I am holding certain amount of options for long term, in the past I always held it for average of few days or weeks. But for this time, I am running an experiment where I am holding it for more than a year or so. Now what I notice is that once the stock price moves so far off from strike price at which I am holding the options, I see trading volumes on that options diminishes. What I am noticing is that most of the trading is centered around the current stock price looking at the available options. This naturally arouses the question: at the time I want to sell my options whose strike price is so far from current stock price, will I run into challenge of no one wants? Would it be possible? That can result in unpleasant situation where you are not able to sell your options at the profit with pending sales meantime stock goes down eroding the gain had you be able to sell it immediately. Another option is to simply exercise but then you'd need to have enough fund to buy the stocks at the strike price which can be a considerable expense. Thanks!
Experienced option traders, did you run into situation not being able to sell your options?
- Thread starter ggelitetrader000
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In a NORMAL MARKET, you should be able to get pretty close to fair value for it even if it's far from the money on either side.
If we have a market event and the market is fast and thin - like election night or Brexit night, you may not quite get fair value but you should be able to make the transaction.
In a violent/fearful market (like 2007 - 2008 at times), you may have a difficult time exiting during overnight hours and may not get a very good price during regular hours.
If we have a market event and the market is fast and thin - like election night or Brexit night, you may not quite get fair value but you should be able to make the transaction.
In a violent/fearful market (like 2007 - 2008 at times), you may have a difficult time exiting during overnight hours and may not get a very good price during regular hours.
It can be a little harder to buy illiquid ITMs or sell illiquid OTMs near year end, because your counterparty may not want to realize a taxable gain.
I would not necessarily target year end just suitable moment to sell it out.
In normal markets even if there is no bid/ask there are usually computers that are monitoring the orders. If something appears that is a little over/under fair value, the computer may step in and take the other side.
A DITM call has a delta of 1, meaning its value changes identically to 100 shares of the underlying.
So, you could short 100 shares, and your gain would be locked in until expiration, no matter what the stock did; everything your call gains or loses is cancelled out by the short stock.
You mentioned 100 shares might be too big of an expense though, so in that case, you could buy a put against the position. This will cost premium, but it will protect your downside while allowing it to continue to upside.