Qs about Options

[jr07]

Hi all

A few quick questions about options.

1) In terms of realizing a profit, what is the difference between selling a put/call that has gained value and exercising the option in question... is there a difference?. Or is the resulting $ profit exactly the same?

2) What does to "Roll" an option mean? Or Roll Over

3) Suppose expiration trade is approaching but you want to extend the date to the following month, is this possible? at a cost of course? Or is the only way opening a new position?
thanks
J

 

[TheGoonior]

Quote from jr07:

Hi all

A few quick questions about options.

1) Depends on how much time premium is left and how large the bid/ask spread is. When you exercise, you lose whatever time value remains in the option.
In some cases it may be better to exercise (for example, a Deep in the money option near expiration) and sell the shares rather than eat the spread (spreads can get rather large on less liquid issues).

2) Roll means to transition from one option to another. You can transition in time (From April to May), or in price (up or down) or both (April 15Call to May 16Call)

3) You can simply close your current position and open the next month. Some platforms (ThinkOrSwim) make this very easy to do. It comes at a cost of commissions on closing and opening.
J

 

[jr07]

Thanks