When you exercise a put option, you have the right to sell your stock at the strike price of the put option. You can now sell your option that you paid $5 for and get $12 back meaning you have had a 140% profit. The $3.00 is the premium or extrinsic value. When you buy a call, you go long and have the "option" of buying the underlying stock at the option's strike price. The cost was $3.52/sh with a maximum return of $30/sh.
I know) I'll add a real life example - This trade was entered a year ago. Holding an option through the expiration date without selling does not automatically guarantee you profits, but it might limit your loss. 1. The next day the option price of AMD increases from 11.50 to 11.80. The cost of the option has increased from 0.05 to 0.12.
Technical definition: The fixed price at which the owner of an option can purchase (in the case of a Call), or sell (in the case of a Put) the underlying security when the option is exercised. What the strike price is compared to the price of the stock right now. The net exercise price is equal to the strike price selected, plus any per share premium received. If the company reaches well above $40 before November 9th then what happens? If you don't want to exercice the option to buy the stock, do you still have to hit the strike price before the expiration date to make a profit? For example, if a stock is at $100, a call option with a strike price of a $100 might be worth $3.00. If you sell before the expiration date then the price is what the public will pay. The SELLER, or the WRITER, has the OBLIGATION, to SELL the stock to the BUYER at strike. The call has two values: 1. How many days are left before expires. For instance, if I buy a YUM (YUM Brands) call for $45 July 08, at .20, and the stock reaches only $43, but the ask is now $1.50, can I sell the option and take the $130 per contract profit? You can either sell the option or let it expire worthless. A call option gives the buyer the right, but not the obligation, to purchase a stock at the call option's strike price on or before the contract's expiration date. Your "break even price" would be $12.05 (the strike price of $12 + the cost of the option which was .05). It's a spread. 2. If you write (sell) put options with a strike of $100 and the stock price declines to let's say $80 there are two things that can happen. If the option … Congrats, if this ever happens to you. (And sell half, before you lose it all. I bought 1 call option for company XYZ at $1.00 expiring November 9th with a $40 strike. The objective when selling a call option is to collect premium or extrinsic value. The strike price is often called the exercise price. You do not have to exercise this option, however. You can buy or sell a put or a call at any time. Okay first off, this question might be better if its split in 2. If you sell the option, you would become the seller to whoever buys the option from you. For a call option, the break-even price equals the strike price plus the cost of the option. Selling covered call options on stocks that you own could force you to sell the stock for less than its value if the stock's price rises above the negotiated strike price. Tip. I can either exercise the option to buy 100 shares at $400 or sell my contract to the highest bidder? In Carla’s case, GE should trade to at least $27.26 before option expiry for her to break even. Choice #3: Do nothing until option expiration.
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