have a leap on with nice SPY strike not due to expire until Jan 2025 — may be dumb question, but is it possible for an option to get too far into the money that i'd have trouble offloading it when i'm ready to cash out? is there a sweet spot for exits?
Can an option get too far into the money?
byu/Awkward_Ebb4994 inoptions
Posted by Awkward_Ebb4994
10 Comments
Well yes and no. It’s not bad when it happens. But if you want to close, far itm option can have such huge spreads it might not be worth closing them and an early exercise might be warrented.
If it’s ever so far in the money you can’t cash out you can just exercise it then sell the stock
You will never have an issue finding someone to buy a deep ITM option. However, they would be doing you a favor and you would need to pay for the liquidity. For example, if you have a 100 call expiring in a year for a stock trading at 1000 you probably won’t find anyone willing to pay 900 or more. At that point you could either sell for less than intrinsic value or just exercise it and sell the shares.
Not sure about RH but there are brokers that will allow you to exercise based on the value and then sell however many shares to cover the cost of exercising! Usually need to call them and explain what you want to do but have heard of this in the past (never done it myself)
Market makers will always buy ITM options at the bid price. Your biggest risk is low liquidity and minimizing your gains from not being able to sell close to the ask price.
I do deep ITM calls all the time. There is a rarely an issue, but the the bid/ask can result in market prices that you cant get. That is more prone to happen the further out the calls are.
If you want to sell them my suggestion would be to start at market price and then change the price down and keep doing that until you can get it sold. How long you wait between repricing is up to you, but I usually reprice every 30 seconds or so when I’m in a hurry and every 5-10minutes when I not in a hurry. Usually it doesn’t take a huge amount of repricing to get it closed.
Not really. The more in the money, the closer to 1 delta so it becomes synthetic shares. There is theta decay as you get closer to expiry, but with your expiration, I might either early exercise or not enter a low bid to entice a sale.
You can always sell a vertical spread for $1 less than equity, I promise you a market maker will bust a nut at the opportunity.
Usually you can call the options desk to say can we exercise and do a market order to sell.. They will do it at market open.. But with spy some mm will buy it just keep dropping the option price by 5$.. I mean a 1 delta call for 10$ off is a no brainer last few days till exp.
Oh the other option is sell a call against it.. Say it’s exp Jan 15.. And it’s 400 strike for spy, spy is trading around 580.. Sell the 550 call the month (Dec 15) out and just let both exercise..
SPY is super liquid and you shouldn’t have any issues exiting without paying for slippage.