Hi all,
An option is a contract which gives you the right, but not the obligation to buy a share at a specific price, before a specific time. In this case MIZOA has a strike price (or exercise price) of $0.012 before 04 Dec 2016. Today the options (MIZOA) closed at $0.003 so if you are willing to buy 1 MIZOA for $0.003 you have the right to buy 1 MIZ for $0.012 (regardless of what the share price of MIZ is at the time) before 04 Dec 2016. If you buy the option at today's price you will need the share price of MIZ to be $0.015 or higher to break even since you have paid $0.003 for the right to buy and you will need to pay the company $0.012 for the actual share. However, some options, like MIZOA can be traded on the market like any other share. You can buy and sell the 'right to buy' at any time (assuming there is another buyer/seller). If MIZ share price does not reach $0.015 before 04 Dec 2016 you are not 'in the money' and there is no point to go ahead and buy the share from the company for $0.012. For example, if MIZ trades at $0.007 for a long, long time you would not pay the company $0.012 for a share that you on the market can buy for $0.007. This means your 'right to buy' is useless and you will not exercise your right. You will lose your investment of $0.003. The big question is then: Do I buy shares or options? MIZ or MIZOA? Let's use todays prices and look at the difference, benefits and risk. Let's assume an investor is ready to invest $1000 in the company. We mostly buy shares in a company because we believe the share price will go up so we can make a profit. He/she can either buy $1000/$0.007=142,857 shares (MIZ) or $1000/$0.003=333,333 options (MIZOA) for the right to buy MIZ at $0.012. Let's have a look at a few scenarios.
If the share price of MIZ is: Profit on MIZ shares Profit on MIZOA converted to MIZ
$0.007 Even Loss
$0.015 $1,142 Even
$0.025 $2,571 $3,333
$0.050 $6,142 $11,666
$0.100 $13,285 $28,333
I hope this clarifies the risk-reward with buying options. A lot of options end up useless but some do well. To all experts out there, yes, I know this is extremely simplified and there is a lot more to it but hopefully it will guide someone in the right direction. As always, do your own research.
Who knows where the share price will be prior to 04 Dec 2016?
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Long time follower of HC, first time poster. Sorry about the long post.
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