oppies v's heads

I've seen a lot of ramping for the options on this site over the past 3 mths and no doubt it will start up all over again on Monday, but someone needs to explain the risks to the less experienced that may follow the option players with their hard earned cash.

WHNO's are exercisable at 7.5c on 30 June 2012

*last sale price of WHNO 1.2c

*the premium rapidly diminishes as we get closer to the exercise date i.e. will be worth virtually nothing by June

*the heads last sale price was 4.7c

*with the exercise price of 7.5c plus the option buy price of 1.2c, you need a head price of 8.7c to break even

*if you bought $10,000 of heads now and post announcement you sold at 9.4c you have made a 100% profit on the shares

*the options on the other hand would be “in the money” by .07c and add to this whatever premium remains by June, probably around .02c - lets say they are now .09c in total

*If you bought them at 1.2c and they are now worth .09c that's a loss of 25%, (even though the head price has doubled)

*if you hold to 30 June and the head price never reaches 8.7c you will have 100% loss on your investment

*Surely a 100%+ profit is enough with the relative safety of holding the heads?

Anyone contemplating the oppies now, would be looking for either of two scenarios to play out:

1. WHN heads have a big run in March or April – possibly above 7.5c to cash them out for a large profit but it would have to be greater than 60% because that's what you would have made on the heads by now.

2. hope the heads move close to or above 10c anytime before end of June – in which case the risk may be worth the rewards.

So what are the chances of a head price in excess of 10c post announcement? Your guess here is as good as mine but the directors will certainly be wanting to see the 10c scenario play out to get their bonus.

However, the market is fully aware of all information released to date yet 4.7c is the best they will offer as of Friday's close. We know from past announcements its possible we have 3.5 billion barrels of recoverable oil and we know there is likely to be a successful JV announcement (the big money is waiting to see the terms of the deal and who it's with) but really, is the SP going to be much over 100% from now, when its released? More likely 3D seismic results & drilling our first wildcat will bring that about but not before June.

Therefore, anyone contemplating buying the options needs to know the undisclosed risks if thinking they can make an easy killing. Those with the experience and the money already do.

Please don't misconstrue my comments as down ramping (I’m as bullish as you can get on this one). It's just a matter of putting the case out there for newbies and those less aware of the option pitfalls.