Buying a call and holding through to expiry? (Questrade)

J

jim.thornton

Let's say you purchase a call on SPY @ 190 expiring Dec 19, 2015. What happens at expiry?

So far I have only used options to buy/sell, take profits and go to the next trade. But what happens if you are holding a call and it just sky rockets? Are you better off to sell the situation above and take your profits, or are you better off letting it expire? If you let it expire, and you don't have the funds in your account to pay for the 100shs per contract, would your broker acquire the shares, then immediately sell them and then just charge interest on the time they credit you the money??

I'm puzzled as to the process here and would appreciate any clarification I can get.

Thanks,
 
My 2 cents: The ITM option price = Intrinsic value + Extrinsic value; If you exercise, you forfeit the Extrinsic value. I agree with OptionGuru.
 
Pefect, thank you. That is the approach that I have taken thus far, and really wasn't planning on doing any different.

However, I'm curious as to the mechanic of how the exercise process works (specifically with Questrade).

So, unless I absolutely have the money to hold the shares then there is no point in exercising?
 
I am unfamiliar with Questrade. You may want to ask them. I use TDA/TOS and I think they exercise if 1 penny or more ITM @ expiration.
I can see no reason for ever exercising an option on a liquid product (such as SPY), as you forfeit any extrinsic value and the Commission is typically much higher. (Sell your Calls, and then Buy the underlying as separate transactions would seem to be more cost efficient.)
The only reason I can think of that an exercise would be a good thing, would be if you happen to forget your position (say while on vacation), and your broker exercises it for you at expiration.
 
Makes sense. Thanks!

Amazing first trade! Yesterday I bought 2 contracts of SPY (strike 206) @ avg price of $2.86. Sold today both for $3.97. Made $222 on $572 in one day --- 38.8% in one day. Wow!
 
jim.thornton said:
Amazing first trade! Yesterday I bought 2 contracts of SPY (strike 206) @ avg price of $2.86. Sold today both for $3.97. Made $222 on $572 in one day --- 38.8% in one day. Wow!
More...
Compound that, and you can retire in less than a year. :eek:
 
No kidding... But, it's a great start. I realize there will be losing trades too, but if I can win more than lose, that's the key.

Thanks for the info guys.
 
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