Low Exercise Price Option

A Low Exercise Price Option (LEPO) is a European call option (i.e. one that can only be exercised at expiry) with a strike price of one cent per share for one contract (= 100 shares). It is a forward purchase by the buyer of shares, who makes a small (low cost) upfront premium and pays the remainder of the premium over the life of the contract. The low-cost element means LEPOs are deep in-the-money, which means they behave like the underlying shares, with the added benefit of leverage – i.e. the investor only pays out a very small premium and not the full value of the shares. However, LEPO buyers don’t receive dividends or voting rights associated with the underlying shares.