There are three ways to buy options for stocks. You can hold them until maturity, trade before the expiration date, or let them expire. Keeping them until maturity allows you to potentially gain more profit since you have predetermined the buy price. If you trade before the expiration date it allows you to get the stock at the best price if you believe it has reached it’s max. And letting the option expire allows you to limit your loss to the premium you paid for the option contract.
- There is no commitment made to buy an underlying option when one buys an equity option, rather one’s options are left open.
- One strategy to buying equity options is to hold onto the option until maturity, that is the end of the contract period, and then trade it.
- Another option to choose from is not to trade the option but to let the option expire thereby you pay a premium for the option itself.
“You buy the same Call option with a strike price of $25, and the price of the underlying stock is fluctuating above and below your strike price. After a few weeks the stock rises to $31 and you don’t think it will go much higher – in fact it just might drop again.”