Exercising Options

C

cashclay

I read that this is a chose for me. Im a little confused to how this works. If i buy a call option at a strike of 5$ and it goes to 10$. Instead of selling the option completely and profiting off just the difference of the ask and bid price; i could exercise my options, buy out the shares and then sell it for a 5$ profit minus the premiums of course. is this right?
 
Unless you want to hold the shares, why would you exercise the option? You can simply sell it for the intrinsic value of $5 x 100 per contract + any time value left. You also avoid incurring any exercise fees from your brokerage, and instead pay only your regular option trade commission.
 
Yes, the intrinsic value will be factored into the bid price. As a general rule, liquid options will not trade at less than intrinsic value.
 
gotcha ya ! thanks! lol sorry i know im being a pest right now but i dont have any one else to help me with. The books im reading are all in a language that seems somewhat foreign to me but im still tryin.
 
you sell to close. Also please really read something like (I recommend) Options For Rookies by Mark D Wolfinger.

Make sure you understand the basics before you make a mistake that can end up wiping your trading capital.

Yes read that book the broker sends you as well.

Also the OIC has an awesome free education portal that has all kinds of useful videos,instructional materials all for free.

http://www.optionseducation.org/en.html
 
You must log in or register to reply here.
Back
Top