Excercising = Buying/Selling shares?

CashProfits · Sep 14, 2009

Ok. Damn I guess I was really messed up on that. Thanks for the help JJacksET4.

I just want to clarify one more thing... the stocks price in relation to my account's capital has no effect on my ability to sell the contracts correct? As I would just be selling the contracts for the premiums.

So I do not need $14,000 in my account when I go to sell the put contracts with the stock price at $7.00, correct? (20 contracts X 100 shares X $7.00)

As long as I cover the cost of the premiums to purchase the contracts I technically don't need any capital beyond that to exit the trade with my profits? AKA, not needing $14,000 to exit the trade.

JJacksET4 · Sep 14, 2009

Quote from CashProfits:

Ok. Damn I guess I was really messed up on that. Thanks for the help JJacksET4.

I just want to clarify one more thing... the stocks price in relation to my account's capital has no effect on my ability to sell the contracts correct? As I would just be selling the contracts for the premiums.

So I do not need $14,000 in my account when I go to sell the put contracts with the stock price at $7.00, correct? (20 contracts X 100 shares X $7.00)

As long as I cover the cost of the premiums to purchase the contracts I technically don't need any capital beyond that to exit the trade with my profits? AKA, not needing $14,000 to exit the trade.

That is correct. If the puts at the time were worth say $100 each (which is quoted in options as 1.00), you can sell them for the $100 - you don't need money in the account to cover anything.

The money and spending power in your account will go down when you buy and then when you sell it will go back up (assuming you get some money of course).

Just a quick example again with just puts.

Say you have $5000 in your account.

You buy 10 puts for $100 each - the cost is $1000 - your account will go to $4000 cash/spending power - since you bought them, it won't go lower (or higher) based on stock movement or option price (until you close).

Now, a few weeks later the stock has gone down somewhat and the puts have gone up to $150 each (quoted as 1.50) - you decide to sell - you get paid $1500 and your account now shows $5500 cash and spending power and the long puts are no longer shown in your account.

Calls are basically the same idea, except of course, the stock will have to go up for the Calls to go up in price

Hope this helps.

JJacks

CashProfits · Sep 14, 2009

I got all that cleared up now. Appreciate the help.

KINGOFSHORTS · Sep 17, 2009

Quote from spindr0:

Interactive Brokers offers a "button" that enables you to exercise - no phone call or E-mail needed. I don't know if other trading platforms offer the same...

I would rather pick up the phone

I guess I am old fashioned.

I do not have such a button though but I think the safest thing is to call and give your explicit instructions.

dagnyt · Sep 17, 2009

Quote from KINGOFSHORTS:

I would rather pick up the phone I guess I am old fashioned.

I do not have such a button though but I think the safest thing is to call and give your explicit instructions.

If they answer the phone.
If they are not too busy.

Once the deadline passes, it's too late.

Mark

spindr0 · Sep 18, 2009

Quote from KINGOFSHORTS:

I would rather pick up the phone I guess I am old fashioned.

I do not have such a button though but I think the safest thing is to call and give your explicit instructions.

You're entitled to prefer the phone.

But how far before 4 PM must you call? With electronic decisions, you can wait until minutes before 4 PM and possibly save some premium or avoid pin risk and wasted commissions.

dagnyt · Sep 18, 2009

Quote from spindr0:

You're entitled to prefer the phone.

But how far before 4 PM must you call? With electronic decisions, you can wait until minutes before 4 PM and possibly save some premium or avoid pin risk and wasted commissions.

I doubt brokes will accept (although I have never tried it) DO NOT exercise instructions before the market clsoes on expiration Friday.

Try to sell the options first, then call right after the bell.

Better to sell the options. Never give up on that.

Mark

spindr0 · Sep 18, 2009

Quote from dagnyt:

I doubt brokes will accept (although I have never tried it) DO NOT exercise instructions before the market clsoes on expiration Friday.

I too have never done it but I can't imagine why you can exercise early but would have to wait until after 4 PM on exp. Friday to indicate that they should not exercise (With IB, I believe that the LAPSE [Don't Exercise] feature is intraday for expiration Friday)