If I buy a call option, and it becomes in the money, do I maintain the right to buy the stock at the strike ev

Question

en if I don't exercise the option? So if the price of the stock continues some volatility, what is the window that I can exercise the in the money situation? If it is a momentary shift in price and I miss it, do I lose the the opportunity to make money from that position?

Answer 1

Most exchange traded call options are American Options -- meaning that you can exercise them any time before expiration. Most Over-The-Counter call options are European -- meaning that they can only be exercised at expiration and not before. The terms American and European have nothing to do with where the options are bought -- just with the terms of the contract.

I assume that you are talking about exchange traded options.

It never pays to exercise an American style call option prior to expiration (except in rare cases -- like the company is about to pay a very large dividend). If the option is in-the-money and has time left -- the fact that it could go higher is worth something.

You have three choices that you can make.

1. Hold onto the option

You can hold onto the option and hope it goes up. If you do this, then there is a possibility that the stock price could drop and you would lose value.

2. Exercise the option

The second thing that you could do is exercise the option. This allows you to buy the stock at the strike price.

3. Sell the option

The third choice that you have is to sell the option. Since the option is worth more than the intrinsic value (the amount that it is in-the-money) it is almost always more valuable to sell the option rather than exercise it.

Answer 2

If I understand your question correctly, if you do not exercise the option you can not sell the stock. So if the price of the stock falls below the exercise price before you exercise, you loose out. You can of course always sell the option at whatever the price currently is. Because the options normalling sell at a premium, that is your best option--no pun intended. If the option expires in the money it will automatically be executed for you provided it is enough in the money to make a difference.

Answer 3

You must exercise the option prior to its expiration. If you fail to do that then the option expires, even if it's in the money (many if not most brokerages will automatically exercise options that close in the money on the last trading day prior to expiration but you should double check).

You don't have to exercise an option just because it's in the money assuming it's not about to expire. You could wait and see if it goes even more in the money or if it falls out of the money.

If the option goes in the money and you don't react and the option subsequently falls out of the money then you have lost an opportunity. In this situation you might want to leave a limit order to sell some stock against your calls or to sell some or all of your calls.

Answer 4

If the option is in the money, you can buy the stock at the strike price by exercising the option. If the stock price moves so that the option is no longer in the money, then you can no longer buy the stock at the strike price. Actually, I guess you could, but there would be no reason to.