I have found what I think is a good trade that I plan to execute next week, but just wanted to bounce the idea off the knowledgeable ASF folk, and would love feedback from you guys on the validity of the idea or gaps in my thinking. In particular, although I have a fair bit of experience trading shares, I don't have much experience in trading options or valuing them.
So the company is one I watch and own, Altura Mining. They have two securities, AJM and then some options AJMOA which expire in August 2011 exercise price 15c. The options finished on Friday at 6c, so to buy them and exercise them would be a total of 21c. But the ordinary shares are trading at 22c, so options are 1c cheaper than the shares, and no time value is being prescribed. How would you go about valuing the time value? If they are undervalued, surely they will catch up shortly?
My other idea was to sell my shares at 22 next week, buy the same amount of options at 6, and bank the rest until exercise in August.
Any thoughts appreciated.