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About 6 months ago i purchased a few calls on a security that i'm interested in and believe will go up over the mid to long term. Unfortunately the security despite having a positive quarterly result with some upwards improvement hasn't moved as much as i'd hoped and my calls are about to expire worthless.

I'm looking for advice on exercising them OTM 1 day prior to expiration. I have a few long shares already and still believe the company will reach my strike price within the next 6-12 months. (Covid could drag that out to 24, but they're not at risk of bankruptcy and are looking to be bought)

Is it worth it to take the 'paper loss' of being down several percent on what will ultimately be a long position or accept the actual loss of the options expiring worthless?

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I can't speak for all brokers but my broker does not allow the exercise of OTM calls. And why would you do so? Why would you pay more for the stock (the strike price) when you can buy it for less on the market?

The reality is that unless some miracle happens and the stock rises sharply before they expire, making them either salvageable or profitable, there's nothing you can do and they will expire worthless.

Now if there is some time remaining until your calls expire AND there's some premium remaining AND they are not too far OTM, it might be possible to do a repair strategy. However, without specific details, I'm not go to suggest that it's a viable solution.

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  • The option to exercise OTM is available to me, it's what triggered the thought. It's more of a case of accepting actual (immediate) loss of the premium vs accepting a temporary paper loss of the difference between the current and strike prices. Unfortunately there's really no liquidity left to roll the option over as they expire this week and are greater than 5% OTM.
    – Reahreic
    Aug 20 '20 at 14:46
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    It's more of a case of accepting actual (immediate) loss of the premium vs accepting a temporary paper loss of the difference between the current and strike prices. If a stock is $35 right now and you own a $40 call, why would you exercise the call and pay $40 for the stock when you can buy it right now for $35? You would be adding a $5 loss to the already lost premium. Makes no sense. Aug 20 '20 at 14:53
  • I guess it's my newness to options, that made me think the premium was deducted from the cost of exercising, whereas in actuality it's in addition to the cost of exercising.
    – Reahreic
    Aug 20 '20 at 15:16

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