Is an option worth more than a stock?

ankuragrawal.nit
Finance Junkie
Posts: 64
Joined: Sun Apr 01, 2012 10:52 am

Is an option worth more than a stock?

Postby ankuragrawal.nit » Fri Feb 24, 2012 5:58 am

Suppose I have two portfolios where in one portfolio I have 100$ and a call option to buy the underlying asset at 100$
The other portfolio has a stock(the underlying stock for the option in the first portfolio) that is trading at 110$ and 100$ in addition to this stock...
Which portfolio is better to choose from a future perspective?

Clearly in the current scenario I can make a profit of 10$ by choosing the options portfolio but is the options portfolio really worth more than 10$ in future?
If stock prices shoot up, then both portfolios are good...the options portfolio gives a return of 10$ extra, right? or more?
What if the stock price goes down in future before the expiry of option date and assuming that the option is an American option?
Which portfolio is better? What if the expiry date is reached and I didn't exercise the option, then I think second portfolio should be better or not?

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ankuragrawal.nit
Finance Junkie
Posts: 64
Joined: Sun Apr 01, 2012 10:52 am

Re: Is an option worth more than a stock?

Postby ankuragrawal.nit » Sat Feb 25, 2012 1:55 am

I understood this one after a deeper introspection. Thank You!


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