Newb question re: option placement

[doritos123]

hi, i'm fairly new to shares so would really appreciate help on this.

i've just bought some shares in Trafford Resources which should be floating soon, and articles on it say that "there will be a loyalty 3 for 1 option placement of one cent 12 weeks into the listing".

does this mean that for every 1 share i hold i will be able to purchase 3 shares for 1 cent?

are there usually any restrictions or things to look out for with option placements?

thanks for any help

 

[Realist]

"there will be a loyalty 3 for 1 option placement of one cent 12 weeks into the listing".

Well "3 for 1" means 3 for 1. So yes you get 3 options for every 1 share you own.

Not 1 for every 3 you own. Are you sure it is not 1 for 3 though?


And for 1 cent each? What the??

How much is the share price when they are floating? Is it above 1 cent?


If what you are saying is correct, this company sounds extremely dodgy to me, anyone with a 3 for 1 option scheme only 12 weeks after its IPO is laughable.

The earnings per share ratio could be dilluted by 75 %.

Most larger companies agree huge numbers of shareholder or employee options dillute earnings per share returns and are a bad thing in the long run. To fix this often they go and do buybacks and it all gets messy, the only winners usually are the upper management in the company (who have zillions of options - hence they like buybacks), the shareholders can get sh*t on.

If this company is still trading this time next year I'll be surprised.

I'd stay clear of IPO's the majority vanish quickly. sure they could be the next Microsoft or BHP. Just like my lottery ticket could win $16Mill - the odds are about the same.

 

[doritos123]

And for 1 cent each? What the??

yeah, hence my query cause it does sound too good to be true. for e.g. if i had 10, 000 shares and 12 weeks on the share price was the same as the float price of 20c. if i understand u correctly, this means that i could buy 30, 000 shares and then sell them straight away making 19c per share? (still abit skeptical)


FYI
*the article i mentioned is from australianinvestor.com.au.
**the IPO has closed oversubsribed.

Trafford Uses Proven Experience to Generate Results

Trafford Resources Limited is an Australian base Junior exploration company established to explore for and develop gold, copper and uranium resources in South Australia.

Utilising the proven expertise of its management team, Trafford Resources has assembled a suite of tenements located in South Australia’s Gawler Craton and the Pilbra Region of Western Australia.

Trafford is now looking to further exploration of these projects through a 20 cent per share IPO which is already attracting considerable interest from investors keen to capitalise on the recent market success of the company’s three focus minerals.

“We’re raising $3 million with provision for $1 million oversubscription because of the interest shown whilst we were putting this together and we expect to have full subscription,” says Trafford’s Managing Director, Ian Finch.

He says this interest has been primarily generated through the strength of the company’s Wilcherry Hill and Lynas Find projects and the expertise of the management team in identifying their prospective nature.

Wilcherry Hill is the company’s initial focus. The adjacent and underlying mineralising “Hiltaba“ granites, located in the tenement areas, have resulted in a number of strong prospects, which include the Weednanna, Mawson and Telephone Dam prospects.

The “Hiltaba” granites are also responsible for uranium mineralisation elsewhere in the Gawler As a result Trafford will be widening their search to include Uranium.

Using his knowledge of the area, Mr. Finch says he is confident of finding significant gold and copper and uranium deposits.

“We’ve acquired a thousand square kilometres of ground there from Aquila Resources which is essentially a copper-gold-uranium target area.”

“My history with Rio Tinto/CRA in South Australia means I have a depth of knowledge of the geology of the Gawler Craton and this is the perfect project to put that expertise to the test.”

“The main thrust will be towards the Prominent-Hill style copper-gold-uranium deposits which are associated with very large masses of iron.”

The company has five significant targets on the Wilcherry Hill project area “which could lead to something very much like a Prominent Hill-style of mineralisation,” says Mr. Finch.

“We know they’re relatively shallow from some of the drilling that’s been done before and some of the big ones haven’t been drilled at all so that’s going to be very exciting for us.”

“Because we’re a small company, we’ll be looking for some government help with some of our pioneer style drilling under their PACE program.”

At Wilcherry Hill the Company intends, initially, to re-analyse selected samples, from past exploration programmes, for uranium content.

“One of the first things we’ll be doing is profiling the sampling. We’ve already been back to the pre-1980 results and indeed Shell Minerals did sample for uranium and there is the anticipated mineralisation present.”

Success in this region will allow Trafford to re-establish exploration at Lynas Find on ten granted Prospecting Licenses that cover an area of 1,823 hectares.

“With Lynas we have acquired a gold mining operation, without the plant, which we are going to operate as an exploration project initially to identify an inventory of gold which will allow us to move into production as soon as possible.

“The former operators abandoned the project when gold was at a shocking price which meant they left a lot of gold behind because it didn’t make sense to mine at the lower prices and we hope what was left will total around half a million ounces.”

While Mr. Finch acknowledges the high potential of these projects, he says the company’s greatest strength is the expertise of the management team in being able to identify these areas which will provide the company the greatest chance of locating cash flow positive resources ahead of competing junior explorers.

“It’s the depth of experience of the people involved. The directors have masses of experience in a number of different areas and this is experience that’s clearly not evident in a number of other companies, so we expect to have the jump on a number of our competitors by virtue of this expertise.”

CEO and Managing Director Ian Finch’s career spans over 36 years of mining and exploration all over the globe, holding high-end geology positions for noted resource companies such as Anglo American, CRA (now Rio Tinto) and Bond Gold, in addition to establishing an extensive exploration portfolio in New South Wales for Goldminco. He was also involved in the establishment of Taipan Resources and Templar Resources and is currently chairman of uranium company Bannerman Resources.

Non-Executive Director Shane Sadleir is a soil scientist and geologist with 30 years experience in bauxite mines through his association with Alcoa of Australia Ltd and open cut gold mines in the Pilbara and Murchison Goldfields, in addition to actively exploring and assessing gold, uranium, nickel, base metals, bauxite and mineral sands projects in Australia and overseas.

Neil McKay, Trafford’s other Non-Executive Director is a former Associate of the Institute of Chartered Accountants in Australia and has been involved in the resources industry for more than 28 years. He has held senior administrative and accounting positions for a number of other resource companies, specializing in the incorporation and administration of resource companies with special focus on South East Asia.

This management team is unique amongst the current crop of juniors in the fact the company does not have a Chairman, although Mr. Finch says this something that will be remedied as the company grows, he adds that the current structure allows for better communication throughout the company structure.

“The important thing with a Junior company is that you have a very short distance between the field and the boardroom as we need to be able to make decisions very quickly.”

“In a Junior company the role of Chairman is often performed by the CEO anyway so when you’re setting up it’s often a good idea to double up on some of the positions to improve the financial status of the company and we will draw the Chairman from the current board when it is appropriate.”

Upon listing, Trafford will commence drilling and re-sampling on its prospects in order to capitalise on the current price boom for the company’s target commodities, beginning at Wilcherry Hill.

“We actually picked the market last year that copper, gold and uranium were going to be special in the resources sector, and we seem to have been right in our predictions-copper is at all-time highs, gold is within a whisker of record figures and uranium is coming back into vogue.”

Mr. Finch says Trafford will also undertake an options issue shortly after listing to reward those investors who get in on the ground floor.

“There are no options on issue with the IPO, but there will be a loyalty 3 for 1 option placement of one cent 12 weeks into the listing, which will allows us to establish some stability on the market during the first 3 to 4 months, as does a voluntary escrow from our seed capital investors.”

This offer is just one example of how the company has carefully crafted its listing to ensure shareholders, and the market as a whole are presented with a quality Junior Exploration operation with proven areas of mineralisation and a team with the right amount of drive and know-how to identify and extract the target commodities identified.

“We’re a company that’s going to prudently use the funds in the way they (the shareholders) expect us to use them- in exploration- and I think we’ve got an excellent chance of being rated very highlby the market.”

“We know what we’re doing- as a board we’ve been through two of these cycles before and this will demonstrate to people as we go forward that we have a strong chance of success.”

 

[Realist]

Got it now.

After 12 weeks you'll be able to buy options, it sounds like up to 3 times the number of shares you hold at the time.

So say you bought 1000 shares at 20 cents each. You can then buy 3000 options for 1 cent each.

They will cost 1 cent each. BUT... The exercise price is probably something like 30 cents each and they will have an expiry date.

So unless the share price goes above 31 cents before the expiry date the options are worthless.

The share price would have to pretty much double for them to be worthwhile I'm guessing.

And if the share price doubles you'll be happy anyway.

I would not buy this share, or its options. Or if I did and it went up a bit I'd dump it. It's far too specualtive for me.

But if you have alot of spare money - what the hell, gambling is fun!!

 

[suhm]

you get one option for every 3 shares you own for an issue price of 1c and the excercise price is 25c and they expire in 2 years. So the share price needs to go above 26c for them to be in the money and cover the cost of issue. The 1c would be the time value i suppose but you would have to ask someone who actually trades options if they were any good

 

[cuttlefish]

Whether the options are worth anything will be dependant on the strike price, the exercise date and the share price at the time of issue.

But if the strike price is near the shares issue price, and the share price has been either stable or rising following the listing and has reasonable liquidity (i.e trades on a regular basis with reasonable volume) then its likely the options will be worth more than the 1c issue price.

(But seek your own advice, particularly if this is the first time you're participating in a penny mining IPO).

 

[NettAssets]

How do you calculate the value of an option given share price, time to expiry. interest rates etc.
Anyone got a spreadsheet or formula
John

 

[wayneL]

How do you calculate the value of an option given share price, time to expiry. interest rates etc.
Anyone got a spreadsheet or formula
John

http://www.cboe.com/framed/IVolfram...ADING_TOOLS&title=CBOE - IVolatility Services

If that doesn't work go to www.cboe.com => trading tools => option calculator

I'm sure the ASX site will have a similar calculator as well

 

[NettAssets]

Thanks Wayne

ask the world and it comes from next door!
John

 

[NettAssets]

So one can use an ETO calculator for company issued.
Interesting it gave me an option price above the share price with 400 days to expiry and IV of the underlying
was calculating on MMNO 30% IV

means they are worth 3 times what I paid today!

John

 

[wayneL]

So one can use an ETO calculator for company issued.

That is something I do not know. I'm only guessing it should be the same.

Interesting it gave me an option price above the share price with 400 days to expiry and IV of the underlying
was calculating on MMNO 30% IV

means they are worth 3 times what I paid today!

Ohhhhhh! Something wrong there. One of the inviolable principles of option pricing is that the option cannot be worth more than the underlying.

John

John, give me some time I'll look into this.

Cheers

 

[doritos123]

thanks y'all

 

[NettAssets]

Have had a bit more time to play with it and it looks like I am getting some pretty fair results now so it looks like you are right Wayne.

The actual days to expiry is 869 for MMNO using underlying of 25c it calculates todays close 13c at a Historic Volatility of 88% which is about the 15day value.
Using the 50 day HV 42% gives a fair value of about 7.2c
This using Optiongear.
John