options

Quote from kcnewtrader:

Alright maybe a example will solve the issues. lets say we have an out of the money call 50 a at the money at 45 and a in the money at 35. From what ive read if i bought an in the money call at 35 and even tho the option trades closely with the stock i would still have to make up the amount of the premium and the time decay in order to make a profit.Now from what was said on this forum I dont have to make the price of the premium because it goes into the value of the option. So i will assume i dont need that so then if I buy an in the money at 35 then I should profit from anything over 35 as long as it equals more then the time decay and any change in volitility is that correct ?
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LOLOL. Here's a real life example of an OTM Feb 45 call for you (closing stock and option prices). Could you have made a profit on the call before the stock went over the strike price of 45 ??? Let's see if you can figure it out.

01/04/2010 43.30 1.10
01/05/2010 43.26 1.15
01/06/2010 44.76 1.60
01/07/2010 44.87 1.60
01/08/2010 44.54 1.35
01/11/2010 44.89 1.45
01/12/2010 44.95 1.45
01/13/2010 45.51 1.65
01/14/2010 45.46 1.55
01/15/2010 45.52 1.60
01/19/2010 46.28 2.10
01/20/2010 46.05 1.95
01/21/2010 45.78 1.80
01/22/2010 46.08 2.00
01/25/2010 45.71 1.75
 
Ya the value of the option did go up in the example you gave but i was talking about in the money ones lol. The out of the money ones would bring even more questions to my mind because i dont think you can exit a otm call option and gain a profit until after it reached the atm level because i dont think your allowed to exercise it until then I donno but your example definately showed the value go up. But on the out of the money if it you bought it and it goes up but not quite to the atm level i dont think ur allowed to take profit but I donno. Sighs haha maybe i should just try to stick to options that trade about equally to the stock lol.
 
kc, why do you think you will be exercising all these options? You can buy and sell options freely until expiration. Of all the retail guys trading options, I would bet that most of them almost never exercise their options.

Most of the time, there will be absolutely no benefit to exercising an option as opposed to just covering the position, for a retail trader.
 
The buyer of an option may sell or exercise the option at any time.
The option will also be automatically exercised if it is ITM at the time of expiration.

The writer of an option may be assigned at any time (as determined by the buyer) and have to deliver their shares (if a call was written) or take delivery of the buyers shares (if a put was written), with the price of delivery equal to the strike price of the option.
 
alright and if i resold an option that I bought Im not subjected to the same problems as I would be if i actually wrote the option am I. Plus since you said the option would be automatically exercised if in the money on the date of experiation what happens if the buyer just bought the option and didnt have enough in theyre account to cover all the shares of stock because they were just planning to resell the option instead of actually own the stock
 
Quote from kcnewtrader:

alright and if i resold an option that I bought Im not subjected to the same problems as I would be if i actually wrote the option am I. Plus since you said the option would be automatically exercised if in the money on the date of experiation what happens if the buyer just bought the option and didnt have enough in theyre account to cover all the shares of stock because they were just planning to resell the option instead of actually own the stock
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I think I have explained that an option can be traded as a stock or any other instrument in about 10 different ways yet you still seem to be surprised when someone 1 or 2 posts ago said that you can sell the option in the market without ever exercising it.

Maybe this will help. When you buy an option you buy-to-open (i.e. you are opening a new position). When you want to close out your position in this option then you sell-to-close.

When you sell an option (aka write an option) you sell-to-open (i.e. opening a short position). When you want to close out your short option position you buy-to-close.

If the buyer doesn't have the money to cover all the shares then he/she gets a margin call from a broker and must either deposit the required amount or sell the shares.
 
I understood what you were trying to say mte when they told me you can buy and sell them without excercising them . That was the thing that threw me off as we were talking because I thought exercising them was the only way out of the position . You said that I would get a call from the broker to put up the money or id have to sell the shares. If I had to sell the shares would I be taking a loss or would they just sell them and id still get my profit since it was in the money ?
 
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