oppies vs heads, page-9

ylui075, I reached the inverse conclusion on both those issues which is interesting, ie:

"(1) with the leverage (ie. SSNO) comes higher risk/volatility, and (2) you can theoratically recreate the leverage on any stock by margin lending (or in the case of speccies, taking out a 2nd mortgage on your house and buy using that leverage)."

1. Risk - I believe the risk has been less with the options in this particular case. If in mid may (my previous example) you chose to buy 1,000,000 options rather than 1,000,000 heads you would have paid $20,000 rather than $34,000. You therefore have exposure to the same upside as the price rises but if the entire thing goes south you have $14,000 less on the table to lose. Forgetting interest rates your risk is substantially lower with options because you can't possibly lose more than $20,000. The argument is very different for options that arn't as substancially above water as we are here.

2. Leverage - Margin lending does increase your leverage but it also increases your risk. If you use margin lending to buy more heads then you have even more money on the table that you can lose. This is why the options have been so attractive for SSN. Based on my earlier example options holders got 60% more leverage to the upside for every dollar that they have at risk. Why get margin loans and 2nd mortgages when you get free leverage with the options ?


The above said, the % benefits of options vs heads constantly changes and the higher the SSN price goes the smaller the leverage for new purchasers. For those that have been buying options all along it's a gift that keeps on giving as demonstrated in my previous example with approx 200% profit on the options since mid may alone. Much larger percentage differences for parcels purchased earier.

If you go back to December the leverage is even better. Check out these numbers:

Code .... Buy ....... Current ...... Profit ...... ROI
SSN .... $0.010 ..... $0.070 ..... $0.060 ....... 600%
SSNO .. $0.004 ..... $0.059 ..... $0.055 ..... 1375%

Now why did I want a margin loan to buy heads ?