58 votes
Accepted

My out-of-the-money call options are near expiration and won't sell in the open market. What are my choices?

Out-of-the-money options close to expiration often have no bids. If no one is willing to pay even $0.01 for them, you will have to let them expire worthless. Your loss essentially already happened ...
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  • 28k
47 votes

Why do people exercise call options at a loss?

The price at which you sold the option, or at which someone else bought it, has no bearing on exercise. Someone holding a long option to expiration will exercise it if it's in the money, which this ...
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  • 28k
34 votes
Accepted

How is it possible that these deep ITM stock options on DISH went from 52,000 volume, 550 open bids, 550 open asks to being completely dead overnight?

If you look at DISH's dividend history, you can see that on 20111101 DISH declared a special $2/share dividend payable on 20111201. The ex-date for that 8% dividend was... 20111115. The $2/share drop ...
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  • 950
30 votes

Why do people exercise call options at a loss?

You do not understand the fundamentals of options. This option assignment and loss of your stock is the result of that. With all due respect, get a good options book and spend some time with it. An ...
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  • 73.6k
23 votes
Accepted

Who buys these significantly out-of-money options?

A person with an opinion such as yours might sell these options because they think that there's a high probability that such options will expire. Why would someone buy them? The options could be ...
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  • 73.6k
21 votes

Better terms to use to understand Puts and Calls for options trading

This is maybe kind of stupid, but it's a mnemonic device that worked OK for me to get the hang of these two varieties of option. It may only work for American English in my particular region, so if it ...
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  • 1,538
20 votes

How to salvage money from a call option that has lost value?

When you buy an option, the premium is a "sunk cost". There's no way to get that premium back. You have to hope that either the option appreciates in value so you can sell it, or that the profit at ...
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  • 113k
15 votes
Accepted

Why would someone want to sell call options?

You appear to be thinking of option writers as if they were individuals with small, nondiversified, holdings and a particular view on what the underlying is going to do. This is not the best way to ...
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  • 14.8k
15 votes

Why is XYZ $70.5 strike call more expensive than $68 strike call?

Is the price you are quoting the bid, ask, or last? If this was the last, then the information could be days old. The bid or ask may be up to date pricing but the other side may have no interest at ...
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  • 74.9k
15 votes

Why do people exercise call options at a loss?

A major principle of decision-making is that one should compare an option to other options you currently have. Much angst and suboptimal behavior is caused by people instead making their decisions ...
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15 votes

Who buys these significantly out-of-money options?

They might be buying it as a kind of insurance for index trackers they own; they're guaranteed that they don't lose more than 28% of their investment (until June 11th) for only a small price; even if ...
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13 votes

Can I buy an out-of-the-money call and then sell it before it reaches the strike price?

I put in the details of your scenario. I adjusted the volatility to get the price near what you showed. Next, I dropped the time to 2 weeks. Look what happened - The stock, still out of the money, ...
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12 votes
Accepted

Why does shorting a call option have potential for unlimited loss?

You are likely making an assumption that the "Short call" part of the article you refer to isn't making: that you own the underlying stock in the first place. Rather, selling short a call has two ...
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  • 31.4k
12 votes

Why does a call option's price increase with higher volatility?

I agree that high volatility just means the underlying stock price fluctuates more, and it does not imply if the stock is going up or down. But a high volatility in the price of an underlying also ...
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  • 221
12 votes

Why would someone want to sell call options?

I do this often with shares that I own - mostly as a learning/experience-building exercise, since I don't own enough individual stocks to make me rich (and don't risk enough to make me broke). ...
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  • 113k
12 votes

My out-of-the-money call options are near expiration and won't sell in the open market. What are my choices?

As an analogy, consider people betting on an (American) football game between Team A and Team B. Let's make buying the option analogous to betting on Team A. Then selling it is analogous to betting ...
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12 votes

Better terms to use to understand Puts and Calls for options trading

The owner of a call has the right to buy the underlying at the strike price any time before expiration. The seller of that call has the obligation to sell the underlying at the strike price if an ...
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  • 73.6k
11 votes
Accepted

Why naked call writing is risky compare to Covered call?

If the buyer exercises your option, you will have to give him the stock. If you already own the stock, the worst that can happen is you have to give him your stock, thus losing the money you spend to ...
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  • 23.8k
11 votes
Accepted

At what time of day does time value fall off of a call option?

The time value decay is theoretically constant. In reality, it is driven by supply and demand, just like everything else in the market. For instance, if a big earnings announcement is coming out ...
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  • 1,462
11 votes

My out-of-the-money call options are near expiration and won't sell in the open market. What are my choices?

You can always sell your calls at the market price (the bid). If the trade did not execute then you are asking for a price greater than the market price. If the bid is zero then it is highly ...
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  • 73.6k
11 votes
Accepted

Does exercising an option count as a gain?

When you exercise a long call to buy the underlying, your cost basis of the stock is the premium paid for the call plus the strike price. Your gain will be long term or short term depending on your ...
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  • 73.6k
10 votes
Accepted

Am I understanding buying options on stock correctly?

Here is a quick and dirty explanation of options. In a nutshell, you pay a certain amount to buy a contract that gives you the right, but not the obligation, to buy or sell a stock at a predetermined ...
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  • 50.4k
10 votes

Am I understanding buying options on stock correctly?

Options have legitimate uses as a way of hedging a bet, but in the hands of anyone but an expert they're gambling, not investing. They are EXTREMELY volatile compared to normal stocks, and are one of ...
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  • 31.8k
10 votes

Better terms to use to understand Puts and Calls for options trading

Not really answering your question, but I think it's better just to remember the existing words that are used. PUT option I have a stock, I have the option to put it back on the market. Like I would ...
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9 votes

Wouldn't it always make sense to be an Option Writer (seller)?

Many web sites state that "90% of options expire worthless." That is categorically FALSE. The majority of options do not expire worthless. As per stats provided by the CBOE: 1) About 10% of options ...
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  • 73.6k
8 votes

At what time of day does time value fall off of a call option?

If you're talking about just Theta, the amount of decay due to the passage of time (all else being equal), then theoretically, the time value is a continuous function, so it would decay throughout the ...
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  • 113k
8 votes

Does, buying a put involve someone to sell a call?

No, when you buy a put it means the counter-party is selling the put.
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  • 5,260
7 votes

Why would someone want to sell call options?

I have an example of a trade I made some time ago. Stock price - $7.10 $7.50 call option 16 months out $2. By entering the position as a covered call, I was out of pocket $5.10, and if the stock ...
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7 votes
Accepted

What happens to the 100 shares if someone "sell to close" their call option position?

If Nora sells a call, she closes her position but the person who bought the call now has an option on your shares. Until that person exercises the call you still own the shares. If the stock price is ...
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6 votes

When buying a call option, is the financial stability of the option writer relevant?

In the case of regulated, exchange-traded options, the writer of an options contract is obliged to maintain a margin with their broker, and the broker is obliged to maintain a margin with the clearing ...
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