If XYZ is priced at $100,and I buy a January 2017 $100 CALL, and the price reaches $130 only after a month of buying this option, will exercising this option immediately return a profit?

Let's say to buy the option cost $10 commission/spread, so effectively I'd be making a $20 profit? Or will that only happen if the option expired in January at $130

Someone please clarify.

  • 1
    I think you might want to re-write the question to ask more about options in general - or search for a post that explains basic call and put options.
    – Ross
    Oct 27 '15 at 14:15

Whether you can exercise an option before its expiration is defined in the contract. American style options allow that, European style options don't. You may need to read the contract specification to figure out - but generally in the US, the stock options you can buy on exchanges are American style options.


First thing you need to know is that one options contract controls 100 shares. Second thing you need to know is that the price quoted for the contract is a per share price. So if the price quoted is 0.10,you will pay, at least, 10.00 for just one contract. It will be more due to commission.

Next thing you should know is that in the scenario you proposed you do not make money by excersize the option. You sell it. Of course that means you have to give a buyer an incentive to buy, which means offering it for less than it is worth.

Last little bit of advice is to reinforce the idea that liquidity is options is very unreliable. Even if you price your option to sell there may not be any buyers at that time.

So knowing all that are you still wanting to gamble with options?

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    You book the profit by selling the call to close or by shorting the stock and exercising the call to close. Doing the latter requires no liquidity and avoids having to give a buyer an incentive to buy and offering it for less than it's worth. Sep 12 '18 at 13:53

If the stock reaches $130 in one month, your $100 call will have an intrinsic value of $30. Since there is over a year remaining until expiration, it 'should' have some time premium remaining (I say 'should' because dividends increase put premium and decrease call premium so a deep ITM call on a high dividend stock might have very little time premium remaining). Ignoring commissions, your profit will be whatever the bid price of the call less what you paid for the call.

If there is any time premium remaining in the call, it does not make sense to exercise it (American options) because you would be throwing away that time premium. Sell the call to close. OTOH, if the call is very deep ITM, it may trade for less than its intrinsic value and in that case, it would make more sense to short the stock and then exercise the call to close the short stock position, thereby avoiding the haircut.

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