I've been learning about options trading, but the one thing I haven't explicitly read anywhere is how you actually lock in (i.e. cash out/collect earnings) from options trading.
Take the following example:
Company XYZ currently has a stock price of $50. I am bullish about company XYZ, so I purchase a single long call option contract with a contract price of $3.00 and a strike price of $55.
I pay $300 for the contract ($3.00 * 100 shares) and I have a breakeven point of $53.
Now some amazing news comes out about company XYZ and their stock skyrockets to $75. At this point I want to lock in my gains. Based off of everything I've read this far, to realize those gains I would have to do the following.
- Exercise my right to buy 100 Shares of XYZ at $55/share
- Once those 100 shares are issued to me, turn around and immediately sell those shares?
So my total profit would look something like this?
($55 * 100 shares) - $300 premium I paid for the contract = $5,200
Current value of XYZ stock: $75 * 100 = $7500
Total Profit: $2,300 (Excluding tax's and fees)
Are my assumptions correct, is that really the only way gains are realized or is there an alternative method to realizing gains?