Tuesday, June 6th, 2017

options trading–> Can I trade my contracts before the expiration if I’m ahead?

Hello, I am exploring options right now and has a couple of questions. First is one I can close my position in an option that I bought or sold before the expiry or I have to hold on to it until the end? The reason for the question is whether I’m ahead of my position I would like to lock in profits by buying or selling, rather than waiting until vencimiento.segunda question what is the name for the strategy when you presume a good stock will move North or South? I thought I was the butterfly? Thanks

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4 Responses to “options trading–> Can I trade my contracts before the expiration if I’m ahead?”
  1. raysor says:

    Of course you can. That’s why they are called ‘traded’ options

  2. zman492 says:

    < <>>

    You can close your position prior to expiration. If you bought the option you would use a “sell to close” trade. If you wrote (sold) the option you would use a “buy to close” trade. (Some brokerages say “buy to cover” instead of “buy to close”.)

    There are a couple of exceptions. If you are long an option which is too far out of the money there may not be any buyers, and if there are no buyers you cannot sell. If you are short an option and have already received an assignment notice the option no longer exists so you cannot close the position with a trade.

    < <>>

    That is a common reason for closing a position before expiration. Just remember that it can be just as important to close a position early to keep a small loss from becoming a large loss.

    < <>>

    I am interpreting your question to be “what is the name of a strategy where you believe a stock’s price will make a big move, but do not know if it will move up or down?”

    First, if everyone else also believes the stock price will be volatile option premiums will be so high that it will be difficult to find a good strategy. However, if you think option premiums do not reflect the amount of volatility you expect in the stock price (i.e., if you think implied volatility is too low) appropriate strategies would include:

    backspreads
    buying straddles or strangles
    Selling at the money call or put butterflies
    buying ATM time spreads (also called “calendar spreads” or “horizontal spreads”)

  3. Pauline says:

    Yes,
    You can sell to close or buy to close and take profits.
    I am not sure about question 2, but vertical spreads or iron condors, might be what you mean. A butterfly is actually two vertical spreads put together.

    I am enjoying a class with Options University.com, come aboard, I am learning a lot.

  4. James says:

    You don’t have to wait til expiration nor exercise to take profit on a profitable options position. All you have to do is close out the position will do. In fact, by not holding all the way to expiration, you also salvage some of the remaining extrinsic value of the position which means that you will make a higher profit by selling it way before expiration than holding it all the way to expiration.

    As for options strategies to profit from either north or south, they are called Volatile Options Strategies and there are MANY of such strategies. The most common of which is the Straddle where you simultaneously buy at the money call options and put options. Below is a link to a whole list of options strategies, just look under the Volatile options strategies section for all the options strategies that profit in either direction.

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