RBS Shares

gozomark

if you prefer greater risk, then if the share price is 16p and the option is 5p you spend the same amount on options and get 3 times the exposure :-)

xxtokerxx

^ although that probably made complete sense to you, I am now completely lost (New to this game)

gozomark

for ease, lets assume
share price = 15p
option price = 5p
conversion price = 35p in 3 years

1. buy 1,000 shares at 15p or buy 1,000 options at 5p
2. buy 1,000 shares at 15p or buy 3,000 options at 5p

if the share price goes to zero, under 1. you lose £150 in shares but only £ 50 in options. Under 2. you lose £150 in shares and £ 150 in options

if the share price goes to £ 10 in 3 years

under 1.
shares make £ 10,000 - £ 150 = £ 9850
options make £ 10,000 - 40p x 1,000 = £9600

under 2.
shares make £ 10,000 - £ 150 = £ 9850
options make £ 30,000 - 40p x 3,000 = £29,000 odd

(I'm rushing out, so haven't checked by numbers)

payless

If its a sharesave scheme , am I right in thinking at end of the 3 yrs you can either excerise the option ( at 35p if its to your favour) OR take the cash

xxtokerxx

I'll be honest I am lost again, probably me, but could be your figures?

I make 1,000 shares at 15p = £150
I make 1,000 options at 5p = £50

But then this appears to be options are a lower risk higher return option? 9/10 times?

Sounds like gold?

gozomark wrote: »

for ease, lets assume
share price = 15p
option price = 5p
conversion price = 35p in 3 years

1. buy 1,000 shares at 15p or buy 1,000 options at 5p
2. buy 1,000 shares at 15p or buy 3,000 options at 5p

if the share price goes to zero, under 1. you lose £15 in shares but only £ 5 in options. Under 2. you lose £15 in shares and £ 15 in options

if the share price goes to £ 10 in 3 years

under 1.
shares make £ 10,000 - £ 15 = £ 9985
options make £ 10,000 - 40p x 1,000 = £9600

under 2.
shares make £ 10,000 - £ 15 = £ 9985
options make £ 30,000 - 40p x 3,000 = £29,000 odd

(I'm rushing out, so haven't checked by numbers)

gozomark

if the share price remains below 35p, the options are worthless in 3 years time, whereas the shares are worth something eg share price of 30p - buying shares, you double your money, but lose it all in options. Some scenarios options are better, other scanarios shares are better

I've corrected my post to 150 and 50, not 15 and 5

sdooley

If this is through Direct Line sharesave, the option is given to you free if you save in the scheme. If you don't want to buy the shares at the end of the three years (e.g. because the bank has been nationalised or the share price is below 35p) then you don't have to and can get your money back with interest.

If this is right then you should definitely consider strongly doing this - it's potentially a very good deal and all you risk is not being able to use your money back for three years, you should still get it back.

The stuff gozo is talking about is for options where you have to pay twice - once for the option then again when you buy the shares. That's not normally the case with sharesave schemes.

gozomark

absolutely - if its given free, its a nobrainer as long as you don't need the money for 3 years, assuming its a reasonably competitive interest rate