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Exercising a stock option contract?


By Vicente   Follow   Tue, 14 Feb 2012, 3:45pm PST   534 views   2 comments
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So, let's say I purchased a call for AAPL at $500 expiring March 17th.

This is leverage over 100 shares or $50,000 worth. My choices:

1) Sell it before expiration
2) Exercise

Let's say further I do not have anything like the $50,000 cash on hand.

Is an online brokerage going to be able to handle for me what I have read is a "cashless" sell operation of some shares so that I own remainder?

Wanted to explore this because there might be some UP left in APPL for a while and I could perhaps exit at some later date than March for more profit.

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marcus   Tue, 14 Feb 2012, 10:48pm PST   Share   Quote   Permalink   Like   Dislike     Comment 1

If it's the March 500 calls, sell now. Near the money options have a lot of time premium in them, and that dissipates intensely in the last three to four weeks.

And the answer is probably not.

Also, what if the stock goes down to exactly $500 on expiration (not as unlikely as you think). Look up "pin risk."

marcus   Tue, 14 Feb 2012, 11:11pm PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 2

If you are still bullish,, why not sell the march 500 call and buy an APril 530. But do it soon, not after they take out that last 3 or 4 weeks of time premium from the March.

Look up option time spreads (and diagonal spreads). When you put on a time spread against your long call, you are really just converting your position to the April. But thinking about the time spread will give you an idea of the impact, versus doing nothing.

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