Options Question

[IceMan77]

Ok here is the situation

I had 14 contracts that were set to expire last Friday.

Company XYZ DEC 30

The bid premium on this contract was $1.90

The XYZ share was trading at 31.99 in the final hours of trading.

My math says if I had chosen to excercise my options I'd be making:

1400 shares x $0.09 (difference in price) = $126

Based on my calculation, it would be more beneficial to sell the premium rather than excercise. Correct?

[circa76]

Ok here is the situation

I had 14 contracts that were set to expire last Friday.

Company XYZ DEC 30

The bid premium on this contract was $1.90

The XYZ share was trading at 31.99 in the final hours of trading.

My math says if I had chosen to excercise my options I'd be making:

1400 shares x $0.09 (difference in price) = $126

Based on my calculation, it would be more beneficial to sell the premium rather than excercise. Correct?


Assuming that you'd get charged something similar to me ($9.95 + $1.25 per contract online) then yeah, you would have made more money selling the options.

[15-20_God]

well it depends, ignoring commissions you'd net $2,660 if you closed out the contract.

If you exercised the option and sold the stock immediately you'd net yourself $2,786.

[monty613]

Ok here is the situation

I had 14 contracts that were set to expire last Friday.

Company XYZ DEC 30

The bid premium on this contract was $1.90

The XYZ share was trading at 31.99 in the final hours of trading.

My math says if I had chosen to excercise my options I'd be making:

1400 shares x $0.09 (difference in price) = $126

Based on my calculation, it would be more beneficial to sell the premium rather than excercise. Correct?

a better strategy would have been to sell to close the options position earlier than the day of expiry, while the premium still has some time value left in it (although i'm not sure when you opened this position, what the underlying stock is, it's volatility, etc)

but like 15-20_God said - you would have been better off to exercise then immediately sell your position. the problem with this is a lot of brokers send exercise/assignments to the clearing house over the weekend, and the shares are delivered the monday following expiry.

[IceMan77]

a better strategy would have been to sell to close the options position earlier than the day of expiry, while the premium still has some time value left in it (although i'm not sure when you opened this position, what the underlying stock is, it's volatility, etc)

but like 15-20_God said - you would have been better off to exercise then immediately sell your position. the problem with this is a lot of brokers send exercise/assignments to the clearing house over the weekend, and the shares are delivered the monday following expiry.

The problem with the underlying stock was that it was steadily climbing. On the day of expiry the stock was at it's highest point.

I don't think 15-20 recommended to excercise and sell immediately. Sure I could have made an extra $126, but you have to remember to execercise this particular option it would have costed 14 x 100 x 30 = $42,000. That's a pretty capital intensive for a $126.

If one excersises an in-the-money option, is it considered a profit or do you have to sell the shares before the profit is calculated for tax reasons?

[monty613]

I don't think 15-20 recommended to excercise and sell immediately. Sure I could have made an extra $126, but you have to remember to execercise this particular option it would have costed 14 x 100 x 30 = $42,000. That's a pretty capital intensive for a $126.

True, depending on the size of your portfolio you could always margin the stock for a few days and still net yourself some cash less the interest. But again - you run the risk of the stock gapping down after you exercise (and then try to turn around and sell on monday)


If one excersises an in-the-money option, is it considered a profit or do you have to sell the shares before the profit is calculated for tax reasons?

If you had CALLXYZDEC30 and exercised, I would assume $30 becomes your cost base - so when you sell higher you trigger the capital gain. Again, I've never exercised (always offset before expiry)

Can anyone in tax confirm this?