Havenots:I offer some thoughts of interest for those unfamiliar...

Havenots:

I offer some thoughts of interest for those unfamiliar with the Black and Scholes Valuation Model for valuing options. This is the prime mathematically based model used for options valuation. Unfortunately, at this speculative end of the market its use is very limited.

When you get presented by TNR management with a valuation of $0.0138 per option this is a value which the model spews out after inputting in a series of variables. The model is more appropriate in a highly liquid dynamic trading environment as appropriate to the BHP’s or Amazons of this world.

The Black and Scholes Model uses the following six (6) inputs to derive a ‘fair-value’ for an Option – in this case $0.0138 per option for the ‘new’ 3.5 cent exercise price options. It uses the following model inputs:

• Price of TNR FPO heads – this is observable by all participants – that is ok and observable.
• Volatility of TNR FPO heads – this TNR stock is not traded on a consistent basis – the model also assumes consistent and dynamic trading – this is usually not the case at the penny-dreadful end of the market.
• Risk-free rate – this is proxied by bond rates – ok but no big deal – this may change but really an irrelevant variable at the speculative end of the market.
• Time-to-maturity for the option – this is where time value - also known as time to maturity is important. These ‘NEW’ 3.5 cent options have a long time to maturity – 2023 - ok this is worthy of attention.
• Exercise-price – this is an important input variable - 3.5 cents is the exercise price and observable.
• Dividends payable by TNR – irrelevant as TNR does not pay dividends.

So, in summary beware when you see penny-dreadful companies offering options valuation based on the Black and Scholes Model. They are not doing this to deliberately deceive but I often feel a lot of companies would have no idea of how exactly the model is constructed - what I mean by this is it is useful to now 'where your numbers come from' but they still report a value because this model is used by 'everybody' in the options game.

Supply and Demand and market sentiment and news flow and gut instinct are a better metric for potential option value at the speculative end of the market. Of course, the model gives some sort of quantitative benchmark and it has its uses.

So, in summary this posited value of $0.0138 may be close to the eventual price but it is very arbitrary. I would be looking at the price of the heads first and foremost which then should influence options valuation. I am making this post because a few posters referred to this theoretical price of $0.0138 offered by the company. That is all it is – a theoretical price derived from a mathematical model.

It is no harm to keep this mind when you see speculative companies offering options valuations based the Black and Scholes Option Pricing Model.

DYOR and GLTAH.