Need advice exiting an option

Discussion in 'Ask any question!' started by J BEAR, Oct 18, 2021.

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  1. J BEAR

    J BEAR New Member

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    I obviously had no idea what I was doing, and I will not be trading options anymore because I've since read the horror stories. Here's my scenario:

    I bought an out of the money call of UUUU a few months ago. I paid $65 ($6.50 X100) for the contract at an $8.00 strike price. The expiration date is 12/17. It’s now ITM (UUUU today is at $8.15) and Robinhood says its worth $135. I was planning to hold out a little longer to see if the infrastructure bill passes through congress before selling the contract. Is there any scenario where it would make sense to exercise this option (say if it sky-rocketed to $10.00 a share)? Another question is if I sell the contact and that person decides exercise am I at risk, or would they never do that? Thanks for any advice : )
     
  2. anotherdevilsadvocate

    anotherdevilsadvocate Well-Known Member

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    There is no scenario, with few exceptions, to exercise the option early.
    If it skyrockets to $10 before 12/17, then the option itself skyrockets even more so you should hold it.
    If it skyrockets to $10 after 12/17 then the option is expired, so you can't hold it anyway.

    If you sell the contract, then your book is closed on UUUU 12/17 calls.
     
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  3. J BEAR

    J BEAR New Member

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    Thank you for your response! I was reading if I do nothing, and the contract expires in the money, it automatically exercises. Do I have that right? If so, does it become more difficult or risky to sell the contract as I get close to the expiration date?
     
  4. anotherdevilsadvocate

    anotherdevilsadvocate Well-Known Member

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    If it finishes in the money, then you will need to have enough money in your account to exercise the contract; i.e. $800.
    If you do not have enough money, then it is up to your broker. They may end up exercising the contract, at which point you will owe them money, and then they sell the newly-obtained 100 shares for whatever the current price is (above $8/share). So you will end up with a cash gain, but there may be brokerage fees charged. What I'm saying is you should call your broker to know the details.

    Your last question gets into issues of volume and open interest for the option. If you try to close in the last hour of 12/17, you will not be able to get much premium at all. But as long as it's in the money, you should still be able to close it.

    You don't want to sell on a pullback. Options leverage gains, and losses.
     
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