Tev63392@aol.com wrote:

hello mr. wolfinger , I am a sort of a rookie when it comes to the options so answer me this question about  call
options:

If i were to buy a call option that was in the money, could I buy the underlying asset and sell it and make the difference between the strike and current price?

Tev

    Hello Tev,

    Yes is the answer to the question I think you are asking.  So let me be certain I understand you correctly

    1) If you 'buy the underlying asset and sell it' that would be an offsetting trade.  In other words, if you buy the underlying asset and sell it (the same underlying asset), you would net nothing - and would have to pay commissions on the 2 trades.

    2) I don't believe you are talking about buying a call option. I believe you want to sell that option to achieve the results you describe.

    3) If you were to BUY the underlying asset and SELL (not buy) a call option that is in the money, then you could make a profit  if the underlying asset is above the strike price when expiration day arrives.  That profit is described below.  Let's look at an example:

Buy 100 shares of stock, trading at 21.80
Sell 1 Aug (or any month) call, strike price 20, for a premium (price of option) of 3.00
Your net cost for this position is 18.80 (21.80 minus 3.00) per share, or $1,880.

If, when Aug expiration arrives, the stock is above 20, the owner of the call option will exercise his rights and you will be assigned an exercise notice.  That means you will be obligated to sell your shares at $20.00 each.  You collect $2,000 for the stock, but paid only $1,880, giving you a net profit of $120.  And that $120 represents the time premium in the option.  That profit is the difference between the current option price (3.00) and the intrinsic value (the amount by which the stock price exceeds the strike price, or 1.80) of the option.

    Please write again if this explanation is not clear to you.

    Best regards,

    Mark