrinsic (inherent) value IF the share prices rises enough and early enough...so much so that as an example, you might have an option with a strike price of $0.65...whereby the share is only at a price of $0.55 BUT because of the time value left, the option price total (the intrinsic part and the time value part summed together) is MORE than $0.65.
If this is terribly confusing for you, just know that if the underlying share price goes up quickly (in the next 6 months or so) or much before the expiry, you are going to be 'in the money'...ie you could turn around and sell the option for a good profit...or exercise it if you think the trajectory of Par shares will continue in the future ie. you will have the share price that's greater than 0.65 after expiry.
This is the power of options...this is the power of leverage and you are getting this effectively for free!
MOZZ SUMMARY
If none of the above made a whole heap of sense, the takeaway is that options can be a great thing, AND in this case you aren't really paying a premium price for them (err... they are free if you take up the rights), you are getting them for free and there is an entire YEAR for us to be 'right' ie for us to have the underlying go up SIGNIFICANTLY, potentially?!
Fellow Par shareholders...there is not just ONE or even just a couple of possibilities for share price re rating here in the next entire year....
DO you REALLY need me to list some of those possibilities?
Ok You are in Mozz post..I will do this for you despite me having a totally packed weekend schedule...
1) MPS data Not just any data...biggest trial ever witnessed on the Earth for MPS patients AND iPPS...PLUS it is double blinded, data coming to you theoretically BEFORE the end of this month!
2) On the back of 1) above...Anvisa discussion early Q1...if they like it, they may allow PAR to bypass a P3...saving us an estimated 2 years odd...registration sooner means deal chance sooner...watch out!
3) DMOAD certainty, the FDA should give us a pathway of what is required to extreme success (Spec view)
4) Surprises...there are some possible....mmm's the word... Are you a shorter reading this? You just be aware that there could be surprises coming in the next 6 months....you really need to do deep analysis on this baby.
5) Deals Mps? Regional OA? Heck...Global OA deal on the back of data certainty, we sure as heck have the data behind us now....Need a refresher?
12 month duration
Structural ramifications...not only patients ON AVERAGE NOT losing 40uM of cartilage they GAIN 60uM....that's nuts...over what? 4 years? 2? Nope...just 6 months.
BP will pay dearly for this. My spec views
6) Future indications...we in a entire year from now might get some progress on other indications we are pursuing...Heart Failure by Preserved Ejection Fraction as an example? Can't say how much of a big market that is!
Options can be great...having them listed on the ASX is one more step up...think about it, do your own research for sure...and lets just see where we are at in a few months time.
- Mozz
Spec statements above...options have inherent risk...shares could go down...no one knows the future...I'm not licensed to give any advice or purport what might or might not happen. There can be negative movements. Seek the advice of a licensed professional if you need more info/assistance in deciding what to do.
Note: I have been trading US options since the year 2004, they are magnificent fun but they come with risks...there is a lot to learn and there are some truly spectacular things you can do with option. Professionals like Warren Buffet deal a lot with options and can not only gain when the underlying asset goes up, but gain when they go down (Insurance). There are even ways to use options in purely sideways actions...
Many of us insure our House...insure our Cars...in fact insure our Health and Life...but tell me, how many insure our share portfolios that are worth a few hundred thousand or even a million plus...?
'm getting a few inquiries about how the heck do these options work...what do they mean, are they a good deal?
(20min delay)
