Thursday, February 2nd, 2017

Can you exercise call option without putting up more money?

As for the strategy of exercising in the money purchase option and immediately sell the shares without putting more money than the money spent to buy the call option. Is it possible? Or, if it is a heavily traded stock, it is easy to find a buyer of the option in-the-money-so close to the expiration date?

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4 Responses to “Can you exercise call option without putting up more money?”
  1. Enola says:

    about it you can get information from here

  2. zman492 says:

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    Yes it is possible as long as you (1) avoid violating the free-riding rule and (2) avoid being classified as a pattern day trader without an appropriate account.

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    You can always find a buyer for any in-the-money option, so you never have to exercise the option. I have even sold out-of-the-money options twenty minutes before expiration, but that is not something you can be sure will be possible.

  3. CC says:

    Have you REALLY thought this through?

    The price you really pay for an exercised call option is the strike price plus the premium you paid, which usually has some time premium on top of the intrinsic value. That time premium will usually be there, however small until expiration, and it will usually be more than you could get by exercising the option. SO why not just sell your option, and get MORE than you could by exercising? Also remember, there are selling commissions on the sale of the stock, and many brokers charge fees to exercise options. There are very few arbitrage situations that offer a way to make more money exercising an option rather her than selling the option in the open market.

    For example:

    ABC is selling for $10.00, the June $5 call is selling for $6.

    You buy the call for $6, excercise the call for $5 meaning you pay your broker $5 per share to own it. You then immediately sell the shares for $10. What a deal! You bought for $5, sold for $10. Wait, no you didn’t. You paid $6 for the option, so you add $6 + $5, so your cost is $11 per share. But all you can get for it right now is $10, so, you lost a dollar a share, plus commissions.

    Same scenario, you bought the June $5 call option for $6, when the stock was trading at $10. The stock moves up to $12. You exercise the option, paying $5 for the stock, sell the stock at $12. You have $5 in the stock, $6 in the option, or $11 to own each share. You sold the stock for $12, and you think you made $1. But again, you paid the fees to excercise and sell the shares, when all you really had to do was sell the $5 call option, which would have been selling for no less than $7 at the time, probably more if there is any time value left in the option. And the only commission you would pay is the option commission. You still made the same money, mybe more, but certainly no less.

    In your scenario you also have execution risk, and possibly margin interest charges, because it usually takes a few days to settle an option that’s being exercised.

    You’re looking for pricing arbitrage, and there are brokers, market makers, and computers out there that will find and execute any arb situations that are found (they usually don’t last more than a few seconds), and those people and firms have execution speeds and fees that you couldn’t come close to matching.


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