@zero2a$mill"Buying oppies, with the intention of flogging...

@zero2a$mill

"Buying oppies, with the intention of flogging them,

(can) be more profitable than buying heads.

Buying oppies at 3.1, when heads are 4 or less,

with a 1.2 exercise cost, is paying a premium. (4.3)"

assuming options are 'in the money' (ie: heads > option conversion price), then buying options to resell can be more profitable than heads if the price rises.. they are cheaper than heads, so for the same money you can buy more of them, but since they usually move in line with each other (if heads go up 1c then options generally do too) you can profit from that leverage. The flip side is if the price falls, the leverage works against you and you can lose more on options than on heads.

The leverage is the reason the market will usually pay a premium for them. When you buy them to convert, you are usually not planning to convert immediately.. as you say, in that case it would be cheaper to buy heads rather than pay the premium. Usually even if you buy intending to convert, you would be planning to convert in the future. The expectation would be that the SP has gone up in that time, so when you convert them the total cost of your heads will be a premium to the price of the heads the day that you bought the options, but hopefully a nice discount to the price of heads at the time when you do convert them. Despite the premium you paid at the time you bought them options allowed you to buy more options than you could have bought heads at the time, and effectively allows you to defer paying the balance until you do convert them.

Sometimes you will notice brief windows when various buying/selling activity results in there being no premium, or even a discount. When this happens, you might see people sell some heads and buy options at the same time. They can then convert the options back to heads or just keep holding the options to covert/sell later.

Options do expire. Since the market usually pays a premium for them on the assumption that time will allow the SP to rise before conversion, you will notice as options get closer to expiry date the premium dries up. With minimal time remaining before expiry for the SP to rise the market will reduce the premium and they will trade closer to par. Just before they expire, you sometimes see options trade at a discount which can happen when options holders need to sell some to cover the conversion of the rest. This can sometimes leave windows of opportunity open for buyers to grab them and convert cheaper than they could buy heads on market. You would usually only expect to see this in the last week or two before expiry.

Options are usually less liquid than heads, and often held quite deliberately by tighter hands than the heads, so trading options can be harder than heads. The lower liquidity can sometimes be an issue if you need to exit for whatever reason, so for the most part options tend to be in hands that are able/happy to hold onto them for longer time frames. Traders might be attracted to the percentage gains, but can get trapped by liquidity factors so are probably better off sticking with heads.


Options can be a really useful way to get the most out of your investment due to leverage, but the leverage is a double edged sword. You can make a bigger percentage gain, or a bigger percentage loss depending in what the SP does. Definitely more risk involved in options, and as a result potentially more reward if it all works out. If you have a more conservative risk profile or you are not confident in working with options then the best advice would be stick with heads. Plenty of holders hold a mix of both, and some even hold options only.