Placing/Closing Options Orders (Buy To Open/Sell To Close)

Calls

To buy a Call option: Buy to Open
To sell a Call option: Sell to Close

TIMELINE/PERMISSIBLE ACTIONS

Timeline Call Option Purchase Date Time in between Purchase Date and Expiration Date Expiration Date
Actions [Buy Call option] [Sell OR Exercise the Call option(American Style)] [Auto-Exercise InTheMoney Call options]
[Manual-Exercise InTheMoney OR OutofTheMoney Call Option]
[OutOfTheMoney Call options expire worthless]

Pointers:

Anytime BETWEEN the Call option Purchase date AND the Expiration Date

  • You can sell your Call option to lock in the profit/minimize losses etc.
  • You can exercise your right to buy the actual shares and close your call option position(done rarely!).

At Expiration Date

INTHEMONEY Call Options at Expiration Date (strike price < stock price)
  • You can exercise your right to buy the actual shares. Please contact your brokerage in advance.
  • Some brokerages might auto-exercise the call option for you to buy actual shares if you do nothing. Please check your brokerage website for details.
OutOfTheMoney Call Options at Expiration Date (strike price > stock price)
  • Out of the Money Call options(strike price > actual stock price at expiration) expires worthless i.e. the option will just dissappear from your account after the expiration date.

Puts

Puts shouldn't be hard to understand once the concept for Calls is clear. Logic for INTHEMONEY and OutOfTheMoney will be different.




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