The age old question, exercise or close?🤔 📈 Patreon: Join my Patron list for live trade alerts, one-on-one consulting, & much more! patreon.com/everythingoptions 🗣 Discord: Join my FREE, active Discord with over 3,000 members! discord.gg/A7VHNFk
If your call option is itm and you just like the company and keep adding shares to your pile you could exercise the call, and even lower your average price on the shares you already have or open a postion with the call exercised.
Very true, but you're giving up all of the extrinsic value left in the option. Say you buy a $100 Call when stock is trading @ $101 you'll pay $100 intrinsic value plus whatever extrinsic value is left in it, lets say $100 for simplicity sake. This means you'll pay $200 for your option. If say the stock goes from $101 -> $110 your option will have $1,000 intrinsic plus whatever extrinsic value, which will likely have decreased due to time decay and being further from the money. Let's say $50 extrinsic, so overall this option would have $1,050 value. You could exercise and buy the 100 shares @ $100 at this point and you would have a lower cost basis on paper, but if you sold your option you'd get $1,050 to help pay for the shares @ $110. This is comparable to getting a $1,050 discount, since that's $$$ you didn't have before. You also must account for the $200 paid for the option to begin with so technically you'd be paying $102 / share by exercising whereas by selling the options and buying with cash you'd be paying $110 - $8.5 (profit) or $101.5 / share vs $102 / share by exercising. I'd say selling the option and buying the shares is better since you get a 50c discount per share based on this model.
@@TheFinancialMinutes specifically in the USA if you sell the contract, you create a taxable event, whereas if you exercise the option and take the shares, this is a non-taxable event. Maybe I am wrong, but this is indeed my understanding.
Great explanation Greg! Here's another scenario: I sold 2 put options on Sens @$5.00 strike for $3.24 several months ago. The option's still ITM, but at $1.80 right now. If I buy them back for $1.80, I have a profit of $288! But it costs me now, and I already spent the premium I collected (on more shares of SENS). So it doesn't really feel like a win. If I let the option be exercised (remember, I'm the seller), I have to buy 200 shares at $5.00. The current stock price is $3.20 so that's a SHORT TERM capital loss of $360. But my cost basis would then be $1.76/share! ($5.00 purchase price - $3.24 premium received = $1.76.) This is a long term hold for me, and when I eventually sell, I'll take greater LONG TERM capital gains due to the lower cost basis. Basically, I'm taking a loss in a higher tax bracket now so I can realize greater profit in a lower bracket later. (Also, I love the stock!)
By the way great videos however if you can incorporate more visual into your videos it will be much easier for beginners. For example you can simply showing buying a call on Robinhood Or Showing where exercise button is in robinhood when you are talking about that Or Opening an spread on robinhood Would be great along side your commentary.
Hi Greg. I'm about to open a live account and can't find any tutorials that would address this scenario for example: call options in the money or profitable but not at expiration. I worry that I would not be able to sell to close due to there not being liquidity so no one to buy them. Is that a real risk? It happens to me on the simulator when I want to buy certain options but there is just no volume so the order won't go through.
I haven't thought about this but it's a good point that I haven't considered. There SHOULD be a market maker that would buy the option back from you, but considering liquidity is decreasing in the market right now, I'm curious if that will continue being true...
ok, here is scenario, you have a call in the money, it is Friday expiration date and instead selling the option or rolling it over, you exercise the option and sell covered call for premium ? does it make any sense ? Usually options trade on Mondays at time discount ? thx
I’m not sure how this works but I’m gonna try: Lets say AAPL is currently trading at $100 You buy $110 call at $2. You pay the $200 in premium. Now the stock goes up to $120 and you sell. You receive the value of the shares in cash, and you keep the $1000 Correct?
You’ll receive the Premium the new buyer is willing to pay which would be equal to at least the intrinsic value of $1000 (($120-$110)*100) plus the amount of extrinsic or time value left in the option.
Hi thanks for the video. I wonder anyway we can estimate the spike price the best to sell call? I am not good at selling call for now as I always chose a bit low spike price with delta
I'm so dumb... soooo.. is there an exercise button in my trading app? if exercise is not closing a position and it's not letting it expire on expiry date. what and how to do it?
Wonder if you could help, I own 1800 shares of Tesla shares, which I dca since 250 all the way to 175, my avrg is 213. I also bought put options later when the stock was tanking. I bought 4 mar1st strike 250. Now they red . If I exercise do I benefit or do I loose.
I know this video is 2 years old but what about if I bought options when a stock was low that I’m bullish on think it has long term growth. Now just before my expiration date the stock has gone up and I believe it’s going to continue to be successful. Wouldn’t I just exercise to own shares?
When I read european style options cant be exercised before the expiration date I thought that meant I couldnt close out the position ie set a stop loss and take profit. Am I allowed to set a stop loss and take profit and close out of a position if its european style? Thanks
Thank you much for the information, just have one big question. PLEASE PLEASE help me, I want to start but the unknown is too scary When you sell a call/put you are responsible for paying out to the buyer. But when you buy a call/put and decide to sell it instead of exercising. Let’s say it was in profit so you sell the option. Does that put you responsible for paying out the new buyer if it were to go out of money or is it the original sellers duty?
When you sell an option you under and obligation to buy 100 shares for a put, or sell 100 shares for a call IF the buyer decides to exercise the option. The premium they paid you doesn't matter anymore, it just goes toward your adjusted breakeven price for the option
@@TheFinancialMinutes Ty much, that was my fear. Now I know if itis green and I predicting red I’ll exercise instead. FYI - I have my own videos but mainly just showing how I am starting. Overall bad by $30 but switching to a long game in Microsoft for 1 week or a month before I look options again
If this is a spread you must exercise the other option or buy/sell 100 shares of the stock. If it's only a cash secured put or covered call you will be need to buy 100 shares or sell 100 shares of the stock.
Is it better to let an OTM call option on closing day expire or sell it before the bell? I can’t imagine it would have any extrinsic value just before the closing bell….
If there's a chance the option could swing in the money, I would close to avoid your broker possibly exercising the option but you can call your broker and ask them to cancel exercising if it swings ITM.
Not immediately no, whenever you want to close the option you buy it back. You do this whenever you’re satisfied with the profit you made, equal to the credit paid to open minus the debit paid to close.
does open interest and volume matter at all when buying options? I know it matters when selling options so you can get out. However, if I buy a call option does the liquidity matter at all to me since I have the contract with the seller and I can exercise it?
If you decide to exercise then it doesn't matter. If you want to sell the option back to the market you need someone to buy it from you, so you need a decent amount of liquidity or you will have to sell it at a lower price due to the bid-ask spread being wider than a more liquid option.
In this sense am i pretty safe from assignment when i sell covered ITM calls which is one strike below current? The option holder could just sell back the option at a higher price or roll it further out.
@@TheFinancialMinutes sounds like if strike is one or two strike prices below current (this would be ITM) then the chance it expiring worthless would be greater than someone excising. I want to just collect the monthly/weekly premium really.
Phun is currently trading at $9.54 I own 6 2/100 July 21-2024 0.5 calls. Avg 10 cents mid is 5 cents. Shouldn’t I exercise? Is that not 600 shares at 50 cent for $300? Then I can sale them for $950. Am. I missing something? (2/100 what is that?)
The age old question, exercise or close?🤔
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patreon.com/everythingoptions
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If your call option is itm and you just like the company and keep adding shares to your pile you could exercise the call, and even lower your average price on the shares you already have or open a postion with the call exercised.
Very true, but you're giving up all of the extrinsic value left in the option.
Say you buy a $100 Call when stock is trading @ $101 you'll pay $100 intrinsic value plus whatever extrinsic value is left in it, lets say $100 for simplicity sake. This means you'll pay $200 for your option.
If say the stock goes from $101 -> $110 your option will have $1,000 intrinsic plus whatever extrinsic value, which will likely have decreased due to time decay and being further from the money. Let's say $50 extrinsic, so overall this option would have $1,050 value.
You could exercise and buy the 100 shares @ $100 at this point and you would have a lower cost basis on paper, but if you sold your option you'd get $1,050 to help pay for the shares @ $110. This is comparable to getting a $1,050 discount, since that's $$$ you didn't have before.
You also must account for the $200 paid for the option to begin with so technically you'd be paying $102 / share by exercising whereas by selling the options and buying with cash you'd be paying $110 - $8.5 (profit) or $101.5 / share vs $102 / share by exercising.
I'd say selling the option and buying the shares is better since you get a 50c discount per share based on this model.
@@TheFinancialMinutes specifically in the USA if you sell the contract, you create a taxable event, whereas if you exercise the option and take the shares, this is a non-taxable event. Maybe I am wrong, but this is indeed my understanding.
Great explanation Greg! Here's another scenario: I sold 2 put options on Sens @$5.00 strike for $3.24 several months ago. The option's still ITM, but at $1.80 right now. If I buy them back for $1.80, I have a profit of $288! But it costs me now, and I already spent the premium I collected (on more shares of SENS). So it doesn't really feel like a win.
If I let the option be exercised (remember, I'm the seller), I have to buy 200 shares at $5.00. The current stock price is $3.20 so that's a SHORT TERM capital loss of $360. But my cost basis would then be $1.76/share! ($5.00 purchase price - $3.24 premium received = $1.76.) This is a long term hold for me, and when I eventually sell, I'll take greater LONG TERM capital gains due to the lower cost basis.
Basically, I'm taking a loss in a higher tax bracket now so I can realize greater profit in a lower bracket later.
(Also, I love the stock!)
By the way great videos however if you can incorporate more visual into your videos it will be much easier for beginners.
For example you can simply showing buying a call on Robinhood
Or
Showing where exercise button is in robinhood when you are talking about that
Or
Opening an spread on robinhood
Would be great along side your commentary.
Sure I’ll try to incorporate that more. Thanks Raz 🙏
Hi Greg. I'm about to open a live account and can't find any tutorials that would address this scenario for example: call options in the money or profitable but not at expiration. I worry that I would not be able to sell to close due to there not being liquidity so no one to buy them. Is that a real risk? It happens to me on the simulator when I want to buy certain options but there is just no volume so the order won't go through.
I haven't thought about this but it's a good point that I haven't considered. There SHOULD be a market maker that would buy the option back from you, but considering liquidity is decreasing in the market right now, I'm curious if that will continue being true...
ok, here is scenario, you have a call in the money, it is Friday expiration date and instead selling the option or rolling it over, you exercise the option and sell covered call for premium ? does it make any sense ? Usually options trade on Mondays at time discount ? thx
This was SO helpful! Thank you so much!
I still don't understand
😂 me too kinda, but I’m about to exercise my itm FFIE contract
Lol. Bad teacher but info is good
@@stoked0719rip man
@@5256brkboyz12he explained everything perfectly. If it’s too complicated just don’t do it. It’s “complicated.” It’s also short term gambling.
Love all of your videos, bro! God bless you !!
Thank you very much 🙏
I’m not sure how this works but I’m gonna try:
Lets say AAPL is currently trading at $100
You buy $110 call at $2. You pay the $200 in premium. Now the stock goes up to $120 and you sell. You receive the value of the shares in cash, and you keep the $1000
Correct?
You’ll receive the Premium the new buyer is willing to pay which would be equal to at least the intrinsic value of $1000 (($120-$110)*100) plus the amount of extrinsic or time value left in the option.
Hi thanks for the video. I wonder anyway we can estimate the spike price the best to sell call? I am not good at selling call for now as I always chose a bit low spike price with delta
It depends on what you're willing to sell the shares for. Higher delta means more premium collected, but you're selling at a lower price.
@@TheFinancialMinutes thank you
I'm so dumb... soooo.. is there an exercise button in my trading app? if exercise is not closing a position and it's not letting it expire on expiry date. what and how to do it?
What app do you use?
@@TheFinancialMinutes webull
@@charlesovatar www.webull.com/help/faq/659-Options-Exercise
You have to contact their help center
Wonder if you could help, I own 1800 shares of Tesla shares, which I dca since 250 all the way to 175, my avrg is 213. I also bought put options later when the stock was tanking. I bought 4 mar1st strike 250. Now they red . If I exercise do I benefit or do I loose.
Great video! Have you ever been assigned on a credit spread? Could you talk about your experience?
I personally haven't experienced it myself, but a couple people in the Discord community have. Maybe I can get their take on it and share it.
I know this video is 2 years old but what about if I bought options when a stock was low that I’m bullish on think it has long term growth. Now just before my expiration date the stock has gone up and I believe it’s going to continue to be successful. Wouldn’t I just exercise to own shares?
do I get my money back if i exercise my call option?
No the premium you pay is added to the cost of buying the 100 shares
Great Video😊
When I read european style options cant be exercised before the expiration date I thought that meant I couldnt close out the position ie set a stop loss and take profit. Am I allowed to set a stop loss and take profit and close out of a position if its european style? Thanks
Yes you can set a stop loss/take profit on Euro style options
Thank you much for the information, just have one big question. PLEASE PLEASE help me, I want to start but the unknown is too scary
When you sell a call/put you are responsible for paying out to the buyer.
But when you buy a call/put and decide to sell it instead of exercising. Let’s say it was in profit so you sell the option. Does that put you responsible for paying out the new buyer if it were to go out of money or is it the original sellers duty?
When you sell an option you under and obligation to buy 100 shares for a put, or sell 100 shares for a call IF the buyer decides to exercise the option.
The premium they paid you doesn't matter anymore, it just goes toward your adjusted breakeven price for the option
@@TheFinancialMinutes Ty much, that was my fear. Now I know if itis green and I predicting red I’ll exercise instead.
FYI - I have my own videos but mainly just showing how I am starting. Overall bad by $30 but switching to a long game in Microsoft for 1 week or a month before I look options again
What happens when you close instead of exercising your option after you get assigned ?
If this is a spread you must exercise the other option or buy/sell 100 shares of the stock. If it's only a cash secured put or covered call you will be need to buy 100 shares or sell 100 shares of the stock.
Is it better to let an OTM call option on closing day expire or sell it before the bell? I can’t imagine it would have any extrinsic value just before the closing bell….
If there's a chance the option could swing in the money, I would close to avoid your broker possibly exercising the option but you can call your broker and ask them to cancel exercising if it swings ITM.
Question, if I sell a put. Do I buy a put (buy to close) to close the option? Thanks.
Yes you’ll buy the same exact option to close. Same strike and expiration date.
@@TheFinancialMinutes So you sell it to get premium, immediately buy it to close, then hope it expires worthless?
Not immediately no, whenever you want to close the option you buy it back. You do this whenever you’re satisfied with the profit you made, equal to the credit paid to open minus the debit paid to close.
does open interest and volume matter at all when buying options?
I know it matters when selling options so you can get out.
However, if I buy a call option does the liquidity matter at all to me since I have the contract with the seller and I can exercise it?
If you decide to exercise then it doesn't matter. If you want to sell the option back to the market you need someone to buy it from you, so you need a decent amount of liquidity or you will have to sell it at a lower price due to the bid-ask spread being wider than a more liquid option.
Suppose it's a good stock, I have the money and I want to keep the shares that have been exercised? Will they just deposit the shares to my account?
you have to exercise the option and buy , then just don’t sell
BUT HOW TO EXERSIZE THE OPTION?
ruclips.net/video/U645mowqkPI/видео.html
In this sense am i pretty safe from assignment when i sell covered ITM calls which is one strike below current? The option holder could just sell back the option at a higher price or roll it further out.
The option usually needs to be significantly in the money to be assigned early
@@TheFinancialMinutes sounds like if strike is one or two strike prices below current (this would be ITM) then the chance it expiring worthless would be greater than someone excising. I want to just collect the monthly/weekly premium really.
I think theres something going on with that mic
Ya, the cover slipped off half way thru recording. My bad! I'll make sure it stays on for the next video.
P-Nile
Man you need a new mic.
Ya definitely 🤣 I’ll work on it, or figure a way to keep the cover on
His mic is fine. You need a job.
@@OmarGoshTV he said he is working on it
Phun is currently trading at $9.54 I own 6 2/100 July 21-2024 0.5 calls. Avg 10 cents mid is 5 cents. Shouldn’t I exercise? Is that not 600 shares at 50 cent for $300? Then I can sale them for $950. Am. I missing something? (2/100 what is that?)
What did you pay for the options? What’s your breakeven?