|From:||"Gary Rountree" <email@example.com>|
|Date:||Sun, 28 Jan 2001 20:29:34 +1300|
At Fridays close IFT ordinary shares were $1.26 and the options 12c. The options have the right to purchase new shares at $1.40 up to year 2004. The issue of options often can have the affect of lowering the price of shares (especially if they are offered for free or at a substantial discount to market price as is typically the case with issues to some promoters and directors). However in this case the $1.40 buys something that the market is currently valuing at only $1.26, therefore, if the options (if excercised now) should not harm the share price at all..in fact arguably should enhance it.Having said that hardly anyone will until 2004
The percentage gains from the leverage as Phillip pointed out is impressive, however remember if the price of the shares in this example is $1.40 or lower in 2004 then you have lost 100% of your investment.
As far as switching from the IFT ords and to the options. At current prices at face value it is tempting. The way I see it :
- High asset backing
- Long time horizon
- Investments are not that cyclical/volatile, therefore holding options may be less risky than to some
- The sector has still remains out of fashion and perhaps every dog has it's day
- The shares offer very good dividends- which you will not get with the options, this may also hold be holding back the share growth somewhat.
- The shares reacted positive to the Scottish investment announced this week, however will this be enough to avoid it slip back into the trading range it has been in.
Option are used by people for a number of uses. If you are a long term investor and you want to buy Infratil you will probably just buy the shares. But if you want some leverage from a good price increase you can buy options. Eg. If the options were $1 option and Infratil was trading at $1.10, the options would be 11 or 12c depending on the prospects, but if Infratil went to $1.50, then the options would move to 50 or 55c or whatever, if bought the shares at $1 and they went to $1.50, that's only a 50%, return, but if you bought options over the same shares for the 10c and they moved to 50c then that is 5 times your money 500%. It is leverage, just like a house mortgage.
Traders and others use then heaps, long term investors use them if they can get the underlying shares cheaper than buying them outright.
Hope this helps