Skip to main content
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 ...
nanoman's user avatar
  • 30.1k
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 ...
Bob Baerker's user avatar
  • 76.7k
15 votes
Accepted

Is there a reason to exercise a stock option as soon as it vests?

Advantages Long-term capital gains tax rates. If your company has a liquidity event, if it's been at least a year since you exercised your options, it will be considered a long-term capital gain and ...
Craig W's user avatar
  • 15.9k
15 votes
Accepted

A beginner question on call option

You've gotten some good advice answering your questions but not much in regard to managing your position. You face two obstacles, time decay and share price reversal. Time decay is easy. Between ...
Bob Baerker's user avatar
  • 76.7k
15 votes
Accepted

Who provides the shares for exercising a put option?

If I buy a put option (which would be an option to sell stocks as far as I understood), who will provide the stocks to sell if I decide to exercise it? Should I have/provide the stocks or is it the ...
Bob Baerker's user avatar
  • 76.7k
14 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 ...
Acccumulation's user avatar
11 votes

A beginner question on call option

Should I sell the call ? Your current downside risk is if the stock begins to fall, the value of your options will fall as well. There's no risk of you losing any more cash since you already paid ...
D Stanley's user avatar
  • 137k
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 ...
Bob Baerker's user avatar
  • 76.7k
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 ...
Bob Baerker's user avatar
  • 76.7k
8 votes

How can it be possible that only ~10% of options expire worthless, and only ~10% are exercised?

Consider the futures market. Traders buy and sell gold futures, but very few contracts, relatively speaking, result in delivery. The contracts are sold, and "Open interest" dwindles to near zero most ...
JTP - Apologise to Monica's user avatar
7 votes

Buying puts without owning underlying

Yes, it's completely normal to buy (and sell) puts and other options without holding the underlying. However, every (US) brokerage I know of only permits this within a margin account. I don't know ...
farnsy's user avatar
  • 15.1k
7 votes
Accepted

What is the Meaning of the Black-Scholes Value?

Using the data, the call option is $2.34, but what exactly does that mean? Does that mean the buyer has the obligation to buy the stock for $2.34? No, a call option is when someone purchases the ...
Brythan's user avatar
  • 21k
6 votes

How can it be possible that only ~10% of options expire worthless, and only ~10% are exercised?

While researching stock options, I have read in many places that options meet the following ends with the following frequencies: ~10% expire worthless ~10% are exercised ~80% are traded away; the ...
Bob Baerker's user avatar
  • 76.7k
5 votes

Exercising an option without paying for the underlying

You may want to Sell part of the number of contracts ( say 18 out of 20) and use that proceed along with 10K that you have. So later 2 options will be exercised. Also you said 200 * 300 = $600,000 ...
Raj's user avatar
  • 3,492
5 votes

Is this legal: going long on call options and artificially increasing the price of the underlying asset seconds before expiration?

Despite the fact that I think there is a litany of inaccuracies and misunderstandings related to quoted price and transaction price and the way prices move and assets transact; if you were able to, ...
quid's user avatar
  • 49k
5 votes

Buying puts without owning underlying

In the money puts and calls are subject to automatic execution at expiration. Each broker has its own rules and process for this. For example, I am long a put. The strike is $100. The stock trades ...
JTP - Apologise to Monica's user avatar
5 votes

How can it be possible that only ~10% of options expire worthless, and only ~10% are exercised?

You gave your own answer - the 80% is positions, not contracts. Most actors on the option market have no interest in the underlying asset. They want "just" exposure to its price movement. It makes ...
Jindra Lacko's user avatar
5 votes
Accepted

Why is there a significant disparity between 409A valuation and fair market value?

There a few factors at play here. First, let me address the difference between the 409A valuation and the recent round of financing. Venture capital investors typically invest in preferred shares of a ...
will_k's user avatar
  • 66
5 votes
Accepted

Why hold calls until expiration?

The author is wrong in saying that buyers of calls almost always hold the calls until expiration. According to stats provided by the CBOE for 2017: 1) About 10% of options were exercised (gain or ...
Bob Baerker's user avatar
  • 76.7k
5 votes

Does AMT affect cost basis of future capital gains?

You don't pay taxes on the discount ($1->$2) twice. You actually have a separate cost basis for your shares in the normal tax system versus AMT. Google 'AMT cost basis' and you'll see examples like ...
Craig W's user avatar
  • 15.9k
5 votes
Accepted

Confusion about options: can one exercise at any time?

Options that trade in the U.S. are either American (stocks and ETFs) or European (most indexes) style. The owner of an American style option may exercise it at any time during the life of the ...
Bob Baerker's user avatar
  • 76.7k
5 votes

Does options exercise increase a stock's trading volume?

Yes and no. It all depends on whether the stocks you get are bought by the seller or whether he transfers you stock from his portfolio (i.e. I am long, sell you a call, then give you my shares). In ...
TomTom's user avatar
  • 11.5k
5 votes
Accepted

How much are my shares worth in the startup I work for?

There are a few important points you should be aware of. Based on your question I am assuming that your company has not gone public yet. Yes, the nominal value of each share is $10. However this is ...
Charles E. Grant's user avatar
4 votes
Accepted

Is there anything to do immediately after exercising stock options?

Much like if you had a large capital gain with no withholding, you should determine if you'll be at risk of an underpayment. Generally this means you end up owing more than $1000 at tax filing time, ...
Craig W's user avatar
  • 15.9k
4 votes
Accepted

Perform exercise-and-hold AND exercise-and-sell-to-cover?

The simplest thing to do here is to speak to your employer about what is allowed. This should be spelt out in your company's "Stock Options Plan" documentation. In particular, this document will ...
not-nick's user avatar
  • 6,418
4 votes

What is the Meaning of the Black-Scholes Value?

Black-Scholes is one of several pricing models that uses six variables to determine the theoretical value for an option. You mentioned five of them. You did not mention a dividend so it is assumed ...
Bob Baerker's user avatar
  • 76.7k
4 votes
Accepted

Understanding on closing an option

The statement by Robinhood that "if the contract is about to expire and is out of the money, they will automatically sell it back in the market so I don't lose all of it" makes no sense at all. Only ...
Bob Baerker's user avatar
  • 76.7k
4 votes

Options and exercise

Some people exercise a call to acquire a stock that they want to own. Some misguidedly exercise a call because they want to capture a pending dividend, thinking that the dividend is free money. ...
Bob Baerker's user avatar
  • 76.7k
4 votes

Confusion about options: can one exercise at any time?

the call buyer might prefer to exercise the option as soon as it's in the money, and not wait until expiration (when it might be out of the money). Not really. Suppose you have an american option to ...
D Stanley's user avatar
  • 137k
4 votes
Accepted

ISO exercise limit before triggering AMT

Around $32,600 of discount/spread in exercised ISOs would give you a roughly equivalent total tax between the regular and AMT systems. With these numbers, under the regular tax system you'd pay $22,...
Craig W's user avatar
  • 15.9k

Only top scored, non community-wiki answers of a minimum length are eligible