Suppose a novice trader opens an online account with $5,000 with online trading platforms like e*trade, Ameritrade or Robinhood.
With the stock at $175, the trader buys 2 call options:
- Option Price: $20
- Strike Price: $200
- Expiry: 6 Months from now
- Cost: $4,000
On the last day of trading, the stock is $215 and the $200 call is in-the-money. The trader is not available to close the option. I assume that he now owns 200 shares of that stock which costs $40,000.
- His account has only $5,000. What will happen if he does not have $40,000 to buy those stocks?
- Does a margin account allow him to buy the stock and then sell in a few days when he is available, realizing his profit?
- Do online brokers like e*trade or Ameritrade permit closing the option for whatever price a day before the expiration? I think this option can protect him from owning the stocks.