Selling to Close Options Position (Not ITM)

[PlentyoOptions]

Hi - I will likely get shredded for the question, but want to ask anyway... 

If I own OTM calls or puts, and say the stock spikes, but not to my strike price - but the contract price goes up enough that I want to sell - I am able to sell at the new (increased) contract price, even though its OTM?

Does it only have to meet the strike price to convert the options to stock?

 

thanks all

[zxcv64]

1 hour ago, PlentyoOptions said:

I will likely get shredded for the question, but want to ask anyway

Welcome to SO. Firstly, no one gets shredded here. 

1 hour ago, PlentyoOptions said:

I am able to sell at the new (increased) contract price, even though its OTM?

Yes, you can sell your long option at any time regardless of whether they are OTM or not.

 

1 hour ago, PlentyoOptions said:

Does it only have to meet the strike price to convert the options to stock?

Now we're talking about exercising  long options.....generally this is only done if there is very little time value left in the options - cos if you exercise your call options (for example) to buy the underlying stock and there is a lot of time value left in the options, then you will lose that time value, and hence money. A more profitable route would be to sell the long calls and buy the stock at the current market price.

Eg. right now, the MU stock is priced at 60.9 and the 23-Mar, 60 strike call is around 2.85. So the calls have 60.9 - 60 = 0.9 intrinsic value and 1.95 time value (2.85 - 0.9).

If you own some MU calls, you would NOT want to convert them to stock - you would want to sell the calls for 2.85 and buy the stock separately for 60.9.

 

 

 

[skydragon]

3 hours ago, PlentyoOptions said:

Does it only have to meet the strike price to convert the options to stock?

As the holder/owner, you have the RIGHT to exercise (convert to stock) regardless of the underlying (stock) price at any time.  While that is your right, only you can decide if it is a wise choice.   The explanation from zxcv64 is good advice to consider as you make that decision.  In addition to the intrinsic and time value, your broker may charge you an exercise fee that should also be factored in.

Edited March 20, 2018 by skydragon
typo

[PlentyoOptions]

Thank you all for you above input, it is greatly appreciated! A little different that asking questions in StockTwits LOL.

Am able to close/sell the contracts (NOT convert to stock) at the high price contract price - if the stock were to go in my favor?

If I bought the MU calls @ $2.00 with a strike of $65, and the stock goes up to say $63 and now the call contracts are worth $3.00 ... could I close my position, without buying the stock, and pocket that $1 per contract difference? even though it wasnt at my strike price.

I think I have a few more books to read before diving in

 

Thanks again all!

 

[zxcv64]

2 hours ago, PlentyoOptions said:

could I close my position, without buying the stock, and pocket that $1 per contract difference?

Yes, that is exactly what you could (and should) do. The strike price is almost irrelevant. You can sell any option you own at any time until the expiry date.