4

If I buy an Out of Money option and the option becomes In the money on the Friday of expiry, can I still expect to sell the option and close my position at a profit? Or is my only hope is to exercise the option and thereby have my profit? I want to avoid the stock commission costs, so the latter is a last resort.

I ask the question because I don't understand how someone would want to buy an option from me that is expiring the same day. What is in it for him?

6

The short answer to your initial question is: yes.

The option doesn't expire until the close of the market on the day of expiration.

Because the option is expiring so soon, the time value of the option is quite small. That is why the option, once it is 'in-the-money', will track so closely to the underlying stock price.

If someone buys an in-the-money option on the day of expiration, they are likely still expecting the price to go up before they sell it or exercise it.

Many brokers will exercise your in-the-money options sometime after 3pm on the day of expiration. If this is not what you desire, you should communicate that with them prior to that day.

3

Market makers are required to buy options contracts as a condition of being a market maker. It is what keeps the markets functioning and liquid.

As to whether or not your trade can be closed at a profit depends on many variables - how much you paid, what the underlying security is, etc

CBOE Options expiration FAQs

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Yes there will be enough liquidity to sell your position barring some sort of Flash Crash anomaly. Volume generally rises on the day of expiration to increase this liquidity.

Don't forget that there are many investment strategies--buying to cover a short position is closing out a trade similar to your case.

  • That's a good point about people closing out an open short position. – Chris W. Rea Apr 24 '14 at 12:37

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