There is a $2.50 call option that expires in two weeks at $50 and the current price of the option is $3. If I think the stock will hit $55 around expiration, and also think it will rise further in the future so want to keep the shares, is it just done by exercising the option and closing my position on the contract?
You can also early exercise: https://en.wikipedia.org/wiki/Exercise_(options)#Early_exercise_strategy
If the stock is trading at $53 now and the price of the option is $3, do I owe $2.50 x 100 for the options contract or $3 x 100?
If you want exercise now, and assuming you have just 1 contract (ie. 100 options) then you would need 100 * $50 = $5000 to buy the stock. Your profit would be 100 * ($53 - $50) = $300 minus $250 premium paid for the options, makes $50. Another possibility is to just close the options position. Then your profit would also be just 100 * ($3 - $2.50) = $50 Of course this makes a 20% profit on the investment! (edited ;-)
Buy (open or close) at the Ask Sell (open or close) at the Bid You have to provide more info on the position.
Sorry hence the noob - it is okay to need the $5000 to buy the stock. OptionGuru, what do you mean by more info on the position? The option was purchased (buy) at the open.
99% of OTM options buyers do not intend to own the stock, they are more interested in trading the options only. If you think the underlying will rise further in the future you could consider selling your current position if it's ATM/ITM and buy some call OTM options.