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Exercise an option to long a stock??

post #1 of 4
9/26/11 at 9:46pm
Thread Starter 

Im planning to buy 100 shares of a stock that pays a divy so Im going to hold it until they stop paying out. Part of my creating a passive income plan.

 

My question is if I buy the call option and then execute it will it be better than buying 100 shares at current value?

 

stock trades for 6.75/share     $685 with commission

Oct. 5x calls 1.80     $180 for the contract + $500 to exercise is 680 plus 10.75 commission= 695.75

 

my question is, is it worth the Extra security knowing i got in at $5 a share? Im hoping that I can wait it out a bit and the time decay will eat these options prices a bit more. but so far am I right? Is there a seprate commission fee for exercising a option?

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post #2 of 4
9/26/11 at 11:52pm


 

Quote:
Originally Posted by naorcaldrifter View Post

Im planning to buy 100 shares of a stock that pays a divy so Im going to hold it until they stop paying out. Part of my creating a passive income plan.

 

My question is if I buy the call option and then execute it will it be better than buying 100 shares at current value?

 

stock trades for 6.75/share     $685 with commission

Oct. 5x calls 1.80     $180 for the contract + $500 to exercise is 680 plus 10.75 commission= 695.75

 

my question is, is it worth the Extra security knowing i got in at $5 a share? Im hoping that I can wait it out a bit and the time decay will eat these options prices a bit more. but so far am I right? Is there a seprate commission fee for exercising a option?



Negative, this is wrong. For both choices you have here, your endstate is $675 worth of the stock. So whether you got "in" at $5 or $6.75 is irrelevant because you end up with 100 shares at the current value.

 

So just to beat the dead horse, is the stock went up 10% tomorrow, both of your situations would yield you a profit of $67.50. So just flat out buying the stock and not messing with the options contract is better because the option just adds extra commission fees. And yes, exercising does cost commission fees as well, usually more expensive than the typical trade costs.

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post #3 of 4
9/27/11 at 12:21am

Whats the stock?

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post #4 of 4
9/27/11 at 12:22am
Thread Starter 

RGR Semper oorah.

 

the stock is ARR

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