How are options premiums paid out?
- Thread starter wirvinggg
- Start date
Robert Morse
Sponsor
The call value is placed in your margin account but the cash is not yours. The credit is held against the short call.
Okay, so if you were to exit the contract before expiration you'd only actually receive a fraction of the full call value?
Robert Morse
Sponsor
You are looking at the money in the wrong manner. I sell an options for $2. When I close the position, it determines if I made or lost money. If not cash settled, at settlement, it is either converted to stock or expires worthless. If worthless, then you get to keep it. If converted to stock, you get the keep it too but will have to short the stock at the strike price which will be lower than the current market price.
Alright, that makes sense, thanks for the explanation.
You receive the premiums right away as you can see your account balance instantly increased by how much you sold your calls for minus all commissions and fees and whatever your broker charges you. These are very basic questions about options. This is the second thread from you asking these questions. We recommend that you do some reading learning about options. It's more efficient that way.
https://www.investopedia.com/university/options/option.asp