vilo options, page-23

mohandes i remember wilson posted a very good summary about options on bcc thread.

i have copy and pasted below. you will obviously need to substitute for vil.

btw am not cross promoting. this is a good laymans guide to how options work.

...

"Thought it best to open a new thread as there are and have been lots of questions around this.

- BCCO is exercisable at 10c on 30th November 2012
- They trade just like ordinary shares through your regular broker and process
- To convert them to ordinary BCC shares, you fill in a form, send a cheque and 2 weeks or so later they disappear and become BCC
- Options are usually less liquid than heads, in quiet periods
- Options usually lag more as expiry approaches unless the heads are at a greater price than the conversion price
- What if they cost 10c to convert and heads are only 3c? If you can't sell them, you let them expire and take a tax loss
- BCCO though are roughly 3 years to expiry so are excellent leverage
- BCCO until last week, has seen greater % gains often than the heads
- Of course this can work in reverse
- It's not unusual to see options being bought up quickly prior to a run on the heads.
- As confidence builds, people know the gap between heads to options will narrow

What do they really cost?

- You bought 100,000 BCCO at 6c and hold for 12 months
- Say BCC was $1.20 (gotta have dreams right), you convert them to BCC
- They cost you 100,000 x 16c = $16,000
- If you sell them at $1.20 you get back $120,000
- In the perfect world of course, and excluding brokerage and tax

Some have asked why BCCO is lagging behind the heads somewhat today, but not so much last week.

Please consider, we are in a holding pattern while we await the update on spud day, so on the way up recently from 5c heads to 17c, with strong momentum the gap between the heads and oppies closed.

When we get the good news we want, I expect this gap to once again close. Oppies can be less liquid than heads, for those unfamiliar with them, until good news comes in, then you get the benefit of leverage and % gains getting everyone excited.

I remember buying some BCCO at 3.2c on a bad dow day, when heads were around 11c then next day it was all green again, heads went back to 13c or so and oppies to 4.2c

If we see BCC jump to 17c on good news, BCC will likely hit around 9.5c or 10c like it did last week in the same scenario
That's a 30% gain for BCC and 66% gain for BCCO.

Options aren't for everyone, but they are a lot simpler than many probably expect. I tend to buy both heads and options when accumulating stock.

Anyway, I have probably missed a lot, but am sure people can keep me honest or add to this.

Cheers,
Wilson"