options for dummies

Just a note for the traders out there who think the options are overvalued and or the heads are better value. As long as we have lower barker/Gulch/pinkerton/leadville to look forward too the options will always trade at a premium to the heads. Think of it as compressed time value. The only purpose for GDN right now is to drill this hole, what happens months after this drill is not as important as RIGHT NOW. The sp has the potential to double/triple whatever and after this drill that potential will be diminished. And thats why there will always be a premium up until we intersect leadville. 4c premium is nothing, it is make or break for GDN, if they hit a great result in the next couple of days the heads wont be at 20-25c they will be 30c+ and in quick time. And leadville is our darling target that can send us into the stratosphere, its an unknown and the potential is huge, this will keep the options in demand with a constant premium of around 4c.

Lets look at the leveraged gains for a second for buyers at 20c and options currently at 4c (i will use a 2c premium)

HEADS - 25c = 25%, 28c = 40%, 30c = 50%, 40c = 100%
OPTIONS - 7c = 75%, 10c = 150%, 12c = 200%, 22c = 450%

Looking at that if you beleive GDN will hit it big (why else would you be a holder) then the options are the clear punt for any trader.

Ive been watching options trade for a lonnnnng time and there will always be a premium as long as there is significant chance for a price increase attached to the heads, no matter how close the expiry, in which GDN has for the next month.

And for the guys suggesting there will be a mass exodus of the options close to expiry because noone will want to exercise them, thats complete nonsense. Its called arbitrage and as long as there is a chance to make risk free money there will be traders who take up the difference. Say we have heads at 30c, and options at 10c. Anyone who sells the options to say 8c would be quickly snapped up as they will be in reality buying the shares for 28c (20c + 8c option). Some might argue price volatility will stop this from happening...this is something that has to be evaluated after the targets have been reached.

Last point is the potential losses. The options will give you the same exposure for less capital and also they can limit your losses. Take the following exposures.

50000 shares at 20c for $10,000.
50000 options at 4c for $2000.

Just say we have a disaster and the sp tanks 50%, you will lose $5000.00. Worst case scenario for the options is that you will lose $2000, if your quick enough though you could salvage some more capital from your options purchase. So if you dont think GDN will race over 20c you shouldnt be holding, if you do, then buy the options!!

I hope everyone understands why there is a 4c premium, if not you will never understand!!! Goodluck to all holders for a sp of 50c and beyond because ill be filthy rich along with all the other options holders :)