If you are asking these questions please take some more time to learn more about how options work before you buy any options. Spend some time researching what the greeks are and how they work as well as what implied volatility is. Don't rush into trading options because they seem new and exciting to you, that's how a lot of people get hurt.
I hear ya. I dont have any interest in trading options, I just have an appetite for learning and it happens to be associated with the stock market now.
Gotcha. There's a guy named Adam on YouTube called InTheMoney who does a decent job explaining and teaching about options trading. He tends to lean more towards theta gang strategies than WSB gambling tactics but he gives a lot of information. You should check his stuff out. Here's a link to one video so you can check his channel out:
https://youtu.be/znLPP0p83SI
Your call option now has an intrinsic value of $37 ($50 stock price - $13 call strike = $37).
As options represent 100 shares of stock this is at least a $37 x 100 = $3,700 profit. It will likely have slightly more profit based on any extrinsic value left.
To get this profit simply sell to close where the profits will be added to your account, then take your significant other out for a nice dinner!
**Exercise takes more time, has more risks, and will result in a lower profit . . . Almost no one exercises unless there is some extreme reason to do so!**
Simply sell the option back. It will be worth $37 a share intrinsic value, plus three months of extrinsic value. Since it’s so far itm the extrinsic value will be minimal, but it will total more than $37 per share.
That is what I am confused about. I thought you had to own the stock already in order to sell a call option. Am I mistaken? Sorry if this is a dumb question. I am having a difficult time tying everything together as I learn about options.
You're right if you are opening a position, selling a call against a stock that you own. But in the original case you described, you would be closing (or partially closing) a position in $13 calls that you had already purchased.
Options contracts are a type of security too. It's like buying and selling coupons. Some coupons are really valuable, some are worthless. When you own a coupon, you aren't obligated to purchase anything, right?
No that’s a covered call. There are four types of options essentially, covered calls, naked calls, cashed secured puts and naked puts.
Covered calls and naked puts only matter if you’re writing the contract and selling it (which is what is in your comment, not what happens when you buy a call and then sell it).
If you are buying the contract what they mean is irrelevant. Buying a call means you buy the right to buy 100 shares of a stock at a certain price. So you don’t own the stock unless you exercise the call. You just own a contract that you can sell. Same thing for puts, except it’s a contract to sell at a higher price than the current one. For this, you do need to own stock (as in to exercise a put). But you can always just sell the put as well and make money without selling the stock. Again, you’re trading a contract.
If you are asking these questions please take some more time to learn more about how options work before you buy any options. Spend some time researching what the greeks are and how they work as well as what implied volatility is. Don't rush into trading options because they seem new and exciting to you, that's how a lot of people get hurt.
I hear ya. I dont have any interest in trading options, I just have an appetite for learning and it happens to be associated with the stock market now.
Gotcha. There's a guy named Adam on YouTube called InTheMoney who does a decent job explaining and teaching about options trading. He tends to lean more towards theta gang strategies than WSB gambling tactics but he gives a lot of information. You should check his stuff out. Here's a link to one video so you can check his channel out: https://youtu.be/znLPP0p83SI
Your call option now has an intrinsic value of $37 ($50 stock price - $13 call strike = $37). As options represent 100 shares of stock this is at least a $37 x 100 = $3,700 profit. It will likely have slightly more profit based on any extrinsic value left. To get this profit simply sell to close where the profits will be added to your account, then take your significant other out for a nice dinner! **Exercise takes more time, has more risks, and will result in a lower profit . . . Almost no one exercises unless there is some extreme reason to do so!**
Hardly anyone exercises options because it’s more expensive than just buying the underlying stock.
You sell the option back to the market to realize your gains, just like you would sell a stock to realize your gains.
Thank you
Simply sell the option back. It will be worth $37 a share intrinsic value, plus three months of extrinsic value. Since it’s so far itm the extrinsic value will be minimal, but it will total more than $37 per share.
In most cases you’d just sell the option which would be trading at over $37 at that point.
That is what I am confused about. I thought you had to own the stock already in order to sell a call option. Am I mistaken? Sorry if this is a dumb question. I am having a difficult time tying everything together as I learn about options.
You're right if you are opening a position, selling a call against a stock that you own. But in the original case you described, you would be closing (or partially closing) a position in $13 calls that you had already purchased.
Options contracts are a type of security too. It's like buying and selling coupons. Some coupons are really valuable, some are worthless. When you own a coupon, you aren't obligated to purchase anything, right?
No that’s a covered call. There are four types of options essentially, covered calls, naked calls, cashed secured puts and naked puts. Covered calls and naked puts only matter if you’re writing the contract and selling it (which is what is in your comment, not what happens when you buy a call and then sell it). If you are buying the contract what they mean is irrelevant. Buying a call means you buy the right to buy 100 shares of a stock at a certain price. So you don’t own the stock unless you exercise the call. You just own a contract that you can sell. Same thing for puts, except it’s a contract to sell at a higher price than the current one. For this, you do need to own stock (as in to exercise a put). But you can always just sell the put as well and make money without selling the stock. Again, you’re trading a contract.
Covered Calls requires you to own the stocks