@BRProject & @acwbagnall, I'm writing this first paragraph after finishing the calculations below. Fell free to fix any of it up if you think my calculations are wrong or missing anything haha. I understand that options prices are volatile and swing wildly so they will probably be completely different if heads do reach $1. The time factor will also play a role with prices as *punters* will not want to pay more for higher risk if dividends are just around the corner. Anyway, I did the below just to show how leveraging risk in options can be extremely beneficial for profits and compared EUROA to EUROB.Yeah you could have a point with EUROB not having any more time value compared to EUROA with double the strike price. Though, when they get going they will fly. For example you can buy EUROB for approx. half the price of EUROA. Lets just say EUROA stays 7.5c behind heads and EUROB stays 15c (conservative) behind heads. I'll use $10k as a hypothetical investment, and use the current market price of EUROA & EUROB.
10,000/0.036 =
277,777 EUROA10,000/0.020 =
500,000 EUROBNow lets assume that EUR heads reach $1 after some appreciation post IPO, Saudi deal and funding before dividends. I will use the approx. market value inline with what I mentioned above.
277,777*0.925 =
$256,943.725 from EUROA500,000*0.850 =
$425,000 from EUROBSo, if you plan to sell all of your options, EUROB would be the clear winner here. However, if you plan to convert some options, it gets a little tricky. Lets assume you want to convert 100,000 options into heads (for dividends) and sell the rest of your options for profits.
100,000*0.075 =
$7,500 conversion cost for EUROA100,000*0.180 =
$18,000 conversion cost for EUROBUnder the assumption you will be selling options to cover the conversion costs we can figure out the final profit.
7,500/256,943.725 =
2.9% of holdings --- 277,777*0.029 =
8,056 options --- 277,777-8,056(options sold)-100,000(convert) =
169,721 remaining options
THUS 169,721*0.925 =
$156,991.925 --- THEREFORE HOLDER WILL HAVE 100,000 Heads (for dividends) and $156,991.925 in profit.FOR EUROA18,000/425,000 =
4.2% of holdings --- 500,000*0.042 =
21,000 options --- 500,000-21,000(options sold)-100,000(convert) =
379,000 remaining options
THUS 379,000*0.850 =
$322,150 --- THEREFORE HOLDER WILL HAVE 100,000 Heads (for dividends) and $322,150 in profit.FOR EUROBThus in both instances
EUROB is the clear winner.If you sold all options you would be better of by
65.4% on EUROBIf you sold and converted a portion of options you would be better of by
105% on EUROBThe calculations are obviously plug and play, if you wanted to change the amount of options you convert etc..
