Could someone please explain this transaction

[stargazer]

Hi all

Can some please explain this options thing.

Saw on a thread someone had bought options at $0.15 that expire in 4 years time. The current share price is $0.26c

How does this transaction work
They buy the options at 15c...Does this mean they have to hold onto them for the next 4 years..i am lost here. Are these Put options?

Options have a code with an O at the end.

What would be the risk with this type of dealing.

Cheers
SG

 

[rub92me]

They were probably talking about company options, with a certain expiry date and exercise price. You can trade these options just like ordinary shares.
Example:
Say the current shareprice of share xyz is now 30 cents.
You can buy options xyzo with exercise price 50 cents and expiry june 2010 for 15 cents. At the moment these options are out of the money. When the shareprice goes up to say 40 cents(+33%) in two months, the price of the options will have gone from 15 cents to maybe 25 cents (+67%). So the attraction in buying the options is the extra leverage. The extra risk is of course that if the options expire out of the money, you are left with nothing (as opposed to shares which will have a remaining value, unless the company goes completely belly up.

 

[stargazer]

Thanks for your reply and explanation that clarifies it for me much appreciated.

Cheers
SG