10-07-2013, 04:58 PM
Grieve Wrote:You are spending $389.45 to buy 6 $17 call contracts at $62 each. The price is given at 0.62, but you multiple that by 100.
If you choose to execute those calls, you would have to buy 600 shares of VXX at ($17 times 600 = $10,200. If at that time VXX was selling at $20 a share, you'd have an instant paper profit of $1800.
More realistically, if VXX jumped to $20 next week, your 0.62 calls would likely be worth 4.00 or more. So you could just sell your calls for ($400 times 6 =) $2400, or a $2010.65 profit. So you never need to actual buy any shares.
Just bear in mind that if there is a deal (or even if things just look more positive), the ViX could fall and leave your calls all but worthless. You shouldn't use money you can't afford to lose.
Last year when Apple was at $700, I had call options worth tens of thousands in paper profit. Then as the stock price plummeted, it all disappeard. Options are not for the faint of heart.
So the real play here is to sell the calls, correct? Because otherwise I'd need to come up with 10.2k to actually purchase the shares, even though I could instantly sell them at a profit?