bur welcomes edram, page-2

I wouldn't blame your experience with RRSO on them being options - the management are the issue there.

They do provide reasonable leverage here and there is a while to expiry.


The downside is that if you do keep them and convert them you are effectively paying a total 32c for a share that you can buy for 17c now, so if you are going to keep them long-term anyway you are effectively paying 150% interest in less than three years on the extra 10c it would cost to buy a share now (ie pay an extra 10c now to get a share rather than an option, of convert the option in a couple of years for 25c (15c more = 150% of 10c). It would even be better to take out the extra even at credit card interest rates to buy the FPO now.

Also, you don't benefit from SPPs or even dividends that may be generated next FY.

In terms of leverage, there is still a 15c premium on the options that would need to be eaten up between here and 40c.

FPO Option
17c 7c
25c 9c,FPO adds 50%, option adds 28%
30c 10c, 80% vs 40%
35c 14c 105% vs 100%
40c 18c 135% vs 150%

Options leverage only really cuts in when the SP hits 35c, which is twice the current price.

If there was no CGT or you are a "trader" for tax purposes, it is clearly better to hold FPOs until 35c and then sell to convert your holding to options. If an investor it depends whether you will hold these to expiry and convert of not. If so the FPOs are better. If you plan to sell prior to option expiry then options are better IF they reach 35c or more by that time.

The other factor to consider is downside. If the FPOs fell to 12c, the options would probably trade around 4c, so the FPOs still work out better.