Forum Archive Index - February 2000

["John H T Wilkinson" <jhtw@clear.net.nz>]

Greetings Everyone,

 

I am trying to get my head around "Options" and whether I should go for NOG or NOGOB!

 

Frank Newman, in his recent book "Making Money on the New Zealand Sharemarket" gives an example of how to make money on trading options and on page 290, refers to the "Black-Scholes Options Pricing Model".

 

Has anyone come across this model?

 

Can it be viewed on the Web?

 

Frank's example shows an increased share price and increased option price, so "Bingo" you have made more by buying the options.

 

But check the following scenario:

 

HEAD SHARES

Buy   NOG           5,500  @  60¢   =      3,300

Sell   NOG           5,500  @  92¢   =      5,600       Gain/(Loss)   $1,760

 

OPTIONS and Pay CALL

Buy   NOGOB    15,000  @  22¢   =      3,300

Call   NOGOB    15,000  @  70¢   =    10,500 

 

   Total Cost       15,000  @  92¢   =   13,800

Sell   NOG         15,000  @  92¢   =   13,800        Gain/(Loss)       Nil  

 

(Transaction costs excluded)

 

 

I am thinking there is more to it than my simple scenario.

 

The pricing model might provide me with the insight I need to make a decision or maybe there is someone out there who can guide me (us !!) on this one.

 

Thanks for any help,

 

John Wilkinson