Call option

Discussion in 'Ask any question!' started by James witschner, Aug 24, 2019.

  1. James witschner

    James witschner New Member

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    Once i have purchased a call option, can I sell it if its in the money? If so is the value of the option calculated for me? Where program shows bid is that the value if i were to sell the option?
     
  2. Three Eyes

    Three Eyes 2018 Stockaholics Contest Winner

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    You can sell (or try to sell) any option you own, whether it is in the money or not. Like stocks, options have a bid-ask spread and, theoretically, the market price should be dead center between these two. But options, even the most liquid ones, are rather thinly traded. Thus, the price of any given option contract is almost always what the market makers want you to pay. So for that reason, NEVER buy or sell an option with a market order, ALWAYS trade with a limit order, and TRY to get the price as close to mid-point of the bid-ask spread as you can.

    It is very common to see the bid-ask spread change once you lay in a limit order, and that price reaction sometimes gives you a sense of what is a realistic limit order to place assuming stagnant price in the underlying equity.

    Be careful not to sell your call(s) if you bought them as part of an option spread. Selling them would leave your short options "naked" and could lead to very large losses.
     
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  3. James witschner

    James witschner New Member

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    Thanks im going to look up all of this to be sure i understand what you said
     
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  4. James witschner

    James witschner New Member

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    Are you saying that if i sell an option that i bought last week that essentially I become the writer of the option? I thought the person who initially wrote the call remained the one obliged to sell if the option were to be executed within the expiration?
     
  5. Three Eyes

    Three Eyes 2018 Stockaholics Contest Winner

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    Nope. When you trade options, your broker platform will ask if you want to (a) "buy to open", (b) "sell to open", (c) "buy to close", or (d) "sell to close". So if you bought an option last week, then you performed a "buy to open" trade. And when (or if) you decide to sell it, you will enter a "sell to close" trade. This nomenclature keeps the option buyers and option writers (sellers) separate. As an option buyer, you never have to worry about "being obliged to sell if the option were to be executed within the expiration."

    What you DO have to worry about as a buyer, though, is when to sell your call. Ostensibly, you are buying the option because you believe the underlying stock is going to go up in value within a given time frame (defined by your expiration date). There's always a chance, and usually a very good chance, your call will expire worthless because the stock's price closes lower than your strike price at expiration. But prior to expiration, you may have several opportunities to exit the option position with a nice gain. Forget the best-case scenario the max profit/max loss graphs for your option trade depicts. With experience, you'll learn to gauge when best to exit your option positions.

    Options are definitely not buy-and-forget types of investments...you have to more or less monitor them fairly regularly to succeed.
     
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