A question from a reader....
You say "in your ebook [about a company which] is 7c right now and I notice that they have 400 000 exercisable options at 25 cents expiring in March... I have seen it mentioned in your book that companies may try to raise the share price in order for them to be exercised or is that wrong in this case? If so, how can you you tell if this will or wont occur?"
The answer to this question is evident in the context. Consider the following factors:
1. A company is only going to bother underwriting options if there are a lot of them due to expire. In this case, 400,000 is very few, i.e. Only 0.5% of their issued capital. There is no question of dilution or raising a great deal of money, or even option holders selling shares to exercise their options, if they are so inclined to maintain their exposure.
2. The funding would be needed for something - justification required perhaps for an underwriter. In this case, the company has $25mil in cash and a Chinese partner with access to cheap capital.
You can of course learn more about our Global Mining Investing at website. I describe the case of Western Reefs in the 1990s, which had a very large number of options overhanging the stock. Options in these days were an inducement to take up an issue. Now, these options were underwritten in order to raise funds for an alluvial gold processing plant. I new the share price would be supported in order to ensure those options remained 'in the money' at the point of expiry. This would induce many shareholders to exercise, and would allow the underwriter to avoid fully carrying the cost of the option funding. The underwriter would need to provide some support or confidence in order to exit their own exposure. That might be some time in the future if they believe in the long term outlook for the stock.
Japan Foreclosed Guide Profiting from the Gold Boom Global Mining Investing eBook
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