When you buy a call, you are not required to buy the 100 shares of stock. You have the right, but not the obligation. In fact, the vast majority of call buyers do not actually buy 100 shares of stock. Most buyers are speculating on the price movement of the stock, hoping to sell their options at a profit rather than buy 100 shares of stock. As a buyer, you have until the expiration date to decide what action to take, if any. You have several choices, and the best one to make depends entirely on what happens to the market price of the underlying stock, and on how much time remains in the option period.
Using calls to illustrate, there are three scenarios relating to the price of the underlying stock, and several choices for action within each.
1. The market value of the underlying stock rises. In the event of an increase in the price of the underlying stock, you may take one of two actions. First, you may exercise the call and buy the 100 shares of stock below current market value. Second, if you do not want to own 100 shares of that stock, you may sell the option for a profit.
Every option has a fixed value at which exercise takes place. Whenever an option...
To view and download this full PLR article, you must be logged in. Registration is completely free. Once you create your account, you will be able to browse, search & downlod from our PLR articles database of over "1,57,897+" on 1,000's of niches and 200+ categories without paying a penny. Click here to signup...
