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If I buy a $200 call option for $22 ($0.22) that expires in 3 weeks, with a current share price of $140, can I sell the option two weeks from now if the share price has reached $180?

I'm asking because if it reaches $200, I will not have the money to buy 100 shares at $200 even though I believe in the company.

If yes, how I can do that using Robinhood?

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Prior to expiration, you can sell a long option any time that you want as long as there is a bid price. Make sure to close out the position at expiration because if the underlying is above $200, the OCC will automatically exercise it.

Unless RobinHood is proactive in closing ITM positions just prior to expiration, if assigned, you'll be subject to market risk and without the funds to cover the purchase, RH will likely restrict your account. If the broker gets involved in this, it often ends poorly.

  • Damn! Thanks for your comment! I'll make sure I close out the position in such a situation. Can you tell me what you mean by you can sell a long option any time that you want as long as there is a bid price? What is the bid price who is bidding? I'm sorry if this is too much information to ask for. If you are busy, it'd be great if you could direct me to a book regarding stock options that I can go through. – Raj Apr 26 at 19:56
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    A simple Google search for "Investopedia bid ask" will provide an explanation. If you want to understand options, pick up a copy of "Options as a Strategic Investment" by Lawrence G. McMillan and "Option Volatility & Pricing: Advanced Trading Strategies and Techniques" by Sheldon Natenberg. Read them. Then read them again. When you understand what's in both books, you MIGHT have a shot at succeeding with options. – Bob Baerker Apr 26 at 20:09
  • Haha, love the MIGHT. Thanks a lot, Bob! – Raj Apr 26 at 23:39
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If I buy a $200 call option for $22 ($0.22) that expires in 3 weeks, with a current share price of $140, can I sell the option two weeks from now if the share price has reached $180?

Potentially. The option you buy for $0.22 will steadily decrease in price towards zero while the share price is below $200. If the stock price goes up, the option price may go up a small amount in line with the stock price movements (this is called delta).

While there are market makers quoting bids and asks on the market, they are only required to quote $5.00 wide. If the price is below $5.00 then the market maker only needs to provide offer to sell. There is no guarantee that there will be anyone else in the market willing to buy it at that price. In practice the spreads (difference between the bids and asks) may be narrower so you could close the position, but there is no guarantee.

I'm asking because if it reaches $200, I will not have the money to buy 100 shares at $200 even though I believe in the company.

Yes. While the market maker is not obliged to bid at that price, you might be able to sell it if it is in the money.

However, if the stock closes on expiration day above the strike price of the call option, the OCC will automatically exercise the in the money options, which @Bob_Baerker mentions will not work out well.

This can be avoided by giving "contrary exercise advise" to your broker which results in an instruction the OCC not to exercise your option, if you are unable to sell the option on the market.

However, if the strike price on expiration day is above $205, there should be a market maker bidding at least a penny for it (if not, complain to your broker, who can complain to the exchange, who can tell a market maker to start quoting that series). Market makers are required to quote at least $5.00 wide unless it is a high priced security.

You should to go through the procedures with your broker before opening the position because the deadlines are strict (usually 4:30 at the latest) and they are likely to be busy during that time.

Summary While technically possible to execute, the trade seems a risky one to do in that you are relying on there being sufficient liquidity to close out the position before execution, and due to the lack of liquidity may be required to issue contrary exercise advice even if the option is in-the-money.

  • I think you are overstating the liquidity issue. While the option does have a high chance of expiring worthless, the fact that it can be bought now for $0.22 indicates that there is decent liquidity (much less than $5.00 spread). It's unlikely the liquidity would disappear if the option becomes closer to (or slightly in) the money. – nanoman Apr 28 at 18:43
  • If the size is 1, probably not. Yes it is be possible, but liquidity is an important risk with this trade. – xirt Apr 29 at 11:32

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