Newbie starting - exercising an ES option with IB

[gkksmith]

Hello all, first post on ET, so greetings!

I'm just starting to look into options, and I was just wondering for example, I purchased a Put on ES expiring in Jan 09, for 1000 in my sim account, now it's currently in the money based on today's closing price of 810, since premium was 15, making my break even at 985 (please correct if I'm wrong in this).

Now I spoke to IB few days ago and was told that only long equity options can be exercised by yourself, using the Option Exercise Window, anything else you need to submit a ticket. How does this work in terms of the actual transaction?

Eg. in the above call, say I submit a ticket to IB, do I get an open position at 1000 the next time i log into TWS, hence I can close this position with a long, or alternatively, can I go long in the market before IB completes my position, then the two cancels out once the put is exercised? How does one eliminate the risk of price movement between you submit the ticket to IB to it actually appear in your account?

I think that's all for now. Appreciate any assistance.

Thanks and regards.

 

[dagnyt]

Quote from gkksmith:

Hello all, first post on ET, so greetings!

I'm just starting to look into options, and I was just wondering for example, I purchased a Put on ES expiring in Jan 09, for 1000 in my sim account, now it's currently in the money based on today's closing price of 810, since premium was 15, making my break even at 985 (please correct if I'm wrong in this).

Now I spoke to IB few days ago and was told that only long equity options can be exercised by yourself, using the Option Exercise Window, anything else you need to submit a ticket. How does this work in terms of the actual transaction?

Eg. in the above call, say I submit a ticket to IB, do I get an open position at 1000 the next time i log into TWS, hence I can close this position with a long, or alternatively, can I go long in the market before IB completes my position, then the two cancels out once the put is exercised? How does one eliminate the risk of price movement between you submit the ticket to IB to it actually appear in your account?

I think that's all for now. Appreciate any assistance.

Thanks and regards.

In the interests of keeping this simple:

YOU DO NOT WANT TO EXERCISE. IF YOU WANT TO EXIT THIS POSITION, JUST SELL YOUR OPTION.

Yes 985 is your break-even point, assuming 'for 1000' means the strike price is 1000. Your break even point is 15 points below the STRIKE PRICE. But that's when expiration arrives - in one whole year.

In the real world in which you trade, any time you can sell your option for more than you paid for it, you will have a profit.

<b>Forget about exercising.</b> You do not want to even think about exercising. In fact, I suggest you read my recent blog:<u> Exercising An Option. Is It a Good Idea?</u>

You already have a long position (because you OWN) in the put. Yes the position is short delta, so you must be very careful about using terms such as 'long' and 'short.'

I don't know what you mean by "before IB completes my position." If you buy an option, as you did, the position is 'completed instantaneously. If you exercise an option (please don't do it) your exercise is completed instantaneously - and is irrevocable.

If you sell the put you bought - yes, the two trades cancel each other. You would have no position,. But you will earn a profit or loss, depending on the prices at which the trades occurred.

Take your time and be certain you understand what you are doing before using real money to trade.

Mark
http://blog.mdwoptions.com/options_for_rookies/