"Do I Have To Exercise To Take Profit On Call Options?"
"I bought a call option. If the underlying stock went up in value as predicted, do I have to buy the stock (exercise) then resell to close and lock in profit?"
Asked By Fola on 6 July 2009
Answered by Mr. OppiE
Depends on whether or not you enjoying exercising hahaha, just kidding. This is a very common question I get from options trading beginners. Such questions arise mainly due to the poor understanding of the mechanics of options as a financial instrument which is common amongst amateur traders without academic financial background (which is what www.Optiontradingpedia.com is here to help in).
The short answer is, No, you don't have to buy stocks in order to buy or short put options
at any strike prices.
Put options give you the RIGHT but not the OBLIGATION to sell the underlying stock at the strike price
. When you buy a put option, you are buying the right to sell the stocks. That right isn't triggered until the option is exercised
no matter if those put options are out of the money
or in the money
at the point of purchase. Until that happens, that put option is just a piece of paper (in fact, you don't even get to physically see that piece of paper) with no impact on the stock market at all. Hence, you don't have to own any long or short position in the stocks itself in order to trade options at this point.
Even if your put options are exercised (or assigned
) without any positions in the underlying stock, you automatically end up with a short stock position which is shorted at the strike price of the put options. So, again, you are not obligated to have any positions in the underlying stock.
In order to buy put options without any positions in the underlying stock, simply use the Buy To Open
order in your trading form will do.
you don't need a position in the underlying stock, whether long or short, in order to buy (or short) put options (or call options for that matter) at any strike prices (out of the money or in the money).