It is no secret that Options loses value over time. So is it viable to buy it for long term appreciation of a stock? Let compare stocks vs options using a real life example, MSFT.
On 31st May 2015, MSFT was trading at $46.86. Let’s assume that we are optimistic on this counter over the next 12 months. One way is to buy 100 shares of MSFT for $4686. The alternative way is to buy a Strike 30 CALL options contract expiring on 21st Jan 2017. And from the diagram below, we could see that the Options is worth $17.10. So, buying this contract would cost $1710.
If we fast forward 12 months to 31st May 2016, MSFT has risen to $53. Let’s take a look at how much is our options contract worth now. Referring to the diagram below, Strike 30 CALL expiring ......