r options tradable, page-24

time to just forget about the 4c component. That is just a wonderful gift to us holders. think in terms of when the ops are trading like the shares on the market. Say you are brand new to CVI in a month from now when the ops are trading so you have a choice to buy ops or shares. And say for example the shares are 60c and the ops are 45c. That's a 15c difference and it would cost you 15c to convert the ops into shares. In this case you would say there is no premium. But say the shares were 60c and the ops were 50c then that's only 10c difference so you would say the ops are trading at a 5c premium. Or, if you prefer, the cost of the op plus the conversion cost is 5c more than to buy an outright share.

So why does that happen ?? As I explained this morning if you only have limited funds to put into CVI AND you are convinced the price will be way higher next year then you will make more money because you can afford more ops. Remember the 15c conversion cost stays constant no matter how much the shares cost. So if the shares went ridiculous and were worth $10 then the ops would still be $9.85.

a good recent example was MPO. It had options (MPOOA). When I first bought mpo it was 7c and the ops were about 1c with 10c conversion. So that was a 4c premium. The smart people (not me) bought up big on the ops early. So for every 100,000 shares I bought they were buying 700,000 ops. By the time the ops were due to expire, they had lost their premium and in fact even lagged the shares a bit. ie an op was about 13c less than a share.

But here's the thing. the shares were about 28c (I think) at conversion time and the ops were about 15c.
So someone who have bought 100,000 shares was now worth $28,000 and someone who bought 700,000 ops at 1c was now worth $105,000. So you can see anyone who bought the ops came out way ahead even though they paid a premium and the ops were in fact at a discount at the end.

I hope that is all decipherable to you.