when is the drilling at ms2 to start?, page-12

The possible gains to be made in the options will be directly related to the upside potential of the company...

In the immediate future, this will be driven by Marathon, however their other business activites can also be expected to have an overall impact down the track.

Several scenarios;

1. If they hit the jackpot at Marathon and make an exceptional find, the share price may find itself comfortably trading above $1...in which case the options are obviously very good value.

2. A good but still relatively inconclusive find (but one which suggests further upside), may see the shares trading in the 30-40c range, however the options should still maintain some kind of premium due to the upside potential...in this scenario, once again, the options offer very good value.

3. A reasonably good and genuinely "encouraging" result should see the shares initially flat, but eventually rising to the 20-30c range over time...in this scenario, the options can be expected to lose their premium due to the perception of decreasing upside and the looming exercise date. As a result, the options will probably provide about the same returns as the fully paids from todays prices.

4. An average but still inconclusive result should see the shares holding current levels, perhaps after some intial weakness...in this scenario, the options can be expected to perform poorly as they begin to lose their premium due to perception of limited upside, as well as the looming excercise deadline.

5. Barren holes will not be good for either the shares or the options and should see prices re-testing recent lows...in this scenario, the options will perform the worst, possibly even trading at a discount to the prevailing market value.

Options are a strange beast and can take some getting used to.

The best way to utilise options is to buy the same quantity as you would otherwise have done in the shares. This way, for less money you get the same level of exposure to any movement in the share price...however if things do go all pear shaped, your level exposure has been minimised.

Things start to go wrong when people try to use the options to achieve greater leverage...spending the same amount of money, but due to the lower price, buying more! This approach can be very rewarding when things are going in the right direction, however can become very costly if they aren't!

You really should only trade options if you know exactly what you are doing!

Options can be unpredictable, however generally speaking, the options can be expected to carry a premium only while there is a perception of upside potential in the fully paids...end of story!

The level of this premium will directly relate to the markets interpretation of this upside.

Importantly however, as the price of both the fully paids and options continue to rise, the % premium on the options can be expected to reduce, regardless of any remaining upside potential of the shares. This is mainly because the attraction of trading options is normally due to the % difference between the two prices, and the leverage provided...something which decreases as the price of each rises.

Cheers!