Option Contracts

I've written about what options are in the past and the difference between call vs put options. However, as I've only really done calls, I will create a bit of emphasis for this quick short post.

We've established that when you buy a call contract, you are buying the right to buy an asset at a certain price. In my case, I bought the rights to buy $XLE at $55 when the price was $52... if I were to buy it today, I would pay $55 instead, the right gives me "a discount" since I paid for that right ahead of the price. So then, what happens if I don't buy at the discounted price? You sell your discount pretty much.

So, the original contract was $0.67, it is now $1.40, which means that the contract has doubled in price. If I were to sell now, I am not selling the shares, I am selling the discount to someone who desperately wants to buy the asset for cheaper. This is an interesting concept, it tells me that sometimes buyers want to pay less than the current price because of the FOMO on more money.

The smart move for me would possibly be selling half of my contracts to keep the ROI, while letting the other half reach $58 – Assuming it does by February $25. I'm not sure I want to do this, part of me wants to see this play out, I think if I had thousands of investment in $XLE, then I'd definitely do that, but I haven't invested thousands. I do like this approach so this is something I will keep in my back pocket for when it is needed.