You will need to convert the options at 2.5 each on top of what...

You will need to convert the options at 2.5 each on top of what you paid for the option e.g. 1 option at 2 would cost an additional 2.5 to convert to a share. Total would be 4.5c

Any gain or loss is the difference against the current share price. Be up .5 if share is at 5.

That's my understanding. Cash goes to the company as opposed to the market. Cash going to the company adds value to the share price and prevents requiring capital raising.

Best to have this checked as I've not played with options. Being up sold at Maccas is about the only option I exercise.