Purchasing options on shares works the same as options with real estate. As a developer, you see that there is a chance that a parcel of land has the ability to be rezoned from say 10 dwellings per hectare to 20 dwellings per hectare although doing that would take 18 months, solid $$ investment and effort. To reduce your risk and to allow less capital engaged, you negotiate an options contract for 1% deposit rather than 10%, offer the vendor a purchase price higher than the current market and condition settlement on a two year forward date or after rezone. Your risk is kept low by the 1% option value and the cost of rezoning. Small in comparison to the potential increase in land value. If the rezoning comes off, you win. If it doesn’t, you don’t need to settle and take ownership but rather walk away with a 1% loss plus a bit rather than the full cost of the land at a buy in which was larger than market value. Easy peasy….. take a risk based upon your FA although keep away from share options. This is by no means investment advice and DYOR before stepping in and always understand the exercise price and the sunset date for settlement or they options will expire.
ACM Price at posting:
29.5¢ Sentiment: None Disclosure: Held
