can a call option be day traded ?

Question

If you buy a call option today at .35 cents and the stock jumps closer to the strike price, but is not (in the money). However the option is now trading at .85 cents. Can you turn around and sell it the next day for a profit? How fast do option trades execute?

Answer 1

Yes, in fact, you can buy it now and sell it one hour later or the next minute if it has risen in price. You buy and sell call and put options exactly the way you would buy and sell stocks and shares.

However, NOT all options are liquid enough for you to do instant turn arounds. Some options are soooo thinly traded that you can put it up for sale for days and yet not get anyone pick it up. Option liquidity is still somewhat of a psuedo science to determine for sure but a rough guideline will be to ensure that it is based on a heavily traded stock of over 500,000 transactions a day, that it has a fairly high open interest of about 1000 at least (this tells you that at least this option contract has been actively traded before) and to make sure that there are at least some volume on the contract you are buying before you enter on it.

For more option trading basics for free, please feel free to rampage through http://www.optiontradingpedia.com/

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Answer 2

Hi Some good points are made above. John S says that an at the money option with such a volatile underlying asset would likely cost a lot more which is true and John W suggests that you can exercise an american option early but not a european one, also very true. So, if you buy an AMerican option and the value jumps from let's say 10c to 60c (assume your atm call is now 50c intrinsic value and retains the 10c time value, it may also be higher still as the volatility priced in would likely have increased following a 50% jump in the stock) and the stock goes from $1 to $1.50, you can exercise your option and take control of the shares and then sell the shares for a 50c profit (ignoring option purchase costs), but why would you do this?? You have failed to account for transaction costs. If you exercise the call, buy the stock and then sell the stock, there will be two brokerage charges to consider and also possibly a small exercise fee. If you were to just sell the option, you basically realise all the same value as well as capture some of the remaining time value for yourself (as someone who buys it would pay for the time value also). By exercising early, you basically forfeit any time value remaining in the option. I disagree somewhat with John W about the liquidity of options. Whilst it is true that someone has to take the opposite side of any trade that you wish to make, in Australia (not sure about the states or other places, we have market makers who are required to make prices for exchange traded options and while they may set their spreads a little wider, it's pretty likely that you would be able to sell your options if you need to, but perhaps at a slightly reduced price on some of the less liquid securities.

Answer 3

Options can be traded just like stocks. You would simply "Sell to close" the option at 85 cents, thus locking in a 50 cent profit.

In fact, options never have to be exercised at all.

Answer 4

It can be sold to close for 85c the next day and you can get credit for 85c - 35c profit less brokerages if there is someone to execute at your ask or it will be sometimes conditionally assigned randomly to writers.

Answer 5

Absolutely. As long as you are reasonable in your bid/ask it should execute fairly quickly, but never as quick as a stock