Forum Archive Index - February 2000

[Chris <autotron@ihug.co.nz>]

Ah, from my trash can the answer to my q




At 07:11 PM 2/10/00 +1200, you wrote:
>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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