Newbie here trying to dip his toes in some option game. Got a few questions I wanted to clarify. Only got a few $1000 in various stocks. I don’t have 100s of stocks in on company tho.
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If I buy a call OTM then it becomes ITM, what is the best approach to make the max money? Sell the option for the premium or exercise the option.
Ex: option strike at $15 and stock goes from $13 to $23. Should one sell or exercise? Let’s say one week remaining on expiration. I’m starting to get the concept of buying calls if you think the stock with increase and selling calls if you think it will decrease. I just don’t understand what to do once the stock moves in the direction I want.
Like to all call buyers have the capital to buy the 100 share if things move ITM? -
If I chose to sell the call I own that went from OTM to ITM. I’ll collect a nice premium. However, Does that put me at risk for the new buyer to exercise the option? Wouldn’t that make me have to sell my shares at $15 to them. What if I don’t have the shares? Would I then have to buy stock at $23 to sell at $15?
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When people talk about selling calls, does that mean they have to buy it first? Or is it different selling a call I bought vs “selling calls” (I can sell calls without buying it first)”. I use robinhood and it shows the potential max loss for selling a call as “unlimited” as the market price increases and that’s a risk I don’t want to take. So would I just have to plan to exercise
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When I see post of 100 call contract that are +$10,000, is that the premium price or the value of the market price – strike price -premium .
Ex 23 -15 = 8/share x 100 (1 contract) -
It it worth trading a call even if I would have the cash to exercise the option?
Should I only sell the call if I have the 100 share in case it’s assigned/exercised? -
The example I have is on some small changes. What if something was deep ITM. Like if I bought GME call then the squeeze happened and I had a strike at $5 but and stock trading at $100. Or had a long call for 8+ and the strike at $450 but stock at $700 (like Netflix for ytd)
Posted by Majorpayne6279
5 Comments
Read investopedia
1. Selling would be the better option to take profits. If you want to own the amount of shares, you would let the option exercise
2. Once you sell the option, the buyers decision on what they do has nothing to do with you anymore, as you no longer own the option, in any way.
3. I can’t answer this, as a Wealthsimple user, we can only buy calls/puts and sell once owning the contract.
Not Financial Advice:
1. Sell the ITM call you bought is preferable to exercising it. Only 11% of options get exercised and there is a reason for that.
2. If you have the shares it’s a ‘covered call’ and, yes, you will have to sell at the agreed strike if the other party exercises the option. Selling without owning the underlying stock is a ‘naked call’ and you do *not* want to do that if you are just starting out – you expose yourself to unlimited liability! That is, you’d have to buy the stock at $23 and sell at $15 …. but if the stock rose to $1000, you’d have to buy that to sell at $15. Remember each contract is 100 shares!
3. Sell covered calls (sell to open) only for now. You immediately get the premium (to keep whatever happens) and only have to sell the underlying if exercised. You can close out the position by buying it back (buy to close) and if the premium it costs you to do this is less than the premium you picked up for selling the original call, you win (you’ll just make less profit).
3a. If you buy a call (Buy to Open), you can sell that contract on at any time before expiry (Sell to Close). You make money if the underlying went up as the contract price will also go up.
4. I don’t understand this example.
5. If the underlying has gone up, yes sell the call you hold and don’t exercise. The second sentence is a ‘covered call’ so it’s OK to sell a call (sell to open) against those shares. Do not sell naked calls.
6. If I understand you, you bought a call for GME for a strike of $5. GME went up to $100 but in a short squeeze so, in principle, you win big time as you can buy the stock for $5 and sell for $100. However, short squeezes are typically over within the day and exercised options are settled overnight so I dunno if you will make the deal … during the squeeze, the contract should also go up so sell that immediately would work I think.
This is my understanding but others can chip in if there’s something not quite right. NFA.
You sell or buy to open. You buy or sell to close the option. Then you are out.
It’s generally better to sell a long call once it is ITM. You gain back the extrinsic value (the time value of the option).
As you approach expiration the stock needs to be above the strike plus the premium at that point.
pull up chat gpt, ask it to explain “sell/buy to open” vs “sell/buy to close”