Options, page-6

Hard to explain simply in writing. If I may@datTechnicalGuy

I'll have a crack.

Let's say the current share price is about 21c, and the option price is 5c

If you have $10,000 to spend on LCL, you can buy $10,000 divided by 0.21= 47,619 LCL shares

OR

You can buy $10,000 divided by $0.05c= 200,000 options

To convert the options to shares, you have your 200,000 options x $0.16 = $32,000 cost

So you have the total cost of $10,000 + $32,000= $42,000 to have 200,000 LCL shares after conversion of options.

**********************************************************
However,

The advantage of the options is leverage. If the share price goes to 42c, the options on market should be now worth closer to 25c, rather than the 5-6c currently, that you purchased. So you can sell them at a 500% gain, or $50,000 whereas your shares are still worth $0.42 x 47,619= $20,000 and only double the purchase value.

So before Aug 16 option expiry, you could potentially sell $40,000 worth of options = 160,000 options.
You have a profit of $30,000 (from your original $10,000 purchase) plus 40,000 options remaining.
If you wanted to convert them to shares before 16th Aug- 40,000x $0.16= $6,400

So you now have 40,000 LCL shares at 16c with a profit of $30,000- $6,400= $23,600 profit plus the 40,000 shares@ $0.42 = $16,800

$23,600 + $16,800 = $40,400 profit from initial $10,000 investment

**************************************************************

If the options are not in the money...

If the share price drops to 10c and your options are worthless, you have lost $10,000 whereas you would have $4,762 (loss of $5,238) if you originally purchased 47,619 shares at $0.21

So basically what we have seen recently is the option price tracking the share price, and not at a premium price. So for those savvy investors, in my opinion, they would take a punt on the options being in the money because the upside is significant, whereas there is minimal downside risk, based on the options not trading at a premium relative to the share price.

IMO only the short term price of Gold or a market correction is likely to see the options out of the money, or worthless, and a temporary setback. If that occurs, maybe the decision is whether you view LCLs value in 12-24 months as being worthwhile re-investing at under 16c (hypothetically speaking) if the options investment is lost.



IMO DYOR I hope I didn't mash that up totally.