Hi!
I am a newbie and I recently started reading about options. I have a couple of questions that I'd love to hear an answer to.
Let's say I bought a put option 3 months ago. The expiry date has come, and I am in the money on the put, meaning that the strike price is below the market price, and my bearish speculation was right.
What is my strategy here and how do I maximize my profit? What happens if it expires? Am I obligated to buy a 100 shares at the strike price and then sell it for the higher/market price?
Do I "sell" the options contract on that Friday? Who exactly would buy it at expiry date? The broker/person I bought it from in the first place?
P.S. I assume the same works for calls.
yo
If your put is in the money, then the strike price is higher than the market price, not the other way around. For example, your strike is $60 and mkt is $55. You have the right to sell a $55 security to the writer for $60, earning you a $5 spread.
If you wait til expiry, many brokers will take care of the transactional busywork. If you fail to do anything with an in-the-money option, you will NEVER lose your intrinsic value.
Sometimes the writer will do that to close out their position. At that point the option contract is basically just trading at intrinsic value.
Generally, if you've made money on a long option position, it's more profitable to sell the option prior to the expiry so you can pick up some time value $$ on the way.
Your assumption is correct.
Great, thank you for the answers!
I came up with them while thinking if it's possible to make money in the following scenario: Someone is very bullish on a stock, and would like to find a cheaper deal than the market price, but still buy the actual stocks. Would someone then buy a call option contract that's hours away from expiring and exercise them right after buying, rather than buying the stocks directly from the market. Like buying the stocks a bit cheaper but not through the exchange.
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