Holding Options Through Expiration | Options Trading Concepts
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- Опубликовано: 13 июл 2024
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What about the price fluctuation over the weekend? Do the shares get assigned on Monday at open?
Hey Mike, that is a good video. Lots of information. If you don't like to exercise your call options, even though it is in the money but not even break even when you factor the premiums and commisions. What do you need to do to prevent it from exercising? Second question; up to when can you sell to closed your call options? Thanks again!
Great video !!! I really thank you for all the knowledge you put out here. Its the best I've seen so far on youtube :)). My question is do you have to purchase the stock at 45 (sold put @ strike 45) in any case ? or only if the buyer had bought the put from you at 45 $ and decided to exercise it?
Thanks! Glad you like it!
The only cases where you're forced to take the shares are 1) if the put owner exercises prior to expiration, or if 2) you hold the short put that is ITM through expiration, as the broker will automatically exercise it and leave you with shares of stock.
I don't why this is difficult for so many experts out there. But I trying to figure out do I need to buy the stocks if I'm in the money (or profit) to actually make a profit or they just credit my account with whatever the money I had above the strike price? Every one says right and obligation bs. No new option trader wants to hear those two words so many times. Just tell people what we have to do before or after expiration date in plain simple words.
The reason those words are used is because they have a meaning that is important in their use. If you can't understand the words being used you should look them up and try to find out what they mean, rather than asking someone to explain something that can only be fully understood using the terminology that exists for a reason.
"Right" and "Obligation" are pretty simple concepts. When you have the right to something, you have the ability to do so. When you have an obligation, you are required to do so.
Fairly straightforward concepts. If you can't grasp the meaning of those two words and the concepts behind them, I think you'll have significant difficulty in understanding more nuanced concepts involved in trading these sorts of things.
If the stock underneath your contract is in the money, below strike price for.put, above strike price for call. Then most brokers will auto exercise.
You will often not see this exercise or be delivered shares till Monday following a Friday expiration.
If you Sell or Buy to close an option contract, you will receive (or have deducted) the difference in cash.
If you’re an inexperienced trader and don’t understand the basic terminology you shouldn’t be trading options & spreads tbh
@@jorsmith07 that's very true
the language of options trading is important just as in any new concept you are trying to learn you will come across things that you don't understand the meaning to, that is why i take notes when i am studying and if i don't understand something i pause and go look for the answer, or i write it down to study separately later. Why would you not want to learn the language of something you plan to do business in? If you resist leaning all you can about options trading or the stock market in general you will be setting yourself up for failure, set your self up to succeed. Not every video is going to be a vocabulary lesson and explaining the fundamentals over and over again, if you are that new to trading you must make an effort and take it upon yourself to learn everything you don't understand.
if a term comes up that you don't understand seek out to learn that term before moving forward, you are trying to learn chapter 6 when you haven't even read chapter 1 or 2 yet.
Regarding the short-call-assignment (13:12). What if the option goes further ITM? That will make the buyer to exercise the option with profit at the expense of the extrinsic value. I guess the buyer may opt to ride on the profit while the time/extrinsic value erodes out.
I have noticed (but maybe not universally) the spreads widen as expiration nears at 4:00 PM. I guess market makers recognize the scrambling to close positions during the last few minutes of the expiration day.
Assignment isn't the end of the world, just turn around and sell a covered call. Even if you took an initial loss you can recover the situation.
People actually exercise options?
I thought they were like pokemon-cards, but for money. Just trade them, but actually playing them as intended is lame.
@@MoltenMouseMetal Exercising may make sense for tax reasons (and with some brokers may be at times cheaper in commissions than the alternative trade).
oh Wheelie ?
According the second option you mentioned, who said if you buy the stock at 43 that it's ever gonna get to 44 and you'll come out breakeven?. Secondly, in both scenarios (assign and buy back the put) do you leave with a -100$ loss ??
If you own the shares at 45, and you've collected $1.00 to bring your breakeven to 44 and the stock is at 43 you'd be sitting on a $100 loss. Since you own the shares, you could sell a call against them at 44 or 45 and continue to collect premium, which pushes the breakeven lower and lower, assuming the stock never moves from 43. That is one way to move the breakeven towards the stock price, rather than relying on the stock to move up to breakeven. Totally up to you, but there are ways around needing stock price movement.
thanks for this video, is there any video on what happen when holding a sell call option through expiration?
If you hold a short call option through expiration and it's ITM, it will turn into short shares of stock. If it is OTM, it will expire worthless.
@@tastyliveshow thanks for replying
Hey I hope you answer so I have a contract that expires in 4 days and no one wants to buy my contract I keep on trying to sell it. Btw I’m in Robinhood so my question is what’s gonna happen after it expires
Lower your ask. It’s always about money
Strike price at usd45, premium is usd1.
If few days before day 0, market drop to usd43, and buyer did not exercise that day. Then at day 0, the market shot up to usd47.
Will the seller be assigned the stocks?
Great video! Quick question.
What happens if I allow to expire while above strike price but I am at a loss. (Is that even possible?)
Not possible if the option is OTM and you sold the option to open the trade. The option would expire worthless and the credit you collected up front would be realized profit.
firs time doing options i’m on the money do i let it expire and i collect profit or do i have to sell it at that price??
If I buy a put and it expires in the money, do I have to pay anything besides the premium I bought the put with in the beginning?
Can an option be exercised otm? Or if it’s otm at 4 pm est the contract is voided even if say the stock dropped ah to 44 $ just wondering if I held one close and at 4pm stock is at 45.5 then after hours it went to 43, could I still be assigned ? I thought not since you can’t trade options after 4 pm
Options that are OTM cannot be assigned intra-day, but if the market closes and the option slides ITM it can be assigned. We close options prior to expiration to avoid this.
strong work Mike
I use Tastyworks (Web site) for a few months now and love it. but I don't know how to convert a call that I bought to stock. the example I bought a call of AMD with a strike price of $80 for Sept 18. I want to own that call or convert to actual stock. how do I do that? tastytrade seems to want me to do a new limit order or purchase at the current market of $84.50.
Did you have an exercise button on the trade? Contact the broker for assistance
Excellent video however I do have one question ...how do you exit the trade before expiration? reason being I would prefer take a small premium profit before expiration seems like a safe way not letting the trade expire with the risk of going below the strike price.
You can just route the opposite order:
When you buy an option, you pay a debit and then you own the option. If you sell the option later, your P/L is based off of what you sold it for vs what you bought it for.
if you sell an option to open, you receive a payment up front and are obligated to hold the risk of that option. If you want to close the trade, you can buy it back and your P/L is based off what you received vs what you paid.
tastytrade thank you!
Ok I’m still confuse. If I have an option ITM and I exercise it do I owe anyone or owe more money then I got the option for? I was under the impression that the money you lose is only the money you put in getting the option.
I know right.... da faq.... this whole white board shit is just a bad way of teaching ppl.
When exercising the option is the premium used to purchase as well? Or only the buying power in your portfolio?
Just the buying power, but your P/L would be based off the option + the exercise/assignment, so it depends on how you think of it.
If you had a long call at $100 and let it exercise, on Monday it would show that you bought shares at $100 and nothing else.
tastytrade thank you. One last question, is a call exercised calculated by purchase at strike price sold at market price subtracted by the premium paid?
@@Idonzo121 I had one exercise. It seems the brokerage does a cost basis of what you spent for the stock minus the premium at the opening of the position. At exercise the stock is just sold at the strike price and the proceeds deposited in your account. The premium has no bearing on the sale.
Hi , thanks for the video. What happens if I don't close my put Option Through the Expiration Date? My short Put strike price is 760 and the stock price is 930. In my profile, it shows a negative profit now and the expiration date is 17June.
That is likely because you sold the put when the stock was higher, and now it's dropping towards your strike increasing its extrinsic value.
Either way, if the stock stays above the strike, the put will expire worthless and you'll keep all credit received as profit.
@@tastyliveshow Thanks a lot for your reply. You are just like my professor and your explanations are really clear and great.
- I've got a sell put option some days ago (Tesla Put: strike price is $760 , expires on 17 June) and now the stock price is $935. The put price was around 2$ and now the put price is around $4. As I learned from your videos, this is the extrinsic value of the Put (because the intrinsic should be almost $0). Therefore, In this extrinsic value I've lost $2 (2*250=$500). I don't understand why it should still have an extrinsic value as it's going to expire on 17 June!!!!!! what happens if I keep this till expiry date ??
in fact, I don't wanna exercise it and buy the share , as I don't have that much money. If it expires, the money (profit) will go to my account?, or I have to buy the share?, or I will get the negative because of its extrinsic value ????
I thought in the expiry day the price of put option should be almost $0 and I can keep the short Put money that I already received ($2 * 250=$500) !!
Hey Mike can someone exercise after 4pm on expiry day if it was OTM when market closed but the stock traded ITM after hours. If someone can excercise till what time they are allowed after market closed? Appreciate your response Thanks
Yes, it's one of the reason you never want to hold credit spreads thru expiration. You can get assigned after hours, and you may not know until the following trading day. At which point your long leg/protection is no longer valid.
Look up "pin risk".
So if I hold a put option through expiration and I’m in the money, does it convert over as a short? Like if it keeps going down after expiration am I still making money?
Yes - if you own a long put that is ITM and you hold through expiration, it will turn into 100 short shares of stock at that strike price.
@@tastyliveshow but If I close the option (=take the profit), will I have to exercise the option to shares?
I need some advice quick! I have a put option that expires this Friday out of the money. I can't sell it because the option is selling at 5 cent increments, and its at 3 cents today. This is on Robinhood. Can somebody tell me what might happen on Friday?
Judy Derby what happened?
You lose the premium and it isn't exercised
I appreciate the thorough explanation, very helpful
what happens if the sold itm put expires and you dont have enough money in your account to be long?
Hi Benjulie! It varies by brokerage firm, but they would likely liquidate your position! For more info reach out to your firm directly!
Sell your contracts? what do u mean lol?
E-Scooter Support Team aw man I’m in Robinhood and I bought a contract but no one wants to buy it and now my contract is gonna expire I don’t know what happens
@@tastyliveshow so they would liquidate the position and one would owe the difference between buying power and cost of assignment?
What happens when short leg expires in the money but the long leg expires out of the money? Say a sold a put credit spread (sold $100 put, bought $90 put; $1,000 collateral). Then at expiration, underlying stock is at $99, and I am obligated to buy 100 shared at $100/share. Then after hours, the underlying stock drops to $80. Do I still have the protection from my long put (ability to sell 100 shares at $90/share)? When and how would I be able to close my long 100 shares? After hours? Next trading day? Would Robinhood let me have negative buying power until next trading day?
Whats the likelihood of being exercised and having to buy the stock (in selling puts sitauation)? Seems with covered calls, even when price goes way way over strike no one exercises...is it the same thing with selling puts? Say I sell 1 TSLA put w/275 strike and collect 3$ premium ... no buyer of the put would exercise at 272 or over, but even if it goes down to 260 wouldn't they just re-sell their put rather than the hassle and costs for them exercising? Read its very rare people exercise???? I have a feeling this can't be answered but how low percentage wise would it have to go below strike price for assignment and you having to buy the stock??
It has to do with extrinsic value - when someone exercises their option and turns that option into stock, they give up all extrinsic value in the option. In TSLA, that is hundreds if not thousands of dollars, which is why it's super rare. Much more probable when an option has $0.10 cents of extrinsic value compared to $5.00 of extrinsic value.
@@tastyliveshow that makes sence, thx! But just to re-confirm we are talking about early exercising ONLY here? if its a penny over or under strike (depending on if its a put or call your selling) the system will automatically assign at experation correct?
Yes that's correct - at expiration options will turn into stock (or cash depending on the instrument) if the option is 1 penny ITM
@@tastyliveshow hey tasty trade how about if the sell call option has high extrinsic value but is out of the money, what will happen to this option trade? The option will expire worthless and will there be any loss on the short call seller?
I am holding 200 contracts of KODK $6 that expire today 8/28. My break even is $5.47. If it is trading at $6, can I still exercise the option and buy the stock at $6?
If the option is ITM at expiration and held through expiration, it will automatically exercise into shares of stock.
My question is, I have a call option , it is $1 above the strike price yet it shows I’m down $100 bucks still, should I let the stock expire and exercise the option still?
How much did the premium cost? If the premium cost $200 dollar than it would make sense that you are down $100 buck.
I have a spy call from monday that expires monday. Its currently going torwards my break even slowly but sure, I was at 279 and had a profit yesterday but today ita at 284 and I'm still negative strike was 286. Anyways what will happen when the market opens monday? Since all the time is gone will I be able to profit if its past my strike or will they have already sold my contract? Hope u write back
Sorry for the delay!
In the future feel free to shoot an email to support@tastytrade.com, as all emails are answered same day.
If you sold a 286 call and SPY is below that, you'd be at 100% profit at expiration. If you were not up until that point, it is likely because you sold it when SPY was lower and then kept creeping up towards your strike, but as long as the call expires OTM you keep the premium received as profit.
What happens when short leg expires in the money but the long leg expires out of the money? Say a sold a put credit spread (sold $100 put, bought $90 put; $1,000 collateral). Then at expiration, underlying stock is at $99, and I am obligated to buy 100 shared at $100/share. Then after hours, the underlying stock drops to $80. Do I still have the protection from my long put (ability to sell 100 shares at $90/share)? When and how would I be able to close my long 100 shares? After hours? Next trading day? Would Robinhood let me have negative buying power until next trading day?
Great question! Yes you would be obligated to take those shares - defined risk is only defined when both options are active - if one turns to stock and the other expires worthless then you now have a stock position. Different brokers handle this differently, so I would reach out to Robinhood directly.
I bought a call option that is up 1600% expires 05/15. How do I go about just taking the profit without actually buying the shares? Would that mean I press the “sell” option on that specific call option I bought earlier this month? Or do I do what’s called “close out your option “ which is buying a call same date of expire after I sell my call option in the beginning? Thank you all in advance! Much love everyone stay up and stay focused!
That is correct - if you bought an option and want to get out early, you would simply sell the option you bought for whatever price you're comfortable with. Closing out your option is the same thing - if you bought an option, closing out would mean you're selling out of it. If you sold an option to open, closing out your option would mean buying it BACK.
now in this example if i’m in the money and i let it expire will i lose that profit bc i didn’t sell? or do i collect it?
For stocks I am extremely bullish on, I sell in the money Puts 6 months out. BAM.
Too bad you don't have a magic ball to tell you when you should actually be "extremely bullish" on a stock. It's still a crap shoot. You could be "extremely bullish" on a stock, yet tomorrow, it drops 12%. It seems better to sell Puts that are 6 WEEKS out to lessen the odds of being wrong, but then you forfeit a lot of the premium value.
so i just bought a call, expire in like 2 years, if the stock went up 100% after 2 years and i hold the option through the expire date, what will happen ? can you do a video on this?
You would own the shares with a cost basis of your strike price, less the debit paid. Any and all ITM options that are held through expiration turn into shares of stock.
@@tastyliveshow how many shares would you own?
@@awakensoul3971 100 per contract
If you're negative $300 in a hole on an option do you observe all that debt once it expires?
Question, say I have a call option for apple 205 strike price option was 2.66 . A day before expiration share was 203.40 , option was 22 cents, if it expires in the money. Do you keep the 1800 you paid for 13 contracts or did it loose value with the option?
When you buy options, you pay for them up front. Profitability is based on how much you can sell them for later. If you paid 2.66 for each contract, you need AAPL to be above 207.66 to breakeven.
@@tastyliveshow and if you keep and exrcise. Will you end up with 100 shares at 203.4 worth 20'340$ ?
What Caught my attention. You're shares aren't delivered till Monday at market open?
So your actual expiration is Monday. With a trading lockout window of 200pm till Monday at open.
So unless you like buying high into weekend gapdowns you would almost never allow a short put to expire. There simply no way to control the risk.
Hello!
You are correct in saying that there is no way to control the risk after letting an ITM option turn into shares outside of hedging with additional shares - you ultimately hold shares into the open on Monday, where the stock price could change dramatically.
what happens when i let a long put expire in the money?
@2:12 "this gives me the "right" to go long shares at $45??? Didn't you sell a put @$45? So you have the obligation to sell xzy@45, but its trading at $43 so who would let that exercise, its out of the money at expiration? It also seems as if you are saying that selling a put makes you long the underlying stock?
Sorry for the confusion - a short put obligates me to be put stock at 45, in other words, become long at 45. So if I want to be long at 45, I'd sell a put at 45 to do so to become long the underlying there, rather than the market price.
It’s not a “right” to buy shares at 45, it’s an obligation because you sold the option.
I sold 7 contacts of WMT about $2 or $3 under strike price. Costed me $900 and lost $500. That's all I lose right?
If you sell a contract to open, you assume unlimited risk. If you bought the contracts to open, then the most you can lose is the debit paid.
@@tastyliveshow what is selling a contract to open?
even though its a put, the price does go down the same day its expire, I still lose money? O.o
Not necessarily - it depends on how much credit you collected up front from selling the put. If you collected $2.00 up front, and the put is $1.00 ITM at expiration, you would still have $1.00 profit. You would own shares after the fact, but for the option trade itself, you'd make $1.00.
If you PURCHASED the put up front for $2.00, and it was only $1.00 ITM, then yes you would have a loss of $1.00 at expiration.
@@tastyliveshow Isn't it true, and worth pointing out, that if the Put you sold is exercised, you must PAY for the 100 shares of stock at the strike price you selected for the contract..... That could be A LOT of $ you would now be on the hook for. So ONLY sell a Put contract if you are willing to buy 100 shares of that stock at the strike price you select.
@@Slick5923 Yes. It's called a cash secured put. Most brokers won't even let you sell a put if its not secured. They won't let you buy it if you don't have enough money in your account to buy the shares × the strike.
MissChicago What if you’re buying a put? Would we still get assigned?
3:46 nope.. not the right. The obligation ! You will be assigned. You wrote a sell .... you must to buy
Correct, using right term. Right is long side. Shorts are obligation.
Title is generic and it only talks about put options but not call options expiration
Why people didnt like the video?
MY reason for not liking the video is that I didn't see a single word about CALL options. I especially wanted to know what happens to the money when a call option expires
GOOD
mike and his guns*
Event you see its going to go against you too much and recovery is in question its better to buy a ITM call excercise and limit losses.
one day i will understand but not today...
Yeah I just finished watching and I didn't understand either
This discussion is not complete without taking spreads into account.
he don't skip arm day
Can you just roll your options over?
Yes you can - sometimes people forget though, so it's important to understand what happens.
Just a word of feedback. Most beginners to options can more easily grasp the concept of call options. Puts simply come off more confusing to us. I am tempted to turn off a video talking about shorting puts. Just one man's opinion. Keep it simple especially for the beginners
You should usually start teaching with long call, then get more complicated ..