Can someone pleae explain RMR options, page-5

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Torbreck

12,644 Posts.

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15/07/14

09:03

Post #: 13659467
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Originally posted by unsinkable ↑

Stranger, I feel that you have not received the response you were after...

Options are much more risky than normal shares but they come with greater reward. Options are not fully paid whereas shares are. Going on your example, if you buy $1000 RMRO you are only buying the RIGHT but not the obligation to purchase shares at a specified date in the future. This specified date is the expiry date which is in Feb 2017. However, you don't have to wait that long to purchase your shares, you can do it anytime from now until expiry.

So going on your example, if you buy $1000 at a price of 0.007 you will have 142,857 options. The exercise price is 2.5c for these options, so if the shares do well and are well over 2.5c and you want to convert your options to shares you have to pay the company by cheque of $3571.43 (142857x0.025)... Your options will then convert to shares. Let me explain the scenarios that could happen...

The shares don't do well and by the time of option expiry they are below 2.5c your options will be worthless and you will lose your $1000.

The shares do really well and are more than 2.5c you can convert at any time as stated above.

If you buy $1000 options vs $1000 shares:

$1000 shares @ 1.7c = 58823 shares

$1000 options @ 0.007= 142857 options (almost 3x more)

Shares rise to 20c on a good discovery:

If you bought shares, 58823x 0.2= $11764...
If you bought options, 142857x0.175= $24999

All things being equal, the option price should be the difference between the shares- exercise price, so 20c-2.5=17.5c...

You can see holding options gives you greater value for money, greater % gain than normal shares but carries the risk that you can lose your full $1000...

If shares get to $1:

you make $58823 holding shares or $142857 holding options...

Hope this helps...

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One more thing I forgot to mention is that you can sell your options anytime on the market as well, so you don't need to actually exercise them, it's your choice...

RMR Price at posting: 1.6¢ Sentiment: None Disclosure: Not Held
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