Long Call Options Question

[kenw232]

Hello, I'm new to options trading. Is someone allowed to "sell to close" a Long Call before the strike price is reached?

For example AAPL is at about 402 a share now in middle of May. I come in and buy 1 contract of "Jul 20th - $600.00 Strike" for .35 cents for a total cost of $35.

Say in June AAPL moves up to about 520 a share. Can I lock that profit in by selling to close the call now? Or do I have to wait until it hits the 600 strike price or until the expiry date on July 20 to find out what happens?

If I can "sell to close the position" at any time why wouldn't someone always pick a much higher strike price to get the lower option price like this? I feel like I'm missing something.

Thanks.

 

[wino59]

Hello, I'm new to options trading. Is someone allowed to "sell to close" a Long Call before the strike price is reached?

For example AAPL is at about 402 a share now in middle of May. I come in and buy 1 contract of "Jul 20th - $600.00 Strike" for .35 cents for a total cost of $35.

Say in June AAPL moves up to about 520 a share. Can I lock that profit in by selling to close the call now? Or do I have to wait until it hits the 600 strike price or until the expiry date on July 20 to find out what happens?

If I can "sell to close the position" at any time why wouldn't someone always pick a much higher strike price to get the lower option price like this? I feel like I'm missing something.

Thanks.

The option will expire worthless, unless it is in the money. Therefore it would have to be higher than 600 in July to realize a profit, however you can sell to close at any time, so if the price moves up, and now your option is worth say .45 then you make .10 on the option if you sell to close.

What you are buying is "the right to buy 100 shares @ 600 a share" so you wouldn't exercise that option if it is trading below that. However your option can increase in value depending on a few things like volatility, current traded price, etc., but to answer your question yes you can sell back at any time for either a profit or loss on the option value.

Note if you get exercised you I hope you have the $60,000 in the account to cover per contract.

 

[kenw232]

Note if you get exercised you I hope you have the $60,000 in the account to cover per contract.

This is what I don't understand too, under what circumstances would I get exercised? If I am buying "the right to buy 100 shares @ 600 a share" how does someone force me to buy them?

 

[BobbyBB]

As a long holder of an option YOU get the right to exercise or not, it's 100% your decision and you'd be executing against the short of that option. They would therefore have to deliever to you.


Long holders of options thereofe hold all the rights.

 

[wino59]

As a long holder of an option YOU get the right to exercise or not, it's 100% your decision and you'd be executing against the short of that option. They would therefore have to deliever to you.


Long holders of options thereofe hold all the rights.

BobbyBB is right, however if you are in the money say it is trading at $650 then you would have to exercise to see a profit, or lose the $35. Granted it is not a big risk you are taking but if it is trading at $650, then your profit should be around $5K.

My suggestion is to sell back the option before expiration. Then you don't have to worry about it.

Options expire, as BobbyBB said you are buying the right to purchase at 600, not the obligation. As the price moves up the value of your option increases, but you are so far out of the money that it is only increasing in value at small increments, so for every dollar Appl moves you may only be making a couple of cents, because you bought such a low delta....That will increase as the price moves up, but it has to be a big move before you start to see a nice profit. Also theta is working against you, but the most you can lose is $35 so why not take a shot.

Kenw232 : To answer your question "If I can "sell to close the position" at any time why wouldn't someone always pick a much higher strike price to get the lower option price like this? I feel like I'm missing something."

There are many option strategies, so people are buying ITM, OTM, and ATM options all for different reasons, they could be doing calendars, iron condors, straddles, strangles, credit and debit spreads, etc.

If I was buying a call, because I thought the price would go up, I would do the opposite of what you did. I would buy an option with a delta of 85 to 90 deep in the money, as the prices moves up I would be getting a dollar to dollar move on my option. Thought it would cost a lot more, it would make money a lot faster, and since I bought such a high delta, I am limiting my theta risk, and volatility risk.

 

[callmebruce]

Hello, I'm new to options trading. Is someone allowed to "sell to close" a Long Call before the strike price is reached?

For example AAPL is at about 402 a share now in middle of May. I come in and buy 1 contract of "Jul 20th - $600.00 Strike" for .35 cents for a total cost of $35.

Say in June AAPL moves up to about 520 a share. Can I lock that profit in by selling to close the call now? Or do I have to wait until it hits the 600 strike price or until the expiry date on July 20 to find out what happens?

If I can "sell to close the position" at any time why wouldn't someone always pick a much higher strike price to get the lower option price like this? I feel like I'm missing something.

Thanks.

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