Why Options Are Rarely Exercised (Options Traders MUST Know This)
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- เผยแพร่เมื่อ 2 ต.ค. 2024
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Beginner options traders have a very common fear, which is being assigned on an in-the-money short option before expiration. But that only happens if somebody exercises the option.
In this video, I break down why options are almost NEVER exercised, and therefore, you'll almost never be assigned on a short option before expiration.
I use an AAPL call option example to illustrate why a trader would almost never want to exercise an ITM option. I do so in excruciating detail.
My goal for this video is simple: alleviate the fear of being assigned on short options, and clearly explain why you do not have to exercise an option to realize any sort of profit. The profit that you could make at that moment will be embedded in the option's price, which is called "intrinsic value."
I hope this video helps. Sorry for the seriousness, but this is important! I receive questions every day from confused traders in regards to exercise/assignment, and I want to bury this fear/confusion once and for all!
Be sure to leave a comment down below with any questions you may have!
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Why Short Options Are Rarely Exercised (Written Guide): www.projectfinance.com/short-options-rarely-assigned/
ADDITIONAL NOTES: I understand this video was very repetitive. Much more than needed and it could have been more concise.
If you allow in-the-money options to expire, you'll definitely exercise the option/get assigned, so watch out for that!
Example of why being assigned on an option with plenty of extrinsic value is a good thing:
Let's say you sell a call with a strike of $100 for $5.00 (you collect $500 in premium). The stock price is $100. The stock price goes to $101 and the 100 call is worth $5.50 (premium of $550, $100 is intrinsic since the stock is $1 below the strike price). The remaining $450 is extrinsic. You are down $50 on this trade thus far, but if the stock price is at $101 at expiration, the 100 call will be worth $1 and you'll make $400.
You get assigned on the call, meaning you short 100 shares at $100/share. With the stock price at $101, you are down $100 on the share position. But since you collected $500 in premium for the option initially, you're really up $400 on the position because you collected $500 for the option and lost $100 on the share position due to being assigned and shorting 100 shares $1 below the current stock price.
The Money Flows:
Short 100 Call: Collect $500
Stock is $101, Assigned: Short 100 shares at $100 = Collect $10,000 for a position worth $10,100 = $100 Loss
So your new position is -100 shares at $100/share, the stock is at $101, but you collected $500 for the call. The call is gone. You only have the shares, and you're only down $100 on the shares. You are up $400 overall.
-Chris
Hi Chris, great video! I see in your comments you said that if you let a call option expire in the money you will definitely get assigned? So if i am using a covered call strategy and the call I sold expires in the money I should kiss those shares goodbye? Do you think it would be better to buy back the call option once I lose confidence the trade will go my way to protect my shares?
Thanks
-Mike
Yes exactly. If your short call expires ITM you will sell the shares you have at the strike price of the call. If you want to keep the shares you'll have to buy back the call, but you could have a scenario where the short call is ITM but below your breakeven price. If you sold a call with a strike of $70 for $3 and the stock is at $71 near expiration, the call will likely be trading for less than $3 (depending on how close to expiration we are talking). If that's the case, you could buy back the short call for a profit and continue holding on to your shares, or sell another call at a higher strike in a further expiration.
Hi Chris, I was wondering whether call option sellers price in the dividends profits in the option premium? Thanks
Thanks for this video. In a 2 leg option strategy such as the bear put spread, should i be concerned about being assigned if my short leg is in the money near expiry and i do have cash to cover the purchase but i do have a long put at a higher strike price on same expiry date. Does the broker does the settlement for me if the short leg is exercised by the buyer? Can you please explain how the option assignment works in a two legged strategy? Can you make a video on trade management? I guests it could be helpful. Cheers!!!
If I bought the option back would they be able to exercise it. How would I buy my specific contract back. does it matter?
I've been watching videos and reading on this for like the last 6 hours and this is the only video that clearly explained it and made sense to me. Thanks for making this video!
Best channel when it comes to fully understanding Options. Keep up the good work brother
I appreciate that!
Seriously? What a joke
This was great, I been tryin to find out about "can you exercise an out of the money option?" for a while now, and I think this has helped. Have you ever come across - Fiyarper Conspicuous Future - (Have a quick look on google cant remember the place now ) ? It is a great exclusive guide for learning binary options trading signals minus the hard work. Ive heard some extraordinary things about it and my m8 got great success with it.
It's critical to clearly understand the intrinsic and extrinsic value of an option. Once that is crystal clear, then this question answers it self. You lose the extrinsic value if you exercise early (before expiration). That's why it's never done except at expiration when the extrinsic value by definition becomes zero through theta decay. This is why, as an option contract holder, it's often wise to sell the contract before it's extrinsic value has decayed away.
But then who will buy it? For the same reason you’re getting rid of it, why would someone buy if
@@SkylineR34EvoX Right is an options contract like a hot potato nobody wants on the last day of expiration? What if the last holder "Forgets" to exercise it before 8pm?
options are automatically exercised by the OCC if the option is .01 itm, a person has no choice in the matter. However, they can submit a DNE to prevent their option from being exercised, but in that case just close the option why wait for it to expire.
Doesn't the _last_ person to hold an in-the-money call option _have_ to exercise it, before it expires, in order to make money? Otherwise, it's worthless after the expiration, right? So how can it be such a rare thing to 'exercise' if it must happen 100% of the time (at some point)?
You make perfect sense and it is true that options are rarely exercised, but it does happen, and when it does its a bummer, that is why over the past few years I have focused more on cash settled options to spare myself the risk of exercise or assignment
Are all the index futures cash settled with absolutely no chance of assignment. Are there are trades where there is no chance of assignment? Thanks
@@jimbarentine3539 buying calls or buying puts
I'm guessing the only real reason to exercise an option is if you feel the stock will climb even higher and you'll stay long on it.
No. In this case, just close the position and buy the shares in the market. Exercising early when the option has a lot of extrinsic value is giving money away (as explained in the video).
THE ONLY reason where you'd want to exercise early is if the option is FAR DEEP in the money, that it has negligible extrinsic value and most of it is intrinsic value, and you can't bother closing the position and buying the shares in the market I guess. Even so, you could just close the position for a profit and buy the shares in the open market yourself (if that is your intention). The other scenario is, as he explained in the video, if exercising early will net you a dividend that is higher than the extrinsic value. These are both rare scenarios, which is why options are rarely exercised early.
No, you can buy more shares. Exerciising isnever good except approaching an ex dividend date.
i had this same question, i have a contract on shares i wanna own long term, so i used an options calculator online for my own contract scenario, then did the math.
Exercising
if i exercise my own contract at certain date i'm targeting (june 15th) it would cost me...
(cost of premium) + (discounted share price) = $6040
Selling Contract
but if i sold the contract at a profit, then used that profit to buy shares at the current trading price on june 15th, it would cost me...
(cost of premium) + (standard market price) - (profits from selling contract) = $5998
So I'd save $42 by selling the contract first before purchasing 100 shares. I guess i would exercise it if nobody wants to buy my bloated contract.
@@SmallPocketsBigRockets That's a great example and makes a lot of sense. thanks!
@@SmallPocketsBigRockets Thanks for your explanation. I was in a situation where I wanted to buy 100 shares of NIO but I did not have enough money. Since NIO day was coming and I guessed the price would rise after, I bought a $50 call at $9.55 that expires in April 2021. I did this just to buy time to raise the $5000 needed for the shares. So I will be exercising this option at expiration if NIO does not drop below $50 by April.
I didn't know Linkin Park sold options
Lol
😂😂
🤭🤭
He’s tired of being what you want him to be…
5 hours of reading and watching video’s and your explanation helped me piece it all together better than anyone else could thank you!
Same
My question is do you have to sell them right away if you choose to exercise the contract and buy the 100 stocks. Example i buy stock strike price at 20$ stock price is 25$ right now. Contract is for 01/15/2 500$ premium. By then if price is 45 $ , but i want to buy more at $20. These 100 stocks can they instantly add to your portfolio to lower your average if you're already invested in a comlany? Or must they be sold after you exercise the contract to buy 100?
Thank you for making this, it sheds SO MUCH light on the subject. You're a wonderful teacher.
Glad it was helpful! I appreciate the nice comment. One guy didn't think so...
For me the best I have succeeded in forex trading is by trading with a good account manager, I've been able to grow my account to $20,000 within a month under the guidance of a good account manager.
What if you exercise the option with the intention of keeping the 100 stocks? Say you want to buy shares for a company but you don’t want to put the full amount for the shares at the current value for risk control reasons.
yes you can do that. people exercised their long calls on GME.
Great video. Thank you! The only thing I would add would be that this scenario assumes everyone that buys options are day traders, and want to immediately sell their shares after exercising the option. I have made great money just buying and holding TSLA stock. But I can see how buying options would be beneficial in a long term hold scenario, being able to buy 100 shares at a great price, and then just holding long term for a better return.
I only used selling the shares after exercising as a way to compare realized profitability. I'm not suggesting someone exercising a call would want to immediately ditch the shares.
Exactly. His explaining that selling the option is better in any way than exercising it is beyond my imagination. Duhh No it ISN'T better to sell the option rather than exercise it. None-sense
@@projectfinance Immediately ditching the shares is EXACTLY what you suggested. it was the olny option you suggested. Way lame and very misleading. I hope no one "learned" about options from the video
@@russellnotestine6436 exactly what I was thinking
Well I still learned a couple things, regardless. So yea me. I don't immediately go copy what I see on here, and seek many answers to the same question usually, on complex subjects1
I really appreciate all the video you do, keep up the good work!
By any chance you will do a video about rolling an option?
If you could include some strategy and tips in the video that would be the best!
now I feel stupid 😅 . I didn’t understand options before getting into it and I forsure just got owned by options
Hi. I understood the differences between both the scenarios - you did a good job with the explanation. A theoretical question based on your example in the video: If i am the buyer of the call option and want the underlying stock as an investment then exercising the option & taking delivery of the shares would be more advantageous compared to selling the option. The reasoning is that even though i can take more by selling the option itself now, i could gain more upside in the future from just holding onto the stock. Correct? Curious to hear your thoughts...
Also curious as I plan on doing this..
Me too
So....you you decided to exercise your options and purchase the stocks....because you could gain more in the future by holding onto the stocks ? So you can read the future ? My take is that the stocks of the company you bought is going bankrupt..... so take the money and run....but I can’t read the future though....sorry.
It's not more advantageous because you can buy those shares at lower price. Lets say you bought calls for $100 strike and the price is now at $120. The value of the option will be more than the $20 difference (intrinsic $20 + some extrinsic value) assuming the option expiration date has not been reached. You could sell the option for something higher than $20 and immediately buy equivalent shares at $120 so that's like buying the shares are under $100 which is still better than exercising at $100, isn't it? then you can hold those cheaper shares or do whatever.
Wallstreetbets has left the chat.
Haha.
This is just superb, been searching for "can you exercise an option on the expiration date?" for a while now, and I think this has helped. Ever heard of - Fiyarper Conspicuous Future - (do a search on google ) ? It is a great one of a kind guide for learning binary options trading signals without the headache. Ive heard some great things about it and my friend got great success with it.
😂
You predicted them bro
This aged we
This is by far the best video on the subject!! You are an amazing teacher. Thank you for this wonderful video!
I appreciate the videos but I found this painful. You said the same thing like 100x about the prices of the stock you were buying and selling.
I thought it was just me lol could’ve shaved about 5 minutes off this video
omg same here..i felt the pain too
Yeah, but he was able to show us like 3 more ads.
Theres also people that still dont get it after 3x.
If i have a put option, do i then have to exercise the option to the current price, or can i do whatever i want with it.
Am i stricly limited to the current price, when exercising options?
Best regards.
Mathias.
If you don’t want to pay TAXES on your intrinsic value gains you can exercise calls on expiration day to convert profits to common shares and hold a long stock position.
Bump
Why not exercise the option if i want to have the stock in my portfolio to hold it long term (years) at the strike price? Why did he not mention that part? 😅Say I wanna keep aapl stock for the next five years? Can someone explain that part
Did you find out
This was my question especially if you have cashless redemption option and the capital gains amount may not be excessive.
Sell the option, use the proceeds and your cash to buy the stock in market
people are getting confused because they don't understand that the option alone has a value to it, and the stock has a value. They are separate entities!
Yes so although the video attempted to explain this, those words were never used and this was more complicated than it needed to be.
thats very true and what a lot of website dont make that point obvious they imply that an option has no value and that only the difference in the share prices has value
i think u can explain better than this guy
Yep! Exactly why they’re called derivatives
uh it's always going to be confusing b/c every video on the topic (including this one) says "options lose value as they approach maturity" then go on and on about intrinsic value. OK but isn't that intrinsic value going down over time?
Hi Chris, thanks for the detailed explanation, what if it's not a very liquid contract and there's a big difference between the bid and ask prices of that strike, wouldn't it better to exercise your ITM call option?
What if something change with the company and you now realize there's a long term potential growth for your stock beyond the expiration date. Would that be a reason to want to exercise the option? The extrinsic value is not even comparable to the potential growth....(eg. bought Airliners stock at their lowest, and I see them going up beyond my expiration date)
They have options out to 1+ years, so it would still make sense to sell the option and re-purchase the more-distant expiration option if you're confident it will grow significantly over that time.
Extrinsic "Value" is there because people are willing to pay for it, so it wouldn't make sense to waste it just to move your expiration further out.
@@MoltenMouseMetal thanks for explaining this
hi. when should you sell an option deep in the money? a day before it expires? a week? a month? thanks in advance.
Everything is true but if you have high conviction the price will keep going up you can exercise for the long term like Buffet. Later down the line that 314 can turn into $500( with dividends). I'm just saying
That's certainly a possibility. If I'm gonna do that though I usually just sell puts at the strike I want to buy them for and let the clock start ticking. Slightly lowers the price of the stock (collected premium) if the puts get exercised in the money and I get to own them at the price I wanted anyway.
@Gordon Ghecko that's kind of what i was thinking, if there's a bullish trend on SNDL right now for example, then what's the incentive to selling the option knowing that the buying and holding the stock will be a better opportunity
@@lennybrewster4673 True. Popular strategy
@Gordon Ghecko I would! Lol$💶💷💳💰
@Gordon Ghecko good to know, because this video comes off as pretty conservative relative to the current market trend
If you hold a call option until near expiration date for some reason, and market price is above strike price, would you consider exercising the option (since the extrinsic value is near 0 around expiration date) if you think the price will continue to go up beyond the expiration date, or would you simply recommend selling the option and buying a new call option?
Depends if you want (and can) own 100 shares, of if you just want leveraged exposure to the stock price increases. If you want the shares, you can let the option expire ITM, or sell the option and buy 100 shares (both are the same if the option has no extrinsic, but exercising would be more straightforward).
Just what I was looking to learn. Answered every question I had and explaining it over and over really ran it home for me. You saving me time and money.
Do you have to sell the shares immediately after you exercised the option or are those yours to hold onto till whenever you feel like? Bc in your scenarios if the call options were to expire soon I would feel exercising would be the way to go
Depends on which way the market is going. If it were steadily increasing then obviously hold but if the stock price were to start to go down you would want to sell. But to clarify your question no, once you buy the option or convert the option, it is yours to do whatever you please with. It is also important to note that whenever the expiration date runs out if the option still has intrinsic value then the option will automatically go through.
Chris, I’m very grateful to you for all the premium content you’ve put out over the years. This video was extremely helpful. Thank you 🙏🏾
Love this comment! Thank you for being a subscriber. I'm glad the info was helpful. I hope the videos will get even better with time. I have a big one coming next week (if all goes as planned)
All I want to know is how to buy 1 contract of apple (100 shares) current price $132 ( 132 x 100 = 132,000) without having to have $132,000 in my account?
I see people buying call options with under $1000 and make profit.
How can I buy the contract and not actually own the 100 shares and pocket the difference when the stock goes up??
In a lot of situations it would be foolish NOT to exercise your call option, for instance, early. If the stock has run up a lot and you want to lock in your significant profits, I often exercise them at that point. I often buy deep in the money calls in the shortest time-period so I pay less in time value to start with, too. I do this often as buying short-term calls can be less risky than buying the stock outright. I have had many times where my call cost me as low of Zero if the stock was falling at the time, to just a dime per share equivalent, and since I bought them a week or so before expiration, it was very easy to know exercising those options before expiration was the right thing to do. Of course, I then have to sell the shares I just got. By doing this, I also save the cost of selling the calls at expiration as exercising them is free. Many times when you try to sell an option that is less liquid, they may actually offer you less to sell it than its intrinsic value- amazing. So I learned to just exercise them early.
So lets just say a call option I bought squeezes deep in the money by a significant amount, and the expiration is still far away, is it better to exercise and then sell the underlying at that point when its getting close to the top?
This is the first time that i understood properly what call exercise is...thank u sir...
Will tax be a reason that some people need to exercise the option? Long term gain tax is 15-20%, but short term gain tax could be > 40%.
Who cares what taxes are you made money by pressing a button
Yepp. Most people won’t understand this situation. When you are facing taxation of above $100k and you could adjust the plan to only pay $40k. Saving $60k in a year is a substantial amount.
What if the option is close to expiring and extrinsic value has decayed off?
Great content, sounded like a friend of mine, but I'm not very sure about the market due to volatility and i'm more focused on short term and following a news about an investor who grew huge profit in few months, my question is, what strategies can i apply to make this from the current market?
well, I think smart investors are current trading the volatile market and not waiting hopelessly for the market stability
There are good gains in the trading market with good research , i started using this strategy when the market crash begun and I've been able to to double the value of my portfolio to about $380,000 although i have been investing in the past few years i still needed the help of an investment expert because i feel trading requires a lot of research and grounded experience.
@@stanleyfujiwara1394 high end investors seem to looks forward to market fluctuations to make huge gains and If you ask me i think they're responsible for jinxing the market
@@stanleyfujiwara1394 Please do you mind leaving me your consultant’s contact info? or preferably I can also leave you my email if that suits you better.
@@nataliehinnes5221 look her up, her name is Lucy Maria Koss she's the investment expert that guides my trades, you can reach out to her via her webpage
but what if we exercise the option and decide to keep it shares for the long term rather than selling it right away like you mentioned in the scenario above? Would it make sense in that scenario to exercise the option?
Thank you for the info. I actually exercised a call option with deep ITM with little extrinsic value. So I exercised it because the stock still has lots of upside to it and I wanted to hold it long.
Then you paid more than the strike price
Say my break even is 45 and shares are at 50 and I have 6 contracts. And say 1 month is left in contract. Would it be better to sell the contracts or exercise?
Im a total noob on options. And you made this so easy to understand. Thank you
So what happens when there is a gamma squeeze or short squeeze? If I buy one amc call option for a premium of 1.60 at $6 strike price. And say there is a gamma squeeze at $50. The intrinsic value is now $44. I would initially pay 600 for the shares and 160 as premium. So $760. And now that shares at market value are 50×100 =5000. If I exercise the option and sell the shares I can make a profit of 5000-760=4240. Would this be an example of when I should exercise a call option? Or would the contract would increase to still have more extrinsic value? And therefore I would still need to just sell the contract instead of exercising it?
Hands down best video description. I’ve spent days/hours watching videos on this and never seem to understand.. THIS explained everything perfectly. Thank you
So if I sell a call option, the buyer has to wait for it to hit the strike price before he can buy it correct?
Keep up the good work! Even though it was repetitive, I believe it is target-oriented for the audience of beginners. Your voice also makes it easy to listen. Cheers and thanks for the quality!! 🥃
How about if the contract was going to expire in 3 days but you know the stock has alot more room to run, would you exercise it then just to hold the stock for more profits?
Wow, this helped a lot. Slow and methodical.
So, two questions, sir: 1) if an option is exercised (in the case you outlined where the original buyer of the call option is long AAPL), is the purchase at strike price and the sale at current market price automated by the system and executed simultaneously; and 2) rather than exercising the option prior to expiration, wouldn't it be better to simply close that contract with the strike price purchase and hold the stock while its price continues to climb and then sell when the profit margin is even more lucrative? Thanks for your time and insight. Cheers!
That's what I was thinking. Let's say someone bought tesla options back when strike price was $100. Exercised at expiration and held long until the shares reached $3000, and decided to sell then... I would think that profits outweighs the premium?
@@walterclark3274 I think the video is about why in the money options are not exercised before expiration. But you're taking about at expiration.
I always force assignment because I know people love it.
You're sinister!
Great explanation, thanks!
I was looking for an explanation of Exercising an option for a long time, now only I got a clear explanation ! Thanks a lot !
Awesome! I'm glad it helped. The example in this video was only a call option. Everything is the opposite for a put option. Put intrinsic = put strike - stock price (but intrinsic is never negative, it's either $0 or positive). Extrinsic = put price - intrinsic.
@@projectfinance Can you also provide an explanation of the difference between European options and American Options ? I am from India, and here we have European Options. Thanks
@@rahulsony77 American options can be exercised before expiration or on its expiration. Europeans always are exercised on its expiration only.
Here in Brazil we have European puts and American and European calls.
I always choose for the European ones to avoid to be exercised before expiration when the option is ITM.
thanks great explanation on a topic that helps beginners like me getting in the game
Thanks for the excellent videos, Chris! I do want to mention one exception when you absolutely *do* want to exercise: if you sold a spread and got assigned on the short leg. At that point, the extrinsic value doesn't matter: since all you've got left is the long leg (plus the stock) - and selling the long plus the stock will net you *more* than the maximum loss in the spread (i.e., you would now be stuck paying the extrinsic if you _don't_ exercise.)
In the Apple examples, 270+46 = 316 which is more than 314 (not using decimals). Hence, you will not exercise the option because you will be at loss.
Will it lower the average on my stock position when the call options are exercised?
Don't worry you never get picked for the shorts eight months later GameStop 😆
Q: let’s say I buy a call option. The stock price sky rockets. If I don’t sell the call option does that mean I keep what I paid in strike price and the difference made from when I bought it to it hitting a high number?
okay but what happens if someone exercises the option early
haha just kidding. great video thanks
It happened to me 3 years ago only few days after big Friday crash day. Get massive margin call... Glad I have spread so I also need to exercise long put early to close position and fix my margin issue (and I guess someone else got into trouble).
LOL
@@WeRhettyTV the real funny (good side) is the max loss was just $250 + 1 day margin call interest + broker fee to execute early exercise), but the margin call amount
really make me having stress fever for a whole weekend. Good experience when looking back.
I prefer to roll the option out to the next month when option becomes ITM to avoid this
@@caiocbrunofb7670 i agree for typical situations. It is more tricky when you need to deal with so deep ITM after crash that it's lack liquidity and/or involve already big loss, and when you have hope for some rebound later but somebody push early assignment..
Newby question: Can assignment happen during trading hours? i.e.: I sold a put/call, I am short, and then suddenly that short position just disappears from my portfolio during the trading day because I was assigned? Or does assignment only ever happen after trading hours?
What are the capital gains implications of exercising an option?
If I hold a call, and it appreciates in value, but I exercise the call and purchase the underlying stock at the strike price and hold it, am I able to defer a capital gain that I would otherwise incur if I simply sold the option?
Example. Purely hypothetical. I'm making up numbers. June 2019. XYZ trading at $200. I purchase June 2020 $400 Calls for $20. The stock price goes to $1600 in May 2020. The calls are worth $1300 (intrinsic value of $1200 and an extrinsic value of $100). If I sell the option, I realize a capital gain of $1280 and the extrinsic value in full. If I exercise the option by purchasing the shares at $400, am I able to defer the capital gain until I dispose of the stock at some future date, maybe years down the road? Or do I incur the gain on the option when it is exercised? Would this amount be equal to the intrinsic value only (the difference between the current price and the sum of the strike+premium)?
Ok so I'm going to give it my best shot. I think I understand what you're trying to say. When you open a option you pay a premium. You cannot get back this premium unless you sell the option. For example you buy at 20 but sell at 1300 and now your capital is 1300. When you exercise the option you technically don't sell it so you lose the premium and all value of the actual contract. So no you don't get the equivalent of the contract when exercising. But you do get the actual profit/option that comes with exercising. For example since the call is 400 and option typically come in cases of 100 shares. You either actually have the capital (Which is 40,000) or the broker provides margin for you. Any case the actual stock price is 1600 so you then can sell it for 160,000. So technically $160,000(current value of stock) - $40,000 (what you paid for) -20 (the premium you paid for = $119980 profit
But keep in my this is all hypothetical no 1 year call will ever be $20 because 1 year is a lot of extrensic value. And also there's other factors that come into calculating option values
Hello Chris, I have been watching your videos for a while now and now I'm starting to wrap my mind around the concept of options trading which for a longest time for me it was just a weird, out of my league way to make money. I'm still watching and re-watching your videos to better understand the strategies and test with demo account. Thanks again for your time and effort. I was curious what were your thought on binary options? based on some research that I have done it seems a much simpler and lower risk way to trade compared to forex and CFD. Any thoughts on that? and if you are in favor Binary options, which broker do you recommend?
“We need to get you understanding” 😂 said with aggression. prime content
When you have an options TH-cam channel and 98% of questions are people asking about early assignment / worried about early assignment IMMEDIATELY when the short option becomes ITM, it gets you fired up haha
14:20 mark: "therefore, as someone who was short an option, you instantly make that extrinsic value and you make an instant profit". Could you clarify on that? Do you mean you save out on the extrinsic value loss? Wouldn't making instant profit depend on initial investment. Please clarify, thank you so much!
There is a word called " Break-even price", who ever wants to trade a option, you should better know what that means first
How to calculate that?
@@glorymanheretosleep for call option, it will be your long strike + prem paid.
but doesn't the option get automatically exercised at expiration if you're in the money? So If u forget to sell the option before the expiration you are forced to exercise the option right? Or is there a way to sell the option after expiration without exercising it?
So basically never exercise your options. Just sell them. Ok.
exercising options becomes a valid thing when the stock moves up or down rapidly and you need to secure a position gain. but you do it at a cost. the thing is,you had to have tried to sell the options,or its after hour and the stock moved in the direction you wanted only after market hours... in other words,never say never kid.
There's times where it makes sense. A lot of people buy calls or sell puts to have shares of stock to collect dividends if it makes sense to do so. Owning stock that doesn't pay dividends is pretty pointless in my opinion but that's just me.
Good explanation. I've learned a lot since the first videos of yours that I have watched, so now it seems real basic.
Thank you!
If options are rarely exercised, what is the purpose of them?
Basically if the price is so ITM that it just leaps to $500 and you got for let’s say $30 and then you bought 5 contracts, if you exercise it you have 500 shares of a stock for just $30 (15,000) compared to having 500 shares of stock that now cost 500 (250,000). You never exercise it because the premium you made from it you’ll never get. Just a huge discount on having shares.
@@mcinnisthemenace216 ya in my personal case, i have 60 contracts at at 25$ strike price for nio atm that expires in 1/21/21. I'm going to probably exercise it, because Nio will be at 55 in January. I may lose out on about 30k extrinsic value, but my shares would be worth 10x what I actually paid for the option after I exercise it! right..
What if the option is deep in-the-money but I believe in the company and want to hold the shares for years, should I exercise the option in that case?
Thats what im saying why is it only about gaining profit i want the shares at a lower price then what the market price is.
This weekend, I was short the expiring STX $51 call. The underlying stock closed on Friday at $50.96. It should have expired. To my surprise, I was assigned and lost the shares. No biggie. At other times I was short calls that should have been assigned but were not. Very strange.
The most important element of being assigned is that the sale of stock precipitates a tax gain or loss. If you do not want to sell the shares because you do not want this event to happen, the short option holder must take action. Example: Suppose you are holding a stock for long term capital gains. If you sell due to assignment before 1 year, you've lost the long term capital gain. It is not possible to undo a sale where there is a profit. You own it.
If you write calls against a stock with a juicy dividend, you can be assigned early as a means of harvesting the divvy.
@@charleewayne5164 Not interested in Crypto. It is a fad that has a ways to run. But I will stay with tried and true equity options.
I am curious why call option buyers of single stocks do not choose to buy stocks with 2*ATR stop-loss since premium of single stocks call is usually 8 or ten times more expensive than that of index call. It is the same with put option. The premium of put option is usually 8 or ten times more expensive than that of directly selling short index future. Chi ching Liu
You just gave me the answer that I've searched for a long long time. You are my best tube teacher. Subscribe and I'll be your fan for ever !!
Does the same thing go for put options? Let's say I have put options in XYZ for $100 and the stock is currently at $120? Can I exercise those puts and now buy that stock at $100 or should I just take the loss on my option?
If you have a 120 put on a stock that's $100, exercising your put would mean you'd sell 100 shares of stock at $120/share. With the stock price at $100, you'd have a $2,000 cost basis benefit. But if you exercise a put option with lots of extrinsic value (> $1.00) the same applies. You will lose the extrinsic value for no good reason. If you are going to exercise an option, it's usually best to do so if the option is deep in-the-money and expiring soon. Or, you can hold it through expiration and it will automatically be exercised. Of course, the changes in the stock price before expiration will result in changes in the value of the put option.
Thanks. I got it now. Wish I’d come across your videos a few months ago.
I passed my series 7 in 2006 so I fully understand options and trading. I appreciate you trying to explain this to people with limited trading experience, but I agree with the other people commenting that it’s almost painful trying to explain this type of option trading. Having to repeat everything over and over is brutal, I praise you for trying man....good luck!
you have done what so many others have failed to do. explaining what happens when options are exercised.
I've been interested in learning more about options. These videos are helpful for sure.
Selling option good
Exercising option bad
(Generally)...
Hello! So if we exercise, we cannot keep the shares?? I have a $NIO $42 call expiring next week with break even $48. I was thinking about exercising it to keep the shares as a long term investment. Thanks for your assistance in advance 🙏
Ahh you alleviated my anxiety, I can sleep now 😴
You are an amazing teacher ... love your videos.
Strategy is the key element to a long term successful trading,binary option,forex and other cryptocurrency
Weather rise or fall what I know is that bitcoin will still be the best and valuable cryptocurrency and i don't regret investing in it
Yeah you're right
It's not about watching videos and wasting your time on strategies, I was ignorant doing so... so i decided to try Mrs Clara and ever since then she has made about $14,000 for on every $4,000 i invested just in 2 weeks
I agree with you,because the higher your initial capital the higher your profits
Please how do i start trading with Mrs Clara????
Hopefully I get a response to this before market opens but If I was to exercise my call option and buy the shares at a strike price lower than my average when I purchase the shares would it make my average go down?
Finally , someone who talks-explains it at regular speed . Kudos for not trying to show off. You explained it very well. Thank you for your time.
Thanks for the comment! I'm glad it wasn't too much repetition for you haha
@@projectfinance repetition is sometimes neccessary. Sometime I need to hear things explains to me in different terms and multiple times. It is a good teaching method to teach subject such as Options . I use repetition on my 71 year old mother and my stubborn nieces to "drive home " important informations. THANK you for repeating your messages using different wordings. Thanks for the EFFORT .
You helped me pass my series 7. Thank you!!!
Let's go!
Ok, I understand that I give the extrinsic & intrinisic value when I exercise BUT what happens to my buying power? I have an itm call on $CRSP @$85 and so when I exercise & recieve the shares, what happens to the money I initially took out of my buying to buy the option in the first place? Can somebody please explain this to me.
It goes down the toilet. Holy shit this whole video just explained that and why it’s dumb to exercise the option. You have to pay for an option. If you do exercise your option and buy the shares, you have to subtract the money you paid for the option....because you paid for it. Between his video and this brief explanation there is no way to help you understand it. Just keep trying to use that brain...
@@AH-lz7qg what if there is no one who wants to buy your option in scenario 1 in the video ar 11:02
@@deivuby5614 when you trade options, you need to make sure your trading something that has high volume. In other words, make sure there’s a shit ton of people buying/selling the stock. When you are browsing for options to buy, you can see how many orders are out there. People will buy it.
can anyone explain if ITM call option expiring and price is below strike. what should we do?
I watched this while eating breakfast! It helped a ton but I’m going to rewatch and take notes this time! Thank You! 📈😊👍
Is the buy of the shares paid for by the value of my existing shares i.e losing my better position for a new lower one(the shares from the call)? This is where I am confused. Asking bc RH only gives me the option to exercise if I have 100 shares of the stock already.
You confused me, right when I was getting it 🤦🏽♂️
this guy suck at explanation
@@minhmeoquay No you just didn't take the time to understand. He literally explains it perfectly twice in this video with graphics. What more do you need?
I don't get why American options' price constitute any Extrinsic Value. Extrinsic Value, in my opinion, is the stock's potential movement. But American Options can be exercised at any point of time, which limits any profit on that potential movement.
Extrinsic Value only make sense in European options.
Please correct me if I am wrong.
when one exercises options, one typically intends to hold the shares for some time, not immediately sell after exercising...
Right. I just used selling as an example to compare P/Ls, but it would be no different either way.
Yeah but why not just sell and buy the shares with the money
@@andypagakis Exactly! That's what you'd do if you wanted the shares. You wouldn't exercise the option if it had tons of ext
@@projectfinance thanks for the video bro, I just started learning about options, it's amazing how much less money you need, I've been having success swing trading,
I look for something that I think will grow about 5% and use 10k per trade, so I'm aiming for 500 bucks a trade and take a few positions at a time if I find enough stocks that I like, been doing great but man with options I can use way less capital and limit my downside to just the cost of the contract, I had no idea
@@andypagakis because you would then be purchasing the shares at market value (ie: I had an AMD 65C contract that I was debating on exercising, post earnings AMD was trading at $80/share, so if I exercised my option I would be purchasing AMD at $65/share x 100 (6500), which would have put me at a ~$1500 gain. Long story short I ended up selling my option because I was at a greater gain doing that due to implied volatility.
what if I want to hold that call option long term? Wouldn't it make more sense to exercise the option to avoid capital gains tax?
this is a very simple and straightforward. seems like youre trying to make it complicated so people will go thru the countless advertisement
So I’m confused. If I have a call 10, 25c June options with break even at $32.49 @ premium of 770 (7700) and the stock jumps to $60 a share. By not exercising it I would get $27.41 per share plus premium in profit?
Example 25c difference $35 X 1000= $35,000 -7700 entry cost for a true profit of $27,300?
There was only 6 words in this whole video.
For real. This is the slowest video Ive ever seen.
wasn't the best
@@projectfinance No man this video is good. People who talk fast often don't know what they're talking about. I really appreciate this video.
Ignore MB and carry on please 🤙
Seriously, I had a stroke. This is good advices if you are a potato thinking he could be a Gorden Geko. :D
I am holding a TIGR April $17.5 call. The stock price is currently at $37 and I think it has great long term potential. I already sold 1 contract to make it free. Wouldn't it be smart to exercise my remaining contract if I want to hold?
good explanation but you repeat every statement twice!! its very repetitive to hear with values
Agreed. Had to double the playback speed because the same thing was being said over and over.
I'm learning the option game and I'm trying to figure out what to do in regards of an AMC call option. My EXP is June 11th with a strike point of $10 ($1.29). With the potential of the squeeze would it be better to have 100 shares for the potential run or take the profit of the option? I know we can't predict the future but I'm just trying to put things on the table to help make an educated decision. Hopefully you can understand my dilemma.
Please can I invest in Bitcoin on my own, I have been practicing on my demo trading account, I don’t want to make any mistake whatsoever.
yes
You can if you have fully understand the Bitcoin market
if you haven’t I will advice you to look for a professional around your vicinity to help you understand the Bitcoin and forex market.
I’m from Belgium I have been an investor in the crypto market for over 3 years now.
Now is the greatest time to purchase and invest in Bitcoin
Obviously trading in Bitcoin is very volatile and risky to trade that’s the reason most traders trade with a company.
What if the expiration date is approaching and you want to be long? Why not either exercise or roll?
You also gotta keep fees in mind, too! You’re paying more fees to exercise AND sell, compared to selling the option. You’re doing a good thing trying to educate people!