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LRS

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Thanks for that Jas, clarifies a lot. The fact you pay the...

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djenrod

143 Posts.

25/11/17

09:51

Post #: 29109473
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Originally posted by jas626 ↑

no worries I will give you a run down to my knowledge.

heads = LRS current trading price, today 1 cent
options = LRSOB - currently trading at 0.004c

so to work out what value to place on the options you need to know the exercise price
is LRSOB its one cent

so you need to add the one cent to the options which makes the options 1.4c
as you can see this means the options are trading at 0.004 above the heads (LRS)
its very normal for options to trade at a 3 or 4 pip premium to the heads especially if there's
a few years until they expire, in some cases where there is a significant event to take place soon for the heads the options could trade at a .6 or 7 premium to the heads.

so why do investors buy options and not just the heads?
the answer is leverage, what's leverage got to do with trading?
well this is why. example below.

you could buy 500k of the heads at 1 cent for 5k with a price in mind to sell these at say 4 cents, 500k shares sold for 4 cents would return you 20k minus 5k buy in is 15k profit

but instead
you buy 1,250,000 options at 0.004c for a total spend of 5k, same spend as above.
again you want the heads to hit 4 cents like the above example
you discount the 1 cent exercise price and not factor in a premium the options should trade at at least 3 cents, so 1,250,000 at 3 cents = $37,500 - 5k profit of $32,500

so in this example buying the options
retuned you $17500 more than it would of buying the heads,
( most likely more due to an extra 3 or 4 pip premium probably would result in an extra $3750 to $5,000)

but it also has a negative aspect if LRS drops its SP, as you can see back to when LRS was trading at 0.006 the options where only trading at 0.001 or 0.002
so if you buy in now to the options at 0.004 or 0.005 and the heads drop back to 0.006 the your options would only be worth 0.001 or 0.002.
in example above you would lose -$3750 to $2500
the heads in comparison if trading a 0.006 from your 1 cent buy would lose -$ 2000

I would only advise that if you have a strong conviction that the company will do well and you like the advantage of the extra leverage and are happy with the risk/ reward then its a option.
but the leverage does go both ways the good way and the bad way, hope that helps you out.

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Thanks for that Jas, clarifies a lot.

The fact you pay the excercise price of 1c later, which provides leverage is something I wasn't aware of and makes things clearer.

Another question on the exercise date e.g. 12/10/19. So i take its on this date the exercise price gets "billed" (so to speak) to the holder of the option and will invoiced to the broker? e.g. appear on comsec as if you just purchased a share at the headprice?

LRS Price at posting: 1.0¢ Sentiment: Hold Disclosure: Held
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(20min delay)
Last 20.0¢		Change 0.010(5.26%)		Mkt cap ! $560.2M

Open	High	Low	Value	Volume
19.0¢	20.0¢	18.8¢	$3.328M	17.22M

Buyers (Bids)

No.	Vol.	Price($)
5	906298	19.5¢

Sellers (Offers)

Price($)	Vol.	No.
20.0¢	1359434	12

View Market Depth

No.	Vol.	Price($)
5	215700	0.175
6	630000	0.170
7	1125150	0.165
8	1918920	0.160
10	651683	0.155

Price($)	Vol.	No.
0.185	1869389	8
0.190	3947046	21
0.195	3325980	9
0.200	2906221	23
0.205	1881708	11

Last trade - 16.10pm 07/11/2024 (20 minute delay)

LRS (ASX) Chart

Thanks for that Jas, clarifies a lot. The fact you pay the...

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