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The options trader makes a profit of $200, or the $400 option value (100 shares * 1 contract * $4 value at expiration) minus the $200 premium paid for the call.
In finance, the expiration date of an option contract (represented by Greek letter tau, τ) is the last date on which the holder of the option may exercise it according to its terms. [1] In the case of options with "automatic exercise", the net value of the option is credited to the long and debited to the short position holders.
The buyer of the call option has the right, but not the obligation, to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at or before a certain time (the expiration date) for a certain price (the strike price). This effectively gives the buyer a long position in the given ...
For an out-of-the-money option, the further in the future the expiration date—i.e. the longer the time to exercise—the higher the chance of this occurring, and thus the higher the option price; for an in-the-money option the chance of being in the money decreases; however the fact that the option cannot have negative value also works in the ...
Options of this form, for such terms, still constitute the vast majority of options activity. LEAPS were created relatively recently and typically extend for terms of 2 years out. Equity LEAPS typically expire in January. For example, if today were December 2020, one could buy a Microsoft option that would expire in January of 2021, 2022, or 2023.
A compound option is an option on another option, and as such presents the holder with two separate exercise dates and decisions. If the first exercise date arrives and the 'inner' option's market price is below the agreed strike the first option will be exercised (European style), giving the holder a further option at final maturity.
The option style, as specified in the contract, determines when, how, and under what circumstances, the option holder may exercise it. It is at the discretion of the owner whether (and in some circumstances when) to exercise it. European – European-style option contracts may only be exercised at the option's expiration date. Thus they can ...
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