Mozz,
A good explanation of options for the uninitiated. BUt yeah, as
@TanamiRod points out I think you got a little lost on your final example of our Nov2024 $0.65 call options trading at $1.25 with the underlying at $1.00 example. That would be ridiculous implied volatility, as simply putting those figures in a simple Black and Scholes model will show you, and from a more simple sense deem a $0.65 put approaching $0.90 in value by simple arbitrage theory (ignoring interest rates coast of carry). Try something like $0.36-45 cents depending on the timescale and preceding stock price movement, the call option of course having $0.35 of intrinsic value.
Otherwise a very good explanation of options - you are a man of many talents.
It also goes someway to explaining why ZIP will likely trade to a discount to $0.43 until this offer over. Many sophisticated retail traders will think why buy stock at $0.43, I get stock and options at that price via the entitlement, forgetting they only get a small amount relative to present holdings and have no guarantee on the amount.
That they are tradeable also arguably reduces the price cap pressure they might otherwise put on a stock. A secondary market will see them trade out and have limited effect on the share price before Nov 2024, bar some hedging. To be explain to the uninitiated, without a secondary mkt in the options, as Nov24 approaches some might exercise calls (and then sell resulting stock) and forego low extrinsic value to lock in intrinsic value (that they cannot trade) if the stock trading well above $0.65. If there is a secondary market for the options, they can just sell the options to lock in gains.
Options are increasingly offered by the ASX and other exchanges to retail. People should be careful in understanding at least basic principles of put-call parity, cost of carry, gamma, volatility, skew, kurtosis, decay, etc, before trading/investing in them, like they should understand anything they invest in - not advice, common sense. I joke that if you cannot prove Ito's Lemma you probably shouldn't be trading them (it was a fundamental mathematical premise key to Black & Schole's popular modelling of options pricing).
I personally don't like them offered in this deal. Its a likely effective cheap stock giveaway and the strike price too low and the eventual dilution effect on shares over-looked. Small capped company executives get talked into offering them by the Insto' underwriters/raisers to make the offer more attractive with little real understanding of them, like most retail punters, hence the common talk of them being 'free' options. They are cheap options IMO and I will certainly be taking up my stock and call option entitlement.
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