Originally Posted by
upside_umop
im not trying to get into an argument over where oil is going, but if options were to be used for a portion of production, then it is essentially money in the bank, yes? therefore it should be recognized by the market, as its underlying revenue stream is less volatile. shareprices are inversely correlated to volatility of their revenue streams, and in nzo's case, the underlying factor to its revenue stream is oil price..i guess you could say so is the nzd, but thats easily sorted too.
options are valued at fair value...so therefore are never usually mispriced to be 'expensive' as arbitragers will reduce any riskless profits.
you also say earlier that insurance would be needed. not for 'options' ...only if you were to be in a forward contract that would be the case...
options also can give limited downside, unlimited upside, if thats what your concerned about. nzo and ppp's arrangement involves a strategy called a 'collar' which limits both upside and downside for no outlay.