Question By Nayan Jyoti Bhattacharyya
"Will My Call Options Remain Till Expiration?"
I have a question about option market. Suppose today dated at 02/04/2011, I buy an OTM call option of "RCOM" which is now trading at suppose 300.00 Rs. I take the strike price at 320.00 @ the premium of Rs. 5.00. The expiry date of the option is suppose 26/04/2011. Now after buying the call option the price of "RCOM" was fall to 280.00Rs. After that it again rise to 335.00 Rs. and it all happen during the expiration date. Now my question is when the price fell to 280.00 Rs. at this time, will my option contract remain to the expiration date or my option will be canceled.
Asked on 23 July 2011
Answered by Mr. OppiE
Hi Nayan Jyoti Bhattacharyya,
So you went for a Long Call options strategy on RCOM at strike price of 320 quoted at 5.00 when RCOM was trading at 300. During the course of the trade, RCOM went up and down and finally went down to 280 with some time left to expiration and you are wondering if these call options would remain in your account until expiration day, right?
Now, any options you bought or written will remain in your account all the way to expiration no matter what price the underlying stock is unless they are being assigned early. By early assignment, it means that if you have shorted some options and someone holding those options have exercised them and you have to fulfill your obligations under the terms of the options contract. However, this situation does not exist when you are buying options and not writing them.
This means that if you have bought options and have not exercised them, you will be able to hold them all the way to expiration no matter how much out of the money or in the money it is.
As such, you should be able to hold your RCOM call options all the way to expiration even though it is very much out of the money. In fact, since it is already so much out of the money, it should be worth very little in extrinsic value and unless salvaging that bit of value is important to you, you should hold on and see if RCOM comes back in your favor before expiration.
In conclusion, you are able to hold your call options to expiration without any problem as long as you did not choose to exercise them. In this case, since they are so much out of the money, there is no point in exercising them at all.
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