Near expiration call options
Near expiration call options
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SteveRodgers43 · External communityPost link
External question — Personal Finance Stack Exchange
Author: SteveRodgers43
Original post: https://money.stackexchange.com/questions/145592
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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Suppose I buy a call option for a stock (current price is $5) for $500 and a $0.5 strike price that expires in a year. The year is almost up (say its the last day 3 hours before expiration), the stock is trading at say $4.25. Its not enough to break even, but I want to own this stock. Is it worth it exercise the option?
I know that whoever is buying the option will lose money in the short term because they think it will go up in the long term, but how common is it in practice that the option actually gets exercised?
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Bob Baerker · External communityPost link
External answer — Personal Finance Stack Exchange
Author: Bob Baerker
Original post: https://money.stackexchange.com/a/145593
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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Owning an American style call (equities) gives you the right to buy the stock any time prior to expiration.
You paid $5 for your $0.50 strike call. That's a sunk cost. It's about to expire. If you want the stock, allow it to be exercised.
If you don't want to buy the stock, sell the call. However, deep ITM options near expiration often trade at a discount to intrinsic value. If the discount exceeds your closing costs, do a discount arbitrage (short the stock and exercise the call), avoiding the haircut.
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Quoted from Forex.com.bd-Editorial External answer — Personal Finance Stack Exchange Author: Bob Baerker Source score (net votes, not local likes): 1 Original post: https://money.stackexchange.com/a/145593 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Owning an American style call (equities) gives you the right to buy the stock any time prior to expiration. You paid $5 for your $0.50 strike call. That's a sunk cost. It's about to expire. If you want the stock, allow it to be exercised. If you don't want to buy the stock, sell the call. However, deep ITM options near expiration often trade at a discount to intrinsic value. If the discount exceeds your closing costs, do a discount arbitrage (short the stock and exercise the call), avoiding the haircut.
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