Options queries

[feeding_the_fire]

Hi there,

I have a question regarding options.

Someone in a forum suggested checking out TRFO and ERNO, so I went along to the ASX site to check out the graphs, recent prices etc. My questions are:

* How do I know what the exercise value is? ie: does it cost me 20 cents to exercise, 25 cents? I know you can pretty much calculate it (the difference between TRF and TRFO I'm assuming), but it would be nice to know if there was over or underpricing happening

* What type of options are these (I think these are the free/bonus options that you get a few months after the initial issue of shares)? Are these what are called "exchange traded options?"

Thanks for your help everyone!

 

[dutchie]

Re: Options query

G'day Feeding the fire,

Firstly, no they are not the same as ETO's. They are given out by the company to shareholders, employees, directors etc. and can then be traded (unless there is a time restriction on owners).

They have a exercise value which needs to be paid on or anytime before the expiring date to convert them to ordinary shares. The value of the exercise cost can be found by a search at:

http://www.tradingroom.com.au/apps/qt/index.ac

(Just enter the asx name TRFO and GO!)

The difference between the price of the share and the option is often not equal to the exercise cost.


Cheers

Dutchie

 

[feeding_the_fire]

Thanks Dutchie!

Guess I thought the ASX site would be the definitive place to look for such things!

2 more questions then if I may:

* Why isn't the option price always the difference between SP and exercise?

* Options such as these are different to options where you have put calls etc correct?

Cheers again!

 

[dutchie]

Feeding the fire

Your correct there are no puts and calls available on these types of options.

The difference in the price of the other options and the share price(usually the share code with a O added (TRFO,AEXO etc) is because they may be in more demand as they are leveraged (less capital exposure for the same no. of share exposure - plus you can decide at a later date if you want to exercise them or not (more bang for buck). So people are willing to pay a little extra to get them.


If you are also interested you can get a list of ETO's type options at the ASX:

Go to the ASX site - select "OPTIONS" (column on left)
then "General Notes" (lower centre)
then try "notice No 263 18th December"

(most Oz ETO's have a 5 letter code i.e. BHPS9 etc and you need to set up an options account with your broker to trade them)

Cheers

Dutchie

 

[wayneL]

* Why isn't the option price always the difference between SP and exercise?

Options have time value, and this can be calculated using the Black Scholes, or other, option pricing model.

* Options such as these are different to options where you have put calls etc correct?

These options are "call options". But as there is no put option available, they are not usually designated as such because it is taken for granted that that's what they are... but that is what they are.

Cheers

 

[feeding_the_fire]

Thanks everyone.. very helpful!