If the price of the head (main share, not the option) rises for...

If the price of the head (main share, not the option) rises for example to 30c, you can exercise your option and still only pay 25c for the head share.

So if you buy the option at 2c (roughly what they are trading for today) and the above scenario does happen, you have ended up paying 2c + 25c = 27c for a share which now trades at 30c.


From a return on capital point of view as well, you have only put down a tiny percentage of the value of the shares. At 2c an option, you would be paying 8% of the future value of 25c. You are retaining the right to buy at that price without much of a down-payment.

Of course, all this is predicated on the stock actually reaching the target price - getting 'in the money' . If the main share price doesn't reach that high, they are effectively worthless and have an expiry. In this case ALAO is May 2016. If its out of the money when it expires you loose the lot.

So whomever is buying them now, is taking a punt that the price will be at least 25c in the next 6 months. Someone bought $25 000 worth on Monday. From memory around $10k in a single order, so presumably have a positive outlook on the share price!