just need inputs from experts on the question whether to exercise options or trade the options in the gap-up situation. For example, you're holding calls of a stock, then it pops like 10$, then what would you normally do? trade the calls or exercise the calls. or it doesn't matter whether one exercises or trade the calls, the gain is still basically the same. Thanks
If you sell the calls you have no position. If you exercise the calls you will own the stock. Not sure what you are asking, are you wondering whether you should short the stock to hedge the position and then exercise or if you should roll into the stock by exercising?
1) Generally, if you exercise early before expiration, you're forfeiting the remaining extrinsic value in the options. 2) If the options are deep-in-the-money to begin with, it's less of an issue. 3) If the options are out-of-the-money even after the $10 rally, exercise would be illogical. :eek:
nazzduck, so I guess there's no clear cut answer to this question. I read somewhere on the web. They said normally traders tend to trade calls or puts, rarely exercise. sometimes, if a trader holds a lot of calls, and he elects to exercise the calls, it busts his margin limit, then his broker wouldn't want to take the risk to let him to exercise the calls, as a result, he has to trade them. but according to my research so far, I can make more money by exercising options, but it requires me to sit in front of computer to wait for the intraday high to maximize the gain, though I don't have sufficient data so say either way, so I'm seeking opinions from experts in this forum on the subject.
What you are saying makes no sense at all. Intraday high makes no difference in exercising an option. If you answer the questions I asked in my original post, we may be able to help you. I am guessing that you don't really understand how the process works.