September 2018 - State of PSD, page-32

I think you’ve missed the most critical point of my portfolio - it’s debt free. The option path is basically a margin loan - and just like a margin loan while it can increase your profit it can also increase your losses.

My logic boils down to “why buy a right to buy the milk when I can buy the cow?”

I understand people may take a different view, when I do the arthemetic I don’t really see a case that makes me particularly better off...

Let’s say we have $10k I’m lazy cash. At 16 cents that can buy me 62500 SFG, or 125,000 SFGO (8 cents). If I go down the SFGO route, I also need to find an additional $12125 before June 2021. SFGO costs $22125 for 125,000 shares or 17.7 cents, which is 10.7% higher than buying SFG.

Let’s say in June 2021 SFG trades at $1 for a round number - that $62500 in the direct option is paid for free and clear with $52500 profit. The options get you $102875. Sure great - gear up, no brainer.

What if we’re wrong? What if there is huge dilution and the stock is worth 18 cents in 2021? The direct option gets a gross profit of $1,250, and the options route gets you a profit of zero.

My risk appetite doesn’t include derivatives. Different strokes. I remind I was asked what I thought - don’t be offended when I share my thoughts.