Re: Buying call options
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-To simplify say you have call prem. of $5 per share & strike price of $50.
-Your stock is sitting @ $45. At prices of $50 and above you will exercise the call. (In the money)
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Wouldn't you want to exercise at $5<u>5</u> and above, because of the $5 cost of the option?
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You would still exercise it because you would rather break even then lose the cost of the option.
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You don't break even when you exercise your option when the stock is at $50. If the strike price is $50 and the option cost you $5 then buying the stock at $50 means you payed $55 for $50 of equity. You break even when the stock hits $55 because then you pay the strike price of $50 for it plus you've already payed $5 for the contract.
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