If I buy an option and it becomes in the money before my expiration date, can I exercise the option and take d

Question

elivery of the underlying security? Will I need to pay for the underlying security at the strike price to do this?

Answer 1

Yes you can and yes you have to pay for the underlying security at the strike price.

Answer 2

Suppose if you bought Sept IBM 180 at 4 on August 4th and on August 15th it moves to 185 you can sell to close and pocket the $1 profit you made. Else you can push it till expiry with the hope that the price will still go higher to make higher profits in which it will expire automatically. Suppose on expiry the price reached 188 then your broker will credit you with $4 less brokerages which is somewhere aroung 2% in past days. Nowadays they charge a single fee say $7 for each trade irrespective of the volume. The competiton between brokers has gone up.
American options can be exercised before the expiry where what happens is an automatic assignement is made to the list of writers and somebody who wrote the option will have to pay the profit you made.

Answer 3

I assume you've bought (gone long) on a call option.

Yes, you can exercise the option ("call in the stock certificate") before expiration date. Yes, you pay for the underlying security based at the strike price. If you do so through a broker, you pay the broker's commission based on the strike price. There's no commission on the option contract to exercise it.

Example, you buy a March 30 call for $150 premium plus $20 commission, when the stock is at $27. The stock soars to $32, and you want to exercise your in-the-money call. You phone your broker, and s/he will charge you $3,000 (strike price x 100 shares) plus whatever commission on buying 100 shares at $30.
Upon settlement, your option contract is cancelled, and you have claim on a stock certificate for 100 shares.

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Answer 4

It depends on the option you bought. An American option can be exercised anytime, and most exchange traded options are American (depends on the exchange).
If you decide to exercise the option you would have the right to buy/or sell the security at the strike price.
Normally if there is some time before the option expires it is better to sell the option out as you would be receiving the additional time value time value of the option.

Answer 5

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