Why is it possible to buy an open call option with a strike price below the current stock price?

Asked by isorabins (47

) | asked November 1st, 2007 | 1 response | “Great Question” (2

it seems like it should be impossible to do this, because the price of the stock is already more valuable than the option you’re purchasing. So in theory you could execute the option as soon as you buy it, for a profit, and a loss for the writer.

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Topics: money, finance, stock market, options

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You would not make a profit because the cost of the option added to the price would still be more than the current price of the stock. This is what is called the premium.

However if you knew the stock was going to continue to rise and if the premium was low you could effectively acquire more stock control for a larger return.

ironhiway (1222

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