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RSG $1.30

why is there no premium on the rsgo option?

  1. stolwyk

    22,691 Posts.

    A very good question indeed:
    Options (RSGO): 51.2 mill. to convert @ 80 cents on/before 11 June 2005.

    At present, there is close to 80 cents between the Share price RSG and the Option price RSGO.

    One would have thought there ought to be some premium, as borrowing 80 cents but yet not paying any interest, is normally unheard of.

    There ought to be a minimum premium of at least 8 cents (borrowing 80 cents at 10%)

    Assumes the share price moves say from $1.70 to $1.80 (+ 5.9%), the option tends to move 10 cents as well, eg from 90 cents to 100 cents, an increase of 11.1%, a much greater increase than the share has.

    Also, one can buy (not quite) two options for the cost of one share.

    Sometimes companies have SPP's, a sort of cash issue. To partake, Option holders often have to convert their options into shares, a drawback of certain options.

    There are risks in making cash issues and many companies prefer Placements to Institutions/"sophisticated" persons. RSG doesn't raise money often but if it does, eg. to buy a Mill, I would expect a Placement, not a cash issue.

    RSG is robust and can borrow quite a lot of money at a Bank anyway.

    Placements can be normally done quickly during trading halts.

    So, why is there no premium on the RSGO Options?

    Or will there be one soon?


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