Most ASX-listed companies have only one class of fully paid ordinary shares (rather than the A class and B class shares that are more common in the US - some with voting and other rights, some without those rights), and most ASX-listed options are over ordinary shares. What that means is that if the options are traded - i.e. bought and sold - it means nothing to the underlying shares, but if they are exercised, then they convert to normal fully paid shares, at the exercise price (also known as the "strike price"). All options have an exercise/strike price. Options are regarded as being either "in the money" or "out of the money" depending on whether the exercise price is below the current share price of the ordinary fully paid shares, or above that price. If they are NOT in the money, there is little incentive to exercise the options because you can buy the underlying fully paid ordinary shares on market for less than the cost of exercising the options. Many companies have a variety of options which have different exercise prices - and they will all trade (if they are ASX-listed options) with different ticker codes. Unlike FPO (fully paid ordinary) shares, options also have an expiry date. It's important to know when your options expire, because if you don't exercise them before they expire, they become worthless and can't be used at all. If the strike price (exercise price) remains well above the FPO share price through to the expiry date of the options - you'd still be better off buying the FPO shares on-market and allowing the options to expire because exercising the options would cost you more. Options are good (a) if you get them for nothing (which often occurs - such as when they are issued as part of an entitlement offer or other capital raising offer, or as part of an IPO) or (b) if you can buy them for next to nothing (very cheaply), because they can give you an option to buy the underlying FPO shares at a pre-determined price up until the option expiry date which can be very lucrative if the underlying FPO shares shoot the lights out. The way people look at that is that they are paying not very much for an option to participate in some significant upside should it occur in the underlying FPO shares. However, when buying options on-market there are many things to consider, and I've mentioned a few of those here. Most options end up expiring worthless. When options are exercised, they do convert into FPO shares, so it does result in new shares being issued, which does dilute existing shareholders. Often you will see companies quote two market caps for their company, a basic market cap (total shares on issue multiplied by the current share price) and a market cap on a fully diluted basis - which is defined as the number of issued shares plus the number of options multiplied by the share price. The option price should ideally be at a price equal or less than the current share price to be included in a fully diluted basis but this is sometimes ignored. Particularly in relation to capital raisings, companies will tend to include a list of all outstanding options, or of their top 20 option holders (in addition to their top 20 FPO share holders) to give people an idea of either who the largest option holders are and/or how many options are out there, and what their respective strike (exercise) prices are. This gives prospective shareholders and existing shareholders who might be considering topping up their existing investment the opportunity to consider any possible or probable dilution that may occur should those options be exercised. The strike price of the options helps with working out what the likelihood is of that occurring. There are often heaps of UNlisted options on issue as well, and all of the same things apply to unlisted options. The only difference is that you can't buy and sell unlisted options on the ASX, but they can still be exercised simply by sending a cheque in to the company's share registry (or their head office) any time up until the expiry date of those options. The exercise of those options is equally as dilutive to other existing shareholders simply because they result in additional FPO shares being issued. For that reason, most companies will regularly update the market about both their listed and unlisted options outstanding. Hope that helps.

Very informative. Thanks a lot Bear.