Stock Markets Exposed

Is there any problems with buying a stock option with lower strike price?

than the stock quote and then excerise the option contract and sell that stock at the higher market quote price? Is there a catch some where? Can I buy .GECY@$6.80 w/ strike price $27.500 exercise the call option buy and sell GE@$34.21. Thanks

Public Comments

1. If you have options to exercise for a stock at x, which is lower than the market price, you can exercise the option and sell it immediately (unless your company has a prohibition on the sale of newly aquired stock via an option agreement). The only thing you will deal with is the short term capital gains tax since you didn't hold onto the stock for the min time required (I think it's 1 year), so you'll be hit with the highest rate, I believe it is 35%.
2. You want the stock to go UP in a very short period of time. You HAVE SOME challenges: 1] You have time as your enemy. You might have to buy much more time for the option to get "in the money." 2] This is a sort of Bearish to consolidating market. You want the stock to be like a salmon - to swim upstream. 3] You have other issues, too. You need to do some more research. Thanks for asking your Q! I enjoyed answering it! VTY, Ron Berue Yes, that is my real last name!
3. <<<Is there any problems with buying a stock option with lower strike price than the stock quote and then excerise the option contract and sell that stock at the higher market quote price? Is there a catch some where?>>> The catch is that no one will ever sell you a call option for less than intrinsic value, so you will lose money if you buy a call option and then immediately execercise it. <<<Can I buy .GECY@$6.80 w/ strike price $27.500 exercise the call option buy and sell GE@$34.21.>>> To determine if you can buy an option at a particular price you need to look at the "ask" quote not the "last" quote. Some options, partiicularly those with strike prices further away from the stock price, are not traded often so the "last" quote may be based upon the stock trading at a different price. In your example, assuming you could buy the option for $6.80 per share, your total cost per share would be $27.50 + $6.80 = $34.30. If you spend $34.30 to buy the stock and then sell it for $34.21 you will lose $0.09 per share (plus commissions).
4. Sure you can do it but why would you want to? You'll pay $6.80 for the call option and $27.50 for the stock when you exercise the call option. That's a total of $34.30. If you then sell the stock at $34.21 you'll have locked in a loss of $0.09 ($34.30-$34.21). GE stock is hugely liquid so if you can sell at $34.21 you can buy at $34.22. Why not just do that and save yourself money from the lower stock price and not having to pay commissions on the options?
5. Oh Boy is exactly right and should get the 10 points.