In exiting a PUT option, It's cheaper to just sell the option as an exercise carries additional fees I'm told.

Question

what are the fees associated with excercising the PUT and an approximate $ amount for say 5 PUT contracts with the underlying trading at $50 vs selling the options without excercising them. Can these be done as internet trades or do they require a broker's assistance? I currently trade stocks on the internet without broker assistance.

Answer 1

In general it is better to sell the options since there is usually still some extrinsic value (time premium) in the price you can get for the options.

The fees and proedures vary by brokerage. If you simply sell the options there is only one transaction and you will only pay one commission. That commission will probably be similar to the commission for buying the options.

If you exercise the options you are selling the stock, so if you did not already own the shares you will be left with a short stock position. You will then need to buy the stock to cover the short stock position. That is two tranactions and, at most brokerages, two commissions. (Interactive Brokers does not charge a commission for exercising options, but some brokerages charge higher commissions for exercising options.)

The ability to exercise an option without a broker's assistance depends on your brokerage.

Answer 2

If you trade options you may be interested in this free e-book that looks into Instant Cashfllow Strategies using 'renting' shares and 'selling' insurance on the stock market.

You can request the book at:

http://www.thewealthage.com

More info on options trading can be found at:

http://www.thewealthage.com/selling_insurance_strategy.php

best of luck