Saturday, August 12th, 2017

Exercise options?

theoretical situation, buy a call in August with an exercise price of $ 40. I can buy 10 contracts (1,000 shares) to $ 1. 00. The stock rises to $ 45/share. And from here I have two options you can a) To exercise the option and buy the stock or b) it can sell the contract in writing, basically a new contract. Here is the question if you do not have enough money to cover the position through no matter how opportunities could benefit from anyway? Because if I choose option B (sell contracts), I run the risk of having the obligation of having to sell (shares that I have). My question, what I can apply option strategy where you only need to reach the premium in advance and never have to worry about filling a post? I have no money for the exercise or performance of the obligation if the person writing the contract for the exercises, what should I do? (Is there any situation in which I NEVER have to buy the underlying real and I could only negotiate with the contracts?)

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One Response to “Exercise options?”
  1. ziggydiggy1 says:

    First of all, you don’t need a margin for calls because the most you can lose if the premium you pay.

    Addressing your question:

    “…Because if I choose choice B(sell the contracts) I run the risk of having the obligation to have to sell (shares that I don’t have)…”

    No you don’t. Your call is an asset. If you sell that asset you have nothing and nothing is different a liability. To risk “buying back” shares you’d have to clear the position and then start WRITING calls and COLLECTING the premium.

    Buying a call [the _/ graph] and buying a put [the _ graph] never require trading in underlying securities or contributing margin. They are the bullish/bearish positions best suited to beginners.

    If you already own the stock, look into covered calls and protective puts.

    If you want to get into the advanced stuff you can buy puts and calls with different strikes or expiration dates. However, given your apparent level of knowledge (no offense) I’d recommend sticking to naked put/call buys, protective puts, and covered calls.

    Happy hunting.

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