Hi, I would like to purchase some way OTM SPY options and the premium is around .15. http://finance.yahoo.com/q?s=FYSXN.X According to IB's schedule I would be charged 70 cents to transact this (one way). So if I understand it I would have to have the options value go up 10 times just to break even (based on US$1.40 round trip). Something must be wrong here and most likely it's me not understanding what's going on. Could someone clarify for me? Thanks
No. Your cost is $0.15 X 100 + commission. Thus, each option will cost you $16.40 including roundtrip commissions.
So the definition of a "contract" is a 100 units of option? OK, that makes a bit more sense. Thanks Gerard
If you are looking for a definition, there is no 'units of an option.' An option contract grants to its owner the right (but not the obligation) to buy or sell 100 shares of the underlying stock (ETF or index) at the strike price any time before the option expires. There are exceptions (indexes settle in cash, not in shares) that need not concern you right now. But each option represents 100 shares of stock - with a few exceptions. You are not required to hold the option until it expires. I assume that if you are buying an option for fifteen cents (per share) that you don't really expect that option to move into the money. You can earn a profit by selling your option at any time - assuming you collect more than you pay for it. The more time remaining before expiration, the more it is going to be worth. Mark