Options and difference on long term options

J

jobav51923

Hi,
I've recently started trading on IB, found interest in options due to higher security of money. One thing I am not fully understanding, for example I can buy AAPL options where strike is $120, price is $6.4 and it's expiring in 4 days, if I call it I am saying AAPL stock will be over $120 in 4 days? and everything rest is profit to take minus $6.4 paid per stock? I am not understanding I am not obligated to sell like in futures/warrants? and I can hold it for next 30 days? and sell it when I see it fit? as long as AAPL is over $120? if that is true, for example options that expire in 18 days for AAPL are $8.4 per stock for $120 as well, why would I buy 18 days expiry for $8.4 when I can buy them for $6.4 and not sell?

Thank you
 
If it expires in 4 days then you cannot hold it for 30 days. It will be converted to 100 shares after 4 days (if AAPL is above $120 at that time).
Longer time/expiration is more expensive because the option seller takes more risk over longer time. The stock price has more room to go higher over longer time.
 
Last edited:
jobav51923 said:
Hi,
I've recently started trading on IB, found interest in options due to higher security of money. One thing I am not fully understanding, for example I can buy AAPL options where strike is $120, price is $6.4 and it's expiring in 4 days, if I call it I am saying AAPL stock will be over $120 in 4 days? and everything rest is profit to take minus $6.4 paid per stock? I am not understanding I am not obligated to sell like in futures/warrants? and I can hold it for next 30 days? and sell it when I see it fit? as long as AAPL is over $120? if that is true, for example options that expire in 18 days for AAPL are $8.4 per stock for $120 as well, why would I buy 18 days expiry for $8.4 when I can buy them for $6.4 and not sell?

Thank you
More...

Buy AAPL $120 Call for $6.4
Your break-even is now $126.4 (120+6.4) so the price of AAPL needs to be above $126.4 for your Call to be in profit if you hold to expiration. The Call can become profitable though prior to expiration without the stock going above $126.4

***When an option expires, you don't own any stock so you need to sell the option prior to expiration or exercise it (convert to stock).
***If AAPL is at $125 at expiration, your option is worth $5 so you lost $1.4 (6.4 - 5)
 
You must log in or register to reply here.
Back
Top