NVAO options, $0.0325 strike, 31 August 2020 expiry, page-17

Of course, do your own research, make your own decisions.

This is the key point to bear in mind. Actual value ( price paid at any time ) for the options is the market’s perception of the value of the options.

Options are a way to secure a right to an asset ( if conversion price is paid ) for a lower initial outlay. People value that facility provided by the options.

What the Black-Scholes effectively does is model the perception of value. It takes various parameters as inputs so the results it comes up with are affected by how those inputs are tweaked. Inputs include time to expiry, relative numbers of heads and options ( to account for dilution), strike price ( this is the conversion price ) and so on.

( so you can use the model to indicate whether options are trading at a premium or discount to the “value” indicated by the model )

You can use the formula as a general indication of whether options are trading at a premium or discount to the “value” indicated by the model.

I use the formala to understand leverage and therefore the rate at which the options will rerate relative to the heads. Some options have much better leverage than others.

I personally use options to achieve a relatively larger position for a lower initial outlay. I also use the leverage as a potential mechanism for covering the conversion costs ( if they rerate sufficiently, you can sell a portion of your holding to cover the conversion cost of the remaining portion but do need to factor in CGT ).

Options are also risky. They do require the company to meet or exceed performance expectations. They can easily become worthless if a company fails to perform.