Help newbie in understanding Options (Using IB)

adamovicm · Jan 30, 2021

Investopedia says: "Call options are financial contracts that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other asset or instrument at a specified price within a specific time period. "

I was looking into the Option to buy MSFT on Jan 23th, 2023.

Found some with the strike price 235$.

IB shows this:
Call option with strike 235, ask price 44.35
Call option with strike 240 ask 47.20...

I don't understand this correctly it seems.
Shouldn't a higher strike price for a "call option" make the option less expensive?

So I can pay 44.35 now and pay 235$ on Jan 23th 2023 to get MSFT share with this call option?

I'm attaching a screenshot with the options offering.... if someone could help me in understanding this, it would be great!

Thanks

caroy · Jan 30, 2021

I see that screen shot showing an offer of $43.15 for the 235 call and $41.10 for the 240 call. That's normal. Did you attach the wrong screen shot?

adamovicm · Jan 30, 2021

Thanks, caroy! It seems I was looking into the puts instead of calls.

So if I understand now correctly from the chart it was possible to buy Call Option on March 17th 2023 to buy MSFT stock for 200$ if I pay 61$ now? Or option to buy the stock for 235$ if I pay 45.65 now? (assuming the graph is correct).

caroy · Jan 30, 2021

adamovicm said:
235$ if I pay 45.65 now?

It's the 230 call that is offered @ 45.65 and yes the 200 is offered at $61

adamovicm · Jan 30, 2021

Thanks caroy!

Another newbie IB sub-question, is it possible to mark an option to be exercised on its date using the IB web interface? I ask that as I currently do not own any.

Or to exercise the option, I need access to TradeWorkstation (market data subscription)?

To admin: I ask here as IB forum is not of the best shape and this forum looks great, I will try not to ask more newbie questions like this here.

caroy · Jan 30, 2021

If they expire in the money by .01 they will automatically be exercised. If you want to exercise early you can call or email the trade desk at your brokerage. I trade through TastyWorks so I just call the trade desk. And yes ask newbie questions on here. Traders will give you answers. Some with a little sarcasm and humor.

adamovicm · Jan 30, 2021

Aha, if they have any value on the expiration date, they will automatically be exercised.
So early exercise is possible, which means it is not on that date, but "up to the expiration date". I found a relevant article on Investopedia: https://www.investopedia.com/terms/e/earlyexercise.asp
so it's not possible for all Options, only USA style options.

caroy · Jan 30, 2021

Correct. American style can be exercised early. European style cannot.

guru · Jan 30, 2021

adamovicm said:
Or to exercise the option, I need access to TradeWorkstation (market data subscription)?

You shouldn't need market data subscription, while there is a feature in TWS to do this. I don't have TWS open right now, but you can Google it:
https://www.google.com/search?q=interactive+brokers+option+exercise
(some online articles/screenshots may be older)

JSOP · Jan 30, 2021

adamovicm said:
Thanks, caroy! It seems I was looking into the puts instead of calls.

So if I understand now correctly from the chart it was possible to buy Call Option on March 17th 2023 to buy MSFT stock for 200$ if I pay 61$ now? Or option to buy the stock for 235$ if I pay 45.65 now? (assuming the graph is correct).

No the option is called an American option. That means you have the right (not the obligation) to buy MSFT at $200 (strike price) anytime before or on March 17, 2023, not just on March 17, 2023 if you buy the option itself for $61 now.