Option Millionaires

[Imapuppy]

No, what you are missing is this:

You only bought one contract which entitled you to buy 100 shares of the stock at $40. The stock is currently trading at $40.50. So, if you were to exercise your profit would look like this:

Buy 100 shares of SODA @ $40 for a total of $4,000

then lets say you immediately sell into market...

Sell 100 shares of SODA @ $40.50 for a total of $4,050

That is a profit of $50. Don't forget that you also paid $.80 x 100 shares for 1 contract for the RIGHT to buy the stock at the strike price. So, you paid $80.

Now you've LOST $30 on the trade, plus commissions which will likely equal $20 or more. The reason why? Because you gave up the time value, since the longer out the expiration date is, the higher the time value, or premium you pay to give you some time leeway.

So, if you trade out of the 1 contract right now, you would make more because you get time value from the trade too.

If you trade out now, you would make $120 because you bought 1 contract at .80 for a total of $80, and can sell it at $2.00 for a profit of $120 minus fees.

Hope this clears things up. You almost NEVER want to exercise options, just trade out.