September 2018 - State of PSD, page-27

No - I sold SFGO the day they were issued and used that money to buy SFG. My view, possibly mistaken was that while the options would likely rise in value when the company increased in value, having to pay 10 cents to convert them into shares didn't make sense when I could buy shares at 6 cents. So, when I took as much of my allocation as I could afford, I pretty much immediately sold my options and bought more SFG, calculating the future enterprise value based on all those options being exercised.

If I still held options, there would be a case for exercising them at their current strike of 9.7 cents (I think, someone would need to fact-check that).

TBH - I'm not thrilled by options as a concept at this stage of SFG's life-cycle. Let me take you through three scenarios to demonstrate - let's assume you hold 75,000 options (SFGO).

Outcome one - you've got a little spare cash, but you want to maximise your available cash to buy into another opportunity.

Selling your options on the ASX today at 8 cents would yield about $6,000. On the other hand, exercising those options would cost you about $7300 to convert them into shares, and those shares would be worth about $12,000 (assuming a share price of 16 cents).

Selling the shares you got from exercising the options wouldn't make sense - you would make a gross profit of $4700, but by selling the options directly, you'd be better off with a gross profit of $6,000.

Outcome two - you have a lazy $7300 and you want to increase your holding of SFG. If you buy SFG on-market today at 16 cents, you will get 45,625 shares. If you exercise your options, with the same $7300, you will get 75000 shares.

But if you have options and want to add to your holding of SFG, then you should consider exercising those options because now you've simplified your portfolio and will have a larger holding. They're in the money if you convert them to shares you might be eligible for the capital-gains tax discount after holding the shares for a year, and it's by far the cheapest way to buy SFG currently. But that only works if you already hold the options and want to increase your SFG holding.

Outcome three - maximise your portfolio value​

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You have $7300 in cash, 150k of SFG, and 75k of SFGO, your portfolio is worth $37300 - but you're holding two types of risk - risk of SFG and risk of SFGO which is higher than the risk of SFG because people could work out that options are a mugs game If you exercise your options, your portfolio will be worth $36k, but you will de-risk the chances of being caught by an options value collapse.​

Now, the question becomes, are you better off buying SFGO or SFG?

Let's assume you have the same $7300 available - you can buy 45625 shares in SFG, or you can buy the right to buy 91250 SFG shares later for $8852. Buying SFGO is, in my worldview at least, a non-starter because you don't buy an asset, you buy a deferred obligation that may or may not be worth anything when that obligation falls due.

The numbers were different when SFGO floated, obviously, but selling them and switching that cash into SFG made sense because I increased my holding in SFG for basically no money, and eliminated the risk of that future obligation to exercise them.

Bottom line - I would rather own a share of a thing than own the right to buy a share of the thing.

Make of that what you will.