What i dont understand: These gains are calculated into the option premium, so how is this still attractive?
Basically betting the line goes up faster (or earlier) than the seller predicted?
Yeah that’s basically how leaps work. In this Calls example, you aren’t really betting that on expiry the stock will be near or slightly above the target price. You’re betting that sometime in the next 3 years, the price will be above the option price, or at least ahead of the expected rate of growth. Then you cash out on the additional extrinsic value at that point in time by selling the option.
What i dont understand: These gains are calculated into the option premium, so how is this still attractive?
Basically betting the line goes up faster (or earlier) than the seller predicted?
Yeah that’s basically how leaps work. In this Calls example, you aren’t really betting that on expiry the stock will be near or slightly above the target price. You’re betting that sometime in the next 3 years, the price will be above the option price, or at least ahead of the expected rate of growth. Then you cash out on the additional extrinsic value at that point in time by selling the option.
This is a better explanation than I gave, thanks.