Forum Archive Index - February 2000

[Harley D Betts <BettsH@landcare.cri.nz>]

I'm no expert, but this is how I understand options and their leverage

The NOGOB exercise price is 70c, so if you simplify things and take the
option value to be the head share value minus the exercise price then the
options are currently worthless (of course this assumes the share price
won't move between now and Oct 2001 - clearly there is a lot of
potential it will)

Anyway, if the share price is, say, 80c then by my simple way of
looking at things the options would be worth 10c (same assumption as
before).  What happens if the share price goes up to $1from 80c  is that
the assumed value of the options would go up to 30c from 10c, keeping
to the idea that option value = share price-exercise price.  The advantage
of having options is obvious when you look at the percentage changes in
the share price (25%) versus the options (200%).  Of course if the
share price falls the options do the opposite.  This doesn't take into
account any theoretical models on option values based on time to expiry,
share volatility etc - just a simplified view.

Of course if I've got this wrong, someone please tell me quickly... :)

(Disclosure:  Hold NOGOB)

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