Why Options Are Rarely Exercised (Options Traders MUST Know This)

Рет қаралды 458,591

4 жыл бұрын

✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: geni.us/options-trading-pdf
💰 Get up to $3,000 when you open and fund your first tastytrade brokerage account: geni.us/tastytrade
🔥 Learn data-driven options strategies: optionsforbeginners.teachable...
Why Short Options Are Rarely Exercised (Written Guide): www.projectfinance.com/short-...
Beginner options traders have a very common fear, which is being assigned on an in-the-money short option before expiration. But that only happens if somebody exercises the option.
In this video, I break down why options are almost NEVER exercised, and therefore, you'll almost never be assigned on a short option before expiration.
I use an AAPL call option example to illustrate why a trader would almost never want to exercise an ITM option. I do so in excruciating detail.
My goal for this video is simple: alleviate the fear of being assigned on short options, and clearly explain why you do not have to exercise an option to realize any sort of profit. The profit that you could make at that moment will be embedded in the option's price, which is called "intrinsic value."
I hope this video helps. Sorry for the seriousness, but this is important! I receive questions every day from confused traders in regards to exercise/assignment, and I want to bury this fear/confusion once and for all!
Be sure to leave a comment down below with any questions you may have!
=== RECOMMENDED VIDEOS/RESOURCES ===
Call Options 101: • Call Options Explained...
Implied Volatility Explained: • Implied Volatility Exp...
Stock Options Trading 101: • Stock Options Trading ...
Top 13 Stock Market Mistakes: • Top 13 Stock Market In...
How to Buy a Stock: • How to Buy a Stock (St...
How to Short a Stock: • How to Short a Stock (...
Options Trading For Beginners (PLAYLIST): • Become an Options Trad...
tastytrade Tutorials (PLAYLIST): • tastyworks Tutorials
Option Pricing EXPLAINED: • Option Prices EXPLAINE...
Options Trading 101: • Stock Options Trading ... tastytrade, Inc. (“tastytrade”) has entered into a Marketing Agreement with Project Finance(Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade and/or any of its affiliated companies. Neither tastytrade nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent or this website. tastytrade does not warrant the accuracy or content of the products or services offered by Marketing Agent or this website. Marketing Agent is independent and is not an affiliate of tastytrade.

Пікірлер: 1 700

@projectfinance 4 жыл бұрын

✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: geni.us/options-trading-pdf Why Short Options Are Rarely Exercised (Written Guide): www.projectfinance.com/short-options-rarely-assigned/ ADDITIONAL NOTES: I understand this video was very repetitive. Much more than needed and it could have been more concise. If you allow in-the-money options to expire, you'll definitely exercise the option/get assigned, so watch out for that! Example of why being assigned on an option with plenty of extrinsic value is a good thing: Let's say you sell a call with a strike of $100 for $5.00 (you collect $500 in premium). The stock price is $100. The stock price goes to $101 and the 100 call is worth $5.50 (premium of $550, $100 is intrinsic since the stock is $1 below the strike price). The remaining $450 is extrinsic. You are down $50 on this trade thus far, but if the stock price is at $101 at expiration, the 100 call will be worth $1 and you'll make $400. You get assigned on the call, meaning you short 100 shares at $100/share. With the stock price at $101, you are down $100 on the share position. But since you collected $500 in premium for the option initially, you're really up $400 on the position because you collected $500 for the option and lost $100 on the share position due to being assigned and shorting 100 shares $1 below the current stock price. The Money Flows: Short 100 Call: Collect $500 Stock is $101, Assigned: Short 100 shares at $100 = Collect $10,000 for a position worth $10,100 = $100 Loss So your new position is -100 shares at $100/share, the stock is at $101, but you collected $500 for the call. The call is gone. You only have the shares, and you're only down $100 on the shares. You are up $400 overall. -Chris

@motorbikemike5768 4 жыл бұрын

Hi Chris, great video! I see in your comments you said that if you let a call option expire in the money you will definitely get assigned? So if i am using a covered call strategy and the call I sold expires in the money I should kiss those shares goodbye? Do you think it would be better to buy back the call option once I lose confidence the trade will go my way to protect my shares? Thanks -Mike

@projectfinance 4 жыл бұрын

Yes exactly. If your short call expires ITM you will sell the shares you have at the strike price of the call. If you want to keep the shares you'll have to buy back the call, but you could have a scenario where the short call is ITM but below your breakeven price. If you sold a call with a strike of $70 for $3 and the stock is at $71 near expiration, the call will likely be trading for less than $3 (depending on how close to expiration we are talking). If that's the case, you could buy back the short call for a profit and continue holding on to your shares, or sell another call at a higher strike in a further expiration.

@pinakbhusanmohapatra8207 4 жыл бұрын

Hi Chris, I was wondering whether call option sellers price in the dividends profits in the option premium? Thanks

@mubeenalimohamed3051 4 жыл бұрын

Thanks for this video. In a 2 leg option strategy such as the bear put spread, should i be concerned about being assigned if my short leg is in the money near expiry and i do have cash to cover the purchase but i do have a long put at a higher strike price on same expiry date. Does the broker does the settlement for me if the short leg is exercised by the buyer? Can you please explain how the option assignment works in a two legged strategy? Can you make a video on trade management? I guests it could be helpful. Cheers!!!

@kozmik4848 4 жыл бұрын

If I bought the option back would they be able to exercise it. How would I buy my specific contract back. does it matter?

@dakotataylor6605 3 жыл бұрын

I've been watching videos and reading on this for like the last 6 hours and this is the only video that clearly explained it and made sense to me. Thanks for making this video!

@bearishdavid8791 3 жыл бұрын

Hands down best video description. I’ve spent days/hours watching videos on this and never seem to understand.. THIS explained everything perfectly. Thank you

@mrhakz330 4 жыл бұрын

Best channel when it comes to fully understanding Options. Keep up the good work brother

@projectfinance 4 жыл бұрын

I appreciate that!

@angel0smile 4 жыл бұрын

Seriously? What a joke

@novaknovakovic1585 3 жыл бұрын

This was great, I been tryin to find out about "can you exercise an out of the money option?" for a while now, and I think this has helped. Have you ever come across - Fiyarper Conspicuous Future - (Have a quick look on google cant remember the place now ) ? It is a great exclusive guide for learning binary options trading signals minus the hard work. Ive heard some extraordinary things about it and my m8 got great success with it.

@teflonmusk11B 2 жыл бұрын

I didn't know Linkin Park sold options

@theshounfiles7898 3 ай бұрын

Lol

@depreciatingasset 2 ай бұрын

😂😂

@bboichirok661 2 ай бұрын

🤭🤭

@PhilneyeOfTheClient 14 күн бұрын

He’s tired of being what you want him to be…

@gnashings 4 жыл бұрын

Thank you for making this, it sheds SO MUCH light on the subject. You're a wonderful teacher.

@projectfinance 4 жыл бұрын

Glad it was helpful! I appreciate the nice comment. One guy didn't think so...

@justinhills3117 3 жыл бұрын

For me the best I have succeeded in forex trading is by trading with a good account manager, I've been able to grow my account to $20,000 within a month under the guidance of a good account manager.

@Tr7law 3 жыл бұрын

Keep up the good work! Even though it was repetitive, I believe it is target-oriented for the audience of beginners. Your voice also makes it easy to listen. Cheers and thanks for the quality!! 🥃

@roblowe6086 2 жыл бұрын

Just what I was looking to learn. Answered every question I had and explaining it over and over really ran it home for me. You saving me time and money.

@vripiatbuzoi9188 2 жыл бұрын

It's critical to clearly understand the intrinsic and extrinsic value of an option. Once that is crystal clear, then this question answers it self. You lose the extrinsic value if you exercise early (before expiration). That's why it's never done except at expiration when the extrinsic value by definition becomes zero through theta decay. This is why, as an option contract holder, it's often wise to sell the contract before it's extrinsic value has decayed away.

@SkylineR34EvoX 8 ай бұрын

But then who will buy it? For the same reason you’re getting rid of it, why would someone buy if

@GloriousCoconut 6 ай бұрын

@@SkylineR34EvoX Right is an options contract like a hot potato nobody wants on the last day of expiration? What if the last holder "Forgets" to exercise it before 8pm?

@dpalaoro Ай бұрын

options are automatically exercised by the OCC if the option is .01 itm, a person has no choice in the matter. However, they can submit a DNE to prevent their option from being exercised, but in that case just close the option why wait for it to expire.

@trevorwestman393 4 жыл бұрын

Wow, this helped a lot. Slow and methodical.

@biaodu2925 4 жыл бұрын

I really appreciate all the video you do, keep up the good work! By any chance you will do a video about rolling an option? If you could include some strategy and tips in the video that would be the best!

@vikrammalhotra3505 3 жыл бұрын

No one covers exercising call options and showing P/L. But you did it really well. Thank you

@Mchaney3 3 жыл бұрын

This is perfect! Thank you for the knowledge!

@ryanfuller4931 4 жыл бұрын

Chris, I’m very grateful to you for all the premium content you’ve put out over the years. This video was extremely helpful. Thank you 🙏🏾

@projectfinance 4 жыл бұрын

Love this comment! Thank you for being a subscriber. I'm glad the info was helpful. I hope the videos will get even better with time. I have a big one coming next week (if all goes as planned)

@TopShineDetails 4 жыл бұрын

Im a total noob on options. And you made this so easy to understand. Thank you

@00sra 3 жыл бұрын

I watched this while eating breakfast! It helped a ton but I’m going to rewatch and take notes this time! Thank You! 📈😊👍

@surefireoptions4187 3 жыл бұрын

You make perfect sense and it is true that options are rarely exercised, but it does happen, and when it does its a bummer, that is why over the past few years I have focused more on cash settled options to spare myself the risk of exercise or assignment

@jimbarentine3539 3 жыл бұрын

Are all the index futures cash settled with absolutely no chance of assignment. Are there are trades where there is no chance of assignment? Thanks

@svendb7 2 жыл бұрын

@@jimbarentine3539 buying calls or buying puts

@oneverse111 3 жыл бұрын

I'm guessing the only real reason to exercise an option is if you feel the stock will climb even higher and you'll stay long on it.

@xMohJeex 3 жыл бұрын

No. In this case, just close the position and buy the shares in the market. Exercising early when the option has a lot of extrinsic value is giving money away (as explained in the video). THE ONLY reason where you'd want to exercise early is if the option is FAR DEEP in the money, that it has negligible extrinsic value and most of it is intrinsic value, and you can't bother closing the position and buying the shares in the market I guess. Even so, you could just close the position for a profit and buy the shares in the open market yourself (if that is your intention). The other scenario is, as he explained in the video, if exercising early will net you a dividend that is higher than the extrinsic value. These are both rare scenarios, which is why options are rarely exercised early.

@fminc 3 жыл бұрын

No, you can buy more shares. Exerciising isnever good except approaching an ex dividend date.

@SmallPocketsBigRockets 3 жыл бұрын

i had this same question, i have a contract on shares i wanna own long term, so i used an options calculator online for my own contract scenario, then did the math. Exercising if i exercise my own contract at certain date i'm targeting (june 15th) it would cost me... (cost of premium) + (discounted share price) = $6040 Selling Contract but if i sold the contract at a profit, then used that profit to buy shares at the current trading price on june 15th, it would cost me... (cost of premium) + (standard market price) - (profits from selling contract) = $5998 So I'd save $42 by selling the contract first before purchasing 100 shares. I guess i would exercise it if nobody wants to buy my bloated contract.

@oneverse111 3 жыл бұрын

@@SmallPocketsBigRockets That's a great example and makes a lot of sense. thanks!

@morganabdul-korah298 3 жыл бұрын

@@SmallPocketsBigRockets Thanks for your explanation. I was in a situation where I wanted to buy 100 shares of NIO but I did not have enough money. Since NIO day was coming and I guessed the price would rise after, I bought a $50 call at $9.55 that expires in April 2021. I did this just to buy time to raise the $5000 needed for the shares. So I will be exercising this option at expiration if NIO does not drop below $50 by April.

@northeastbirdsmore2281 4 жыл бұрын

I've been interested in learning more about options. These videos are helpful for sure. Selling option good Exercising option bad (Generally)...

@jayjay-br3xv 3 жыл бұрын

This is by far the best video on the subject!! You are an amazing teacher. Thank you for this wonderful video!

@pradprad4321 2 жыл бұрын

Very beautifully explained. Very detailed and like a proper teacher. Way to go. You made me understand this complex thing so easily

@damianalvarado1320 3 жыл бұрын

Thank you for the info. I actually exercised a call option with deep ITM with little extrinsic value. So I exercised it because the stock still has lots of upside to it and I wanted to hold it long.

@anthonysiroskey6846 3 жыл бұрын

Then you paid more than the strike price

@titaniumsandwedge 4 жыл бұрын

This weekend, I was short the expiring STX $51 call. The underlying stock closed on Friday at $50.96. It should have expired. To my surprise, I was assigned and lost the shares. No biggie. At other times I was short calls that should have been assigned but were not. Very strange. The most important element of being assigned is that the sale of stock precipitates a tax gain or loss. If you do not want to sell the shares because you do not want this event to happen, the short option holder must take action. Example: Suppose you are holding a stock for long term capital gains. If you sell due to assignment before 1 year, you've lost the long term capital gain. It is not possible to undo a sale where there is a profit. You own it. If you write calls against a stock with a juicy dividend, you can be assigned early as a means of harvesting the divvy.

@titaniumsandwedge 3 жыл бұрын

@@charleewayne5164 Not interested in Crypto. It is a fad that has a ways to run. But I will stay with tried and true equity options.

@purr-purr-purr 4 жыл бұрын

great vid Chris, as always you make concepts easy to understand..thankful to you !!!

@projectfinance 4 жыл бұрын

I appreciate that! Thanks for watching!

@sureshkm 4 жыл бұрын

Very well explained with examples! Thank you!

@stockchartsteve 2 жыл бұрын

Great video. Thank you! The only thing I would add would be that this scenario assumes everyone that buys options are day traders, and want to immediately sell their shares after exercising the option. I have made great money just buying and holding TSLA stock. But I can see how buying options would be beneficial in a long term hold scenario, being able to buy 100 shares at a great price, and then just holding long term for a better return.

@projectfinance 2 жыл бұрын

I only used selling the shares after exercising as a way to compare realized profitability. I'm not suggesting someone exercising a call would want to immediately ditch the shares.

@russellnotestine6436 2 жыл бұрын

Exactly. His explaining that selling the option is better in any way than exercising it is beyond my imagination. Duhh No it ISN'T better to sell the option rather than exercise it. None-sense

@russellnotestine6436 2 жыл бұрын

@@projectfinance Immediately ditching the shares is EXACTLY what you suggested. it was the olny option you suggested. Way lame and very misleading. I hope no one "learned" about options from the video

@izonbeatz382 2 жыл бұрын

@@russellnotestine6436 exactly what I was thinking

@dont.ripfuller6587 2 жыл бұрын

Well I still learned a couple things, regardless. So yea me. I don't immediately go copy what I see on here, and seek many answers to the same question usually, on complex subjects1

@davidsvids5011 3 жыл бұрын

5 hours of reading and watching video’s and your explanation helped me piece it all together better than anyone else could thank you!

@dhernandee 3 жыл бұрын

Same

@milesbanares 3 жыл бұрын

This video provided a lot of new knowledge to me that I am so glad I stumbled upon. I’ve just purchased my first call option a couple of months ago and I was looking for some more advanced knowledge on the next move I should make. Thank you.

@Psiros 3 жыл бұрын

Wow. Thanks for the video. Really learned A LOT. I was totally in the dark about the nature of options. Reading the articles online didn't help, but this video made the topic so much clearer. Thanks again!

@riverz7457 3 жыл бұрын

You just gave me the answer that I've searched for a long long time. You are my best tube teacher. Subscribe and I'll be your fan for ever !!

@mntemel 2 жыл бұрын

Hi Chris, thanks for the detailed explanation, what if it's not a very liquid contract and there's a big difference between the bid and ask prices of that strike, wouldn't it better to exercise your ITM call option?

@theoldbk5419 10 ай бұрын

This is the video I was looking for that explained in detail the downside of exercising even if the option is deep in the money! Thank you!!

@EviLTunG 4 жыл бұрын

people are getting confused because they don't understand that the option alone has a value to it, and the stock has a value. They are separate entities!

@reown24 4 жыл бұрын

Yes so although the video attempted to explain this, those words were never used and this was more complicated than it needed to be.

@apuk79 4 жыл бұрын

thats very true and what a lot of website dont make that point obvious they imply that an option has no value and that only the difference in the share prices has value

@minhmeoquay 3 жыл бұрын

i think u can explain better than this guy

@samhernandez2257 3 жыл бұрын

Yep! Exactly why they’re called derivatives

@abbasakhan 3 жыл бұрын

Hi. I understood the differences between both the scenarios - you did a good job with the explanation. A theoretical question based on your example in the video: If i am the buyer of the call option and want the underlying stock as an investment then exercising the option & taking delivery of the shares would be more advantageous compared to selling the option. The reasoning is that even though i can take more by selling the option itself now, i could gain more upside in the future from just holding onto the stock. Correct? Curious to hear your thoughts...

@justintranchina3462 3 жыл бұрын

Also curious as I plan on doing this..

@Pavetheplanetbigdaddy 3 жыл бұрын

Me too

@ALIHASSAN-cy5hy 3 жыл бұрын

So....you you decided to exercise your options and purchase the stocks....because you could gain more in the future by holding onto the stocks ? So you can read the future ? My take is that the stocks of the company you bought is going bankrupt..... so take the money and run....but I can’t read the future though....sorry.

@vripiatbuzoi9188 2 жыл бұрын

It's not more advantageous because you can buy those shares at lower price. Lets say you bought calls for $100 strike and the price is now at $120. The value of the option will be more than the $20 difference (intrinsic $20 + some extrinsic value) assuming the option expiration date has not been reached. You could sell the option for something higher than $20 and immediately buy equivalent shares at $120 so that's like buying the shares are under $100 which is still better than exercising at $100, isn't it? then you can hold those cheaper shares or do whatever.

@TradingWithNatcha 3 жыл бұрын

Love this video. Very clear and easy to understand. Thank you

@talkingbread2012 4 жыл бұрын

Good explanation. I've learned a lot since the first videos of yours that I have watched, so now it seems real basic.

@projectfinance 4 жыл бұрын

Thank you!

@mrlukemichel6858 3 жыл бұрын

Everything is true but if you have high conviction the price will keep going up you can exercise for the long term like Buffet. Later down the line that 314 can turn into $500( with dividends). I'm just saying

@lennybrewster4673 3 жыл бұрын

That's certainly a possibility. If I'm gonna do that though I usually just sell puts at the strike I want to buy them for and let the clock start ticking. Slightly lowers the price of the stock (collected premium) if the puts get exercised in the money and I get to own them at the price I wanted anyway.

@plolochufu 3 жыл бұрын

@Gordon Ghecko that's kind of what i was thinking, if there's a bullish trend on SNDL right now for example, then what's the incentive to selling the option knowing that the buying and holding the stock will be a better opportunity

@mrlukemichel6858 3 жыл бұрын

@@lennybrewster4673 True. Popular strategy

@mrlukemichel6858 3 жыл бұрын

@Gordon Ghecko I would! Lol$💶💷💳💰

@plolochufu 3 жыл бұрын

@Gordon Ghecko good to know, because this video comes off as pretty conservative relative to the current market trend

@americanIDOLfan11111 4 жыл бұрын

I always force assignment because I know people love it.

@projectfinance 4 жыл бұрын

You're sinister!

@tspice11 Жыл бұрын

Finally someone who took the time to break down the numbers. Thank you! Got yourself a sub!

@bibliophileanki 3 жыл бұрын

Super awesome content, great explanation. Took me some time to get a hang of it. After multiple views, I got the core concept of exercising the option and simply selling the option. Thanks man, appreciate the genuine efforts!

@JohnDoe-xt6ow 3 жыл бұрын

In a lot of situations it would be foolish NOT to exercise your call option, for instance, early. If the stock has run up a lot and you want to lock in your significant profits, I often exercise them at that point. I often buy deep in the money calls in the shortest time-period so I pay less in time value to start with, too. I do this often as buying short-term calls can be less risky than buying the stock outright. I have had many times where my call cost me as low of Zero if the stock was falling at the time, to just a dime per share equivalent, and since I bought them a week or so before expiration, it was very easy to know exercising those options before expiration was the right thing to do. Of course, I then have to sell the shares I just got. By doing this, I also save the cost of selling the calls at expiration as exercising them is free. Many times when you try to sell an option that is less liquid, they may actually offer you less to sell it than its intrinsic value- amazing. So I learned to just exercise them early.

@mattlopez487 3 жыл бұрын

So lets just say a call option I bought squeezes deep in the money by a significant amount, and the expiration is still far away, is it better to exercise and then sell the underlying at that point when its getting close to the top?

@falsepaul5215 3 жыл бұрын

Ahh you alleviated my anxiety, I can sleep now 😴

@vitalesiak 4 жыл бұрын

Hello Chris, Im getting started in options trading and I have two questons that I would like to ask you: 1- When you say a options income strategy has a 20% yearly average return, but you manage multiple strategies on the same account, do you end up making the same ammount (lower risk on each strategy, as a diversification) or multiplying that percentage into a much bigger return? 2- What are the major differences between Optionvue and ONE (option net explorer)? What can Optionvue do that ONE can't? I'm looking to purchase an options software and ONE seems pretty reasonable for the price (I know Optionvue is considered the best but it's too expensive for me). Thanks in advance.

@vision1707 4 жыл бұрын

Finally , someone who talks-explains it at regular speed . Kudos for not trying to show off. You explained it very well. Thank you for your time.

@projectfinance 4 жыл бұрын

Thanks for the comment! I'm glad it wasn't too much repetition for you haha

@vision1707 4 жыл бұрын

@@projectfinance repetition is sometimes neccessary. Sometime I need to hear things explains to me in different terms and multiple times. It is a good teaching method to teach subject such as Options . I use repetition on my 71 year old mother and my stubborn nieces to "drive home " important informations. THANK you for repeating your messages using different wordings. Thanks for the EFFORT .

@okopnik 2 жыл бұрын

Thanks for the excellent videos, Chris! I do want to mention one exception when you absolutely *do* want to exercise: if you sold a spread and got assigned on the short leg. At that point, the extrinsic value doesn't matter: since all you've got left is the long leg (plus the stock) - and selling the long plus the stock will net you *more* than the maximum loss in the spread (i.e., you would now be stuck paying the extrinsic if you _don't_ exercise.)

@SejalPatelDrSej 3 жыл бұрын

If you don’t want to pay TAXES on your intrinsic value gains you can exercise calls on expiration day to convert profits to common shares and hold a long stock position.

@MIKEO96 2 жыл бұрын

Bump

@SheenHL 4 жыл бұрын

Good stuff. Thanks for the video. Trying to learn options now. So my question is if you sell the option what is the view of the person buying this option that’s deep in the money? Is their intent to exercise it? Why else would they buy?

@ryanexplorer 3 жыл бұрын

thanks great explanation on a topic that helps beginners like me getting in the game

@galanopouloc 3 жыл бұрын

Wallstreetbets has left the chat.

@jlhumor1565 3 жыл бұрын

Haha.

@mauriliogouveia555 3 жыл бұрын

This is just superb, been searching for "can you exercise an option on the expiration date?" for a while now, and I think this has helped. Ever heard of - Fiyarper Conspicuous Future - (do a search on google ) ? It is a great one of a kind guide for learning binary options trading signals without the headache. Ive heard some great things about it and my friend got great success with it.

@SejalPatelDrSej 3 жыл бұрын

😂

@overplayed3553 3 жыл бұрын

You predicted them bro

@brady2758 3 жыл бұрын

This aged we

@tomlang80 3 жыл бұрын

I passed my series 7 in 2006 so I fully understand options and trading. I appreciate you trying to explain this to people with limited trading experience, but I agree with the other people commenting that it’s almost painful trying to explain this type of option trading. Having to repeat everything over and over is brutal, I praise you for trying man....good luck!

@jozsefstrack5036 4 жыл бұрын

I like the way u are explaining things, so understandable, well done and thank u!

@projectfinance 4 жыл бұрын

You're very welcome! Thanks for watching.

@YouDoYou555 2 жыл бұрын

Solid video! I'd love to go a little deeper and see if you can explain this for ITM credit spreads... I would assume that regardless that if the short option has extrinsic value and is not close to expiration, there is not much risk if any. Thoughts on this logic?

@islammohamed1441 3 жыл бұрын

What are the capital gains implications of exercising an option? If I hold a call, and it appreciates in value, but I exercise the call and purchase the underlying stock at the strike price and hold it, am I able to defer a capital gain that I would otherwise incur if I simply sold the option? Example. Purely hypothetical. I'm making up numbers. June 2019. XYZ trading at $200. I purchase June 2020 $400 Calls for $20. The stock price goes to $1600 in May 2020. The calls are worth $1300 (intrinsic value of $1200 and an extrinsic value of $100). If I sell the option, I realize a capital gain of $1280 and the extrinsic value in full. If I exercise the option by purchasing the shares at $400, am I able to defer the capital gain until I dispose of the stock at some future date, maybe years down the road? Or do I incur the gain on the option when it is exercised? Would this amount be equal to the intrinsic value only (the difference between the current price and the sum of the strike+premium)?

@jacobortiz1569 3 жыл бұрын

Ok so I'm going to give it my best shot. I think I understand what you're trying to say. When you open a option you pay a premium. You cannot get back this premium unless you sell the option. For example you buy at 20 but sell at 1300 and now your capital is 1300. When you exercise the option you technically don't sell it so you lose the premium and all value of the actual contract. So no you don't get the equivalent of the contract when exercising. But you do get the actual profit/option that comes with exercising. For example since the call is 400 and option typically come in cases of 100 shares. You either actually have the capital (Which is 40,000) or the broker provides margin for you. Any case the actual stock price is 1600 so you then can sell it for 160,000. So technically $160,000(current value of stock) - $40,000 (what you paid for) -20 (the premium you paid for = $119980 profit

@jacobortiz1569 3 жыл бұрын

But keep in my this is all hypothetical no 1 year call will ever be $20 because 1 year is a lot of extrensic value. And also there's other factors that come into calculating option values

@soblueskyzll 4 жыл бұрын

Will tax be a reason that some people need to exercise the option? Long term gain tax is 15-20%, but short term gain tax could be > 40%.

@kevinkidneyy 3 жыл бұрын

Who cares what taxes are you made money by pressing a button

@NamLeLa 3 жыл бұрын

Yepp. Most people won’t understand this situation. When you are facing taxation of above $100k and you could adjust the plan to only pay $40k. Saving $60k in a year is a substantial amount.

@josefalanis 3 жыл бұрын

Great video! How do you determine when to sell your call option to maximize profits?

@MenInSpiritualAuthority 4 жыл бұрын

i love this video. thank you so much for taking the time to do it.

@projectfinance 4 жыл бұрын

Amazing! Thanks for the comment and feedback. I was annoyed by myself when editing this video because of the repetition haha. Glad to know it was helpful.

@rahulsony77 4 жыл бұрын

I was looking for an explanation of Exercising an option for a long time, now only I got a clear explanation ! Thanks a lot !

@projectfinance 4 жыл бұрын

Awesome! I'm glad it helped. The example in this video was only a call option. Everything is the opposite for a put option. Put intrinsic = put strike - stock price (but intrinsic is never negative, it's either $0 or positive). Extrinsic = put price - intrinsic.

@rahulsony77 4 жыл бұрын

@@projectfinance Can you also provide an explanation of the difference between European options and American Options ? I am from India, and here we have European Options. Thanks

@caiocbrunofb7670 4 жыл бұрын

@@rahulsony77 American options can be exercised before expiration or on its expiration. Europeans always are exercised on its expiration only.

@caiocbrunofb7670 4 жыл бұрын

Here in Brazil we have European puts and American and European calls. I always choose for the European ones to avoid to be exercised before expiration when the option is ITM.

@MohYYC 4 жыл бұрын

What if something change with the company and you now realize there's a long term potential growth for your stock beyond the expiration date. Would that be a reason to want to exercise the option? The extrinsic value is not even comparable to the potential growth....(eg. bought Airliners stock at their lowest, and I see them going up beyond my expiration date)

@MoltenMouseMetal 3 жыл бұрын

They have options out to 1+ years, so it would still make sense to sell the option and re-purchase the more-distant expiration option if you're confident it will grow significantly over that time. Extrinsic "Value" is there because people are willing to pay for it, so it wouldn't make sense to waste it just to move your expiration further out.

@austinandmike 3 жыл бұрын

@@MoltenMouseMetal thanks for explaining this

@skyhawk1256 4 жыл бұрын

Great,I will never forget this lesson. Thanks verry mutch...

@projectfinance 4 жыл бұрын

You are welcome!

@joeladelman2375 3 жыл бұрын

Great video as always. Your good at what you do and thx for putting all your content out there. I rewatched this video bc i'm torn. I hear your points and you know what your talking about. But I really want the stock. i have 19Mar21 17.5 calls for a stock that's now at about 59 and I think is going to be strong for a while. Your point is that I have extrinsic value that I'd be throwing away, right? couldn't that also be said for holding calls too long, (and thus the extrinsic value tanks) in addition to exercising early? So it seems to me that holding options too long and draining extrinsic value is an equal error to exercising early. Second - am i correct that if an option is held too long, to right before DTE and therefore has very little extrinsic value - that there's very little difference at that point to selling the option vs exercising? THX for your awesome channel.

@dharris5887 3 жыл бұрын

now I feel stupid 😅 . I didn’t understand options before getting into it and I forsure just got owned by options

@JZ-oz5tv 3 жыл бұрын

There is a word called " Break-even price", who ever wants to trade a option, you should better know what that means first

@glorymanheretosleep 3 жыл бұрын

How to calculate that?

@JK-vb9ps 3 жыл бұрын

@@glorymanheretosleep for call option, it will be your long strike + prem paid.

@beagleboba3476 4 жыл бұрын

Thank you! I finally understand its meaning now. Like FINALLY!

@projectfinance 4 жыл бұрын

Awesome! I'm glad to hear it helped you out.

@monicachung625 3 жыл бұрын

Came across this video and it really helped. Thank you.

@dmac80 3 жыл бұрын

I appreciate the videos but I found this painful. You said the same thing like 100x about the prices of the stock you were buying and selling.

@nrod2856 3 жыл бұрын

I thought it was just me lol could’ve shaved about 5 minutes off this video

@johnsam100 3 жыл бұрын

omg same here..i felt the pain too

@neuvocastezero1838 3 жыл бұрын

Yeah, but he was able to show us like 3 more ads.

@ewlinitis 3 жыл бұрын

Theres also people that still dont get it after 3x.

@Nochillnickk 3 жыл бұрын

“We need to get you understanding” 😂 said with aggression. prime content

@projectfinance 3 жыл бұрын

When you have an options KZfaq channel and 98% of questions are people asking about early assignment / worried about early assignment IMMEDIATELY when the short option becomes ITM, it gets you fired up haha

@christendenise220 2 жыл бұрын

I love your example you're the only one I could understand. Question: if someone who does not have $5000 in their portfolio, can one still try to attempt the option trading as you exampled and true-up (reconciles) at expiration date only? Or do you immediately pay the premium up front?

@DuyLe-rv1iv 3 жыл бұрын

Thank you for sharing your knowledge ..

@artebyade 3 жыл бұрын

Ok, I understand that I give the extrinsic & intrinisic value when I exercise BUT what happens to my buying power? I have an itm call on $CRSP @$85 and so when I exercise & recieve the shares, what happens to the money I initially took out of my buying to buy the option in the first place? Can somebody please explain this to me.

@AH-lz7qg 3 жыл бұрын

It goes down the toilet. Holy shit this whole video just explained that and why it’s dumb to exercise the option. You have to pay for an option. If you do exercise your option and buy the shares, you have to subtract the money you paid for the option....because you paid for it. Between his video and this brief explanation there is no way to help you understand it. Just keep trying to use that brain...

@deivuby5614 3 жыл бұрын

@@AH-lz7qg what if there is no one who wants to buy your option in scenario 1 in the video ar 11:02

@AH-lz7qg 3 жыл бұрын

@@deivuby5614 when you trade options, you need to make sure your trading something that has high volume. In other words, make sure there’s a shit ton of people buying/selling the stock. When you are browsing for options to buy, you can see how many orders are out there. People will buy it.

@hothotheat3000 2 жыл бұрын

You also gotta keep fees in mind, too! You’re paying more fees to exercise AND sell, compared to selling the option. You’re doing a good thing trying to educate people!

@dchildress8696 4 жыл бұрын

Thank you for the video. It definitely helped. I always sell when my OTM when they turn in to ATM so I didn't get assigned when it became ITM

@projectfinance 4 жыл бұрын

You're welcome. You don't have to close your short ATM/ITM options to avoid assignment. You will not be assigned unless the short ITM option has very little extrinsic.

@nyc1mpv 3 жыл бұрын

You did a great job explaining this. Perfect tone of voice and clarity. I subscribed. Thank you!

@cosmicbutthairs 3 жыл бұрын

My broker automatically assigns if it's in the money at expiry

@lennybrewster4673 3 жыл бұрын

Most will if you have enough to buy the shares in your account.

@CaptainAdd49 3 жыл бұрын

If options are rarely exercised, what is the purpose of them?

@mcinnisthemenace216 3 жыл бұрын

Basically if the price is so ITM that it just leaps to $500 and you got for let’s say $30 and then you bought 5 contracts, if you exercise it you have 500 shares of a stock for just $30 (15,000) compared to having 500 shares of stock that now cost 500 (250,000). You never exercise it because the premium you made from it you’ll never get. Just a huge discount on having shares.

@zeebzorb6785 3 жыл бұрын

@@mcinnisthemenace216 ya in my personal case, i have 60 contracts at at 25$ strike price for nio atm that expires in 1/21/21. I'm going to probably exercise it, because Nio will be at 55 in January. I may lose out on about 30k extrinsic value, but my shares would be worth 10x what I actually paid for the option after I exercise it! right..

@JacksonvilleMedicare 3 жыл бұрын

You are very clear in your language and you are taking baby steps, thank you so much. I'm still getting that overwhelmed feeling, but it's because I'm taking on a lot of new knowledge. I feel like I'm beginning to get over that 'hump' and it feels so good.

@bop-ya-good 3 жыл бұрын

Thanks Chris. I thought that's how it worked but been sweating it out as my itm sold puts went a bit deeper in the money. Was going to put a bear put spread on but see now that I have time to let the underlying get more favourable. Cheers.

@jaepee1359 4 жыл бұрын

So basically never exercise your options. Just sell them. Ok.

@jkk20 4 жыл бұрын

exercising options becomes a valid thing when the stock moves up or down rapidly and you need to secure a position gain. but you do it at a cost. the thing is,you had to have tried to sell the options,or its after hour and the stock moved in the direction you wanted only after market hours... in other words,never say never kid.

@lennybrewster4673 3 жыл бұрын

There's times where it makes sense. A lot of people buy calls or sell puts to have shares of stock to collect dividends if it makes sense to do so. Owning stock that doesn't pay dividends is pretty pointless in my opinion but that's just me.

@anecdotalgardener8057 3 жыл бұрын

when one exercises options, one typically intends to hold the shares for some time, not immediately sell after exercising...

@projectfinance 3 жыл бұрын

Right. I just used selling as an example to compare P/Ls, but it would be no different either way.

@andypagakis 3 жыл бұрын

Yeah but why not just sell and buy the shares with the money

@projectfinance 3 жыл бұрын

@@andypagakis Exactly! That's what you'd do if you wanted the shares. You wouldn't exercise the option if it had tons of ext

@andypagakis 3 жыл бұрын

@@projectfinance thanks for the video bro, I just started learning about options, it's amazing how much less money you need, I've been having success swing trading, I look for something that I think will grow about 5% and use 10k per trade, so I'm aiming for 500 bucks a trade and take a few positions at a time if I find enough stocks that I like, been doing great but man with options I can use way less capital and limit my downside to just the cost of the contract, I had no idea

@anecdotalgardener8057 3 жыл бұрын

@@andypagakis because you would then be purchasing the shares at market value (ie: I had an AMD 65C contract that I was debating on exercising, post earnings AMD was trading at $80/share, so if I exercised my option I would be purchasing AMD at $65/share x 100 (6500), which would have put me at a ~$1500 gain. Long story short I ended up selling my option because I was at a greater gain doing that due to implied volatility.

@cheng1543 3 жыл бұрын

Hi Chris, thanks for sharing this great video. Just to seek your advice, if the call option is ITM, is there any chance that if one wants to close (sell) this ITM call option position before expiry however there is 0 liquidity or taker? Just wanted to know what is the risk that an ITM call option is not able to close before expiry and hence the ITM call option is being forced to exercise upon expiry.

@watsonburgandiify 3 жыл бұрын

I appreciate the repetition, I learn best that way!!

@nataliehinnes5221 3 жыл бұрын

Great content, sounded like a friend of mine, but I'm not very sure about the market due to volatility and i'm more focused on short term and following a news about an investor who grew huge profit in few months, my question is, what strategies can i apply to make this from the current market?

@chuajunlee2347 3 жыл бұрын

well, I think smart investors are current trading the volatile market and not waiting hopelessly for the market stability

@stanleyfujiwara1394 3 жыл бұрын

There are good gains in the trading market with good research , i started using this strategy when the market crash begun and I've been able to to double the value of my portfolio to about $380,000 although i have been investing in the past few years i still needed the help of an investment expert because i feel trading requires a lot of research and grounded experience.

@d.a3474 3 жыл бұрын

@@stanleyfujiwara1394 high end investors seem to looks forward to market fluctuations to make huge gains and If you ask me i think they're responsible for jinxing the market

@nataliehinnes5221 3 жыл бұрын

@@stanleyfujiwara1394 Please do you mind leaving me your consultant’s contact info? or preferably I can also leave you my email if that suits you better.

@stanleyfujiwara1394 3 жыл бұрын

@@nataliehinnes5221 look her up, her name is Lucy Maria Koss she's the investment expert that guides my trades, you can reach out to her via her webpage

@Mazen416 3 жыл бұрын

Why not exercise the option if i want to have the stock in my portfolio to hold it long term (years) at the strike price? Why did he not mention that part? 😅Say I wanna keep aapl stock for the next five years? Can someone explain that part

@AlmightyFoley 3 жыл бұрын

Did you find out

@aduckett5168 3 жыл бұрын

This was my question especially if you have cashless redemption option and the capital gains amount may not be excessive.

@davidchen5661 3 жыл бұрын

Sell the option, use the proceeds and your cash to buy the stock in market

@brandonwalker1473 2 жыл бұрын

Super informative video and I finally feel like I have somewhat of a grasp on options trading. I bought a CCL option for a $20 strike price for July 30th and obviously I'm not going to exercise that option. On Robinhood do I just leave it alone or do I need to physically sell the option?

@auts916 4 жыл бұрын

Good One.. Thanks for the vdo Chris

@martinbishop9042 4 жыл бұрын

There was only 6 words in this whole video.

@muffinman15 4 жыл бұрын

For real. This is the slowest video Ive ever seen.

@projectfinance 4 жыл бұрын

wasn't the best

@ryanstanley5634 4 жыл бұрын

@@projectfinance No man this video is good. People who talk fast often don't know what they're talking about. I really appreciate this video.

@busterfrysinger5965 4 жыл бұрын

Ignore MB and carry on please 🤙

@Giganfan2k1 3 жыл бұрын

Seriously, I had a stroke. This is good advices if you are a potato thinking he could be a Gorden Geko. :D

@klintonbright8940 3 жыл бұрын

Strategy is the key element to a long term successful trading,binary option,forex and other cryptocurrency

@kennedymatt6474 3 жыл бұрын

Weather rise or fall what I know is that bitcoin will still be the best and valuable cryptocurrency and i don't regret investing in it

@Stephaniigardner 3 жыл бұрын

Yeah you're right

@Elmerolockerjr726 3 жыл бұрын

It's not about watching videos and wasting your time on strategies, I was ignorant doing so... so i decided to try Mrs Clara and ever since then she has made about $14,000 for on every $4,000 i invested just in 2 weeks

@Joekuhn__ 3 жыл бұрын

I agree with you,because the higher your initial capital the higher your profits

@mrmb3333 3 жыл бұрын

Please how do i start trading with Mrs Clara????

@EssAGee_official 3 жыл бұрын

I finally finally get it after looking everywhere thank you so much 🙌🏼

@moocharoo8919 3 жыл бұрын

WRITE MY MANAGER MR HENRY MICHAEL ON WHAT SAPP TO MAKE GREAT PROFIT IN CRYPTO + 1 4 4. 2 2. 4. 4. 7 8. 8 1 Do well to tell him I reffered you to him his strategies are top notch 🇱🇷🇱🇷☑️

@RedBeardOps 2 жыл бұрын

This was extremely useful. Thank you sir.

@projectfinance 2 жыл бұрын

Glad it was helpful!

@RicardoGarcia-gi7yw 4 жыл бұрын

You confused me, right when I was getting it 🤦🏽‍♂️

@minhmeoquay 3 жыл бұрын

this guy suck at explanation

@ClintonJohnson714 3 жыл бұрын

@@minhmeoquay No you just didn't take the time to understand. He literally explains it perfectly twice in this video with graphics. What more do you need?

@calvin6429 3 жыл бұрын

this is a very simple and straightforward. seems like youre trying to make it complicated so people will go thru the countless advertisement

@derekstevens3119 4 жыл бұрын

Chris you are a great teacher! Thanks a million brother!

@projectfinance 4 жыл бұрын

I appreciate that! You're welcome!

@samb6376 3 жыл бұрын

I understand you completely. Well said... I’m new to options. A few questions, is it easy to sell an option with intrinsic value before expiration? Next, when a call option is in the money and you see a green value does this put into account the premium paid? Is the premium paid upfront?

@bigtone5108 3 жыл бұрын

Don't worry you never get picked for the shorts eight months later GameStop 😆

@danielmanahan692 4 жыл бұрын

okay but what happens if someone exercises the option early haha just kidding. great video thanks

@benjapolcycling 4 жыл бұрын

It happened to me 3 years ago only few days after big Friday crash day. Get massive margin call... Glad I have spread so I also need to exercise long put early to close position and fix my margin issue (and I guess someone else got into trouble).

@WeRhettyTV 4 жыл бұрын

LOL

@benjapolcycling 4 жыл бұрын

@@WeRhettyTV the real funny (good side) is the max loss was just $250 + 1 day margin call interest + broker fee to execute early exercise), but the margin call amount really make me having stress fever for a whole weekend. Good experience when looking back.

@caiocbrunofb7670 4 жыл бұрын

I prefer to roll the option out to the next month when option becomes ITM to avoid this

@benjapolcycling 4 жыл бұрын

@@caiocbrunofb7670 i agree for typical situations. It is more tricky when you need to deal with so deep ITM after crash that it's lack liquidity and/or involve already big loss, and when you have hope for some rebound later but somebody push early assignment..

@jimaragon2110 4 жыл бұрын

Thanks for sharing your knowledge, I enjoy your teaching style. I am a visual learner and could never learn this from a book! 👍

@projectfinance 4 жыл бұрын

You are welcome! Thanks for watching!

@spdiablo21 4 жыл бұрын

Great video, I completely understand.

@travgramm 4 жыл бұрын

I sold my first 3 covered calls last week and I got assigned. 🤣

@Vietnameseee 3 жыл бұрын

why

@Embole-uk1tl 3 жыл бұрын

Whst is assigned ?

@OFM1209 2 жыл бұрын

I was new then they were executed I should have said.

@Tom-tk3du 3 жыл бұрын

The repetitiveness is really tough to sit through. Its my sense on other videos too. Maybe use Powerpoint rather than mostly talking. Im a more visual guy.

@MrLaspdi 3 жыл бұрын

Excellent video to understand the trading option concept!. Thanks!!

@ColinDeWaay 3 жыл бұрын

So helpful thanks! I know you will almost never do it but I don’t understand how to exercise the option if you want? I don’t see it (using E*TRADE) as an option when selling. If you have a video covering it let me know thanks!