Received free options - What do I do with them?

[Aussie BOB]

Morning Fello Traders.

Out of the blue, I have received some Options into my Share Trading account.
I own shares the same Company.
I'm assuming its a gift of some sort, from the Company, as I have not purchased them.

What do I do with them...?

I am a very basic investor only ever buying and selling
stocks.

Any tips or suggestions would be greatly appreciated.

AB.

 

[pixel]

Morning Fello Traders.

Out of the blue, I have received some Options into my Share Trading account.
I own shares the same Company.
I'm assuming its a gift of some sort, from the Company, as I have not purchased them.

What do I do with them...?

I am a very basic investor only ever buying and selling
stocks.

Any tips or suggestions would be greatly appreciated.

AB.

G'Day Bob,
congrats on your first post And a good question it is.

Company Options (as opposed to ETO's) give their holder the right to buy additional shares before a set date ("expiry date") at a set price (the "exercise price" or "strike price"). If the deal is appealing, i.e. the ordinary shares trade above the strike price, people may accept the offer and spend the extra money. Or they find somebody else who is interested to buy the options off them, speculating that the shares may rise further. But there is nobody forcing you to do anything. If you decide to neither sell nor convert the options, they simply lapse, i.e. become worthless on the expiry date. Being a gift, you haven't lost anything - except an opportunity to sell them at whatever price others may have been willing to pay during their lifetime.

Without knowing which company ("mother" or "motherstock") we're talking about, it's difficult to post an opinion except in broadest terms.
Companies issue bonus options for a variety of reasons:

• Rewarding loyal holders for their patience - often over difficult periods when the share price went nowhere or even down.
• Inviting investors to convert the options into new shares can avoid the need for capital raising.
• In some cases, it could be an issue aimed at giving the Market some confidence that the mother's share price will go up past the strike. But that's the cynic in me talking.

Summary: If you believe the shares are about to climb further, you may consider converting or you could sell the options like any ordinary share. You don't have to decide until about a week before the Expiry date.

 

[Aussie BOB]

Thanks for the reply Pixel.

So..... It seems I already own them, 3442 of them at 4.5 cents.
The stock price of the Company currently sits @ 17.5 cents.
Is it correct to say, that If I choose to convert them, they will each be worth the same price as the face value of the Company Shares...?
Its still not clear to me, how I convert them.....!

Appreciate the information.

AB.

 

[pixel]

Thanks for the reply Pixel.

So..... It seems I already own them, 3442 of them at 4.5 cents.
The stock price of the Company currently sits @ 17.5 cents.
Is it correct to say, that If I choose to convert them, they will each be worth the same price as the face value of the Company Shares...?
Its still not clear to me, how I convert them.....!

Appreciate the information.

AB.

"Conversion" means, you pay the strike price for each of the options and receive a new share instead, each new share being indistinguishable from any of the old ones you already own. Say, the strike is 10c and you want to convert 3000 options, then you send a cheque for $300 to the company and receive 3000 shares added to your portfolio. And if the shares trade at 17c, those 3000 new shares will be worth $510.
Depending on whether your share holding is CHESS or Issuer sponsored, you will need to ask your broker or the company's registrar for an option conversion form. Normally though that should have been provided when they sent you the relevant documentation about those new options.

Staying with the example, and assuming you could buy some more options at 4.5c, you could bring your 3442 that were given to you for free up to 10,000 simply by buying 6558 more on Market. Conversion at 10c would mean the shares bought with those options cost you 14.5c: 4.5c for the option, plus 10c to convert each option into a 17c share.

But you will have to do the Maths yourself because you still haven't mentioned the necessary details, such as share code and strike price of the option.

 

[Aussie BOB]

So Yes, I do have the "Notice of Exercise of .25c Options"
The options are Cobalt Blue Holdings Ltd.
Expiring on the 2 of May 2020.
I'm assuming I can sit on these until some time in early 2020..?
Its all quite confusing actually, my brain is not wired for this.
Thanks Pixel.
AB.

 

[pixel]

I'm assuming I can sit on these until some time in early 2020..?

That's correct. And you should hang on to the "Notice of Exercise" form because that's the one you need when / if ever you decide to pay 25c per option in order to turn COBO into COB.
At the moment, converting would mean you buy COB for 25c when you could buy them on Market for 7c less. But given the options are long-dated, many people will want the options, even paying 3 to 4c for them, on speculation that the mother is likely to exceed 25c at some stage before May 2020.