Momentum, page-314

Are you planning to convert your options into shares immediately?

If you were going to hold your options until close to the expiry date and converted then you would pay $40000. The share price at that point may be $0.10 per share with a cost of $100,000 (if you were to purchase then) therefore you would have done well. However if the share price is $0.02 at that time then the same shares would only cost $20,000.00. The cost for you to convert is $40,000 therefore you have an immediate paper loss. Note you would include your original purchase cost of the options when calculating profit/loss.

Please note that most options are traded and not converted. The closer to the expiry date the riskier they can become. There is no obligation to convert options to shares- it is your choice ( generally speaking)
Google is your friend-great info out there if you look for it!