Copyright © 2004-2008 Delta Interval, Inc.(www.deltainterval.com), All Rights Reserved. Legal Notice.
V. Getting Started
Closing an Option Position
Sell the Options
You can sell an option that you previously bought on or before the expiry date. Selling an option is often the best way to close out a position if there is still time remaining before expiry. This is because when you sell an option you will sell it for the total price (the intrinsic value + the time value). If you sell the option you will not need to take a position in the underlying asset.
Exercise the Options
You can only exercise an option if you are long the option (if you own the option). You can exercise American style option any time on or before the expiry date. When an option is exercised, only the intrinsic value is realized, and any time value remaining is lost. When you exercise an option you are actually buying or selling the underlying stock. Exercising an option would be appropriate in a situation where there is little or no time value, and you want to buy the stock in the case of a call, or sell the stock in the case of a put.
Get Assigned
You can only get assigned if you are short the option. You will get assigned if the person who buys the option from you exercises it. Being assigned is a possibility however you have no control over this, it is the decision of the other party in the options contract. When you are assigned you must simply fulfill your obligation under the option contract. In the case of a call option you would have to sell the stock at the strike price to the call holder, and in the case of a put option you would have to buy the stock at the strike price from the put holder.
Let the Options Expire
An option will expire worthless if the option is either at-the-money or out-of-the-money on expiry. Letting your options expire worthless is the only viable decision when they are out-of-the-money on expiry. When you let an option expire, you lose all the money you invested in the option.
Copyright © 2004-2008 Delta Interval, Inc.(www.deltainterval.com), All Rights Reserved. Legal Notice.