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

[@projectfinance]

✅ 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]

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]

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]

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

[@mubeenalimohamed3051]

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]

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

[@vripiatbuzoi9188]

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]

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

[@GloriousCoconut]

@@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?

[@popcycles]

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.

[@dakotataylor6605]

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!

[@mrhakz330]

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

[@projectfinance]

I appreciate that!

[@angel0smile]

Seriously? What a joke

[@novaknovakovic1585]

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.

[@vision1707]

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]

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

[@vision1707]

@@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 .

[@bearishdavid8791]

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

[@surefireoptions4187]

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]

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]

@@jimbarentine3539 buying calls or buying puts

[@thewhiteshadow6098]

Doesn't the _last_ person to hold an in-the-money call option _have_ to exercise it, before it expires, in order to make money? Otherwise, it's worthless after the expiration, right? So how can it be such a rare thing to 'exercise' if it must happen 100% of the time (at some point)?

[@gnashings]

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

[@projectfinance]

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

[@justinhills3117]

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.

[@roblowe6086]

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.

[@SejalPatelDrSej]

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]

Bump

[@HiByeGoodbyehi]

This is underrated comment. This video is about selling shares right away. But, imagine if you had leap calls for TSLA strike price $150 and now it is over $350. I would definitely exercise my calls and I would not have to pay taxes. Compared to selling the calls and having to pay taxes and the price of TSLA will be way higher.

[@dcutter2146]

​@@HiByeGoodbyehi This was the reason why I was searching for why you shouldn't exercise options. No one talks about the long game.

[@vikrammalhotra3505]

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

[@mrlukemichel6858]

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]

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]

@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]

@@lennybrewster4673 True. Popular strategy

[@mrlukemichel6858]

@Gordon Ghecko I would! Lol$💶💷💳💰

[@plolochufu]

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

[@davidsvids5011]

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]

Same

[@EviLTunG]

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]

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]

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]

i think u can explain better than this guy

[@samhernandez2257]

Yep! Exactly why they’re called derivatives

[@istvanpraha]

uh it's always going to be confusing b/c every video on the topic (including this one) says "options lose value as they approach maturity" then go on and on about intrinsic value. OK but isn't that intrinsic value going down over time?

[@islammohamed1441]

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]

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]

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

[@TopShineDetails]

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

[@bassilredman9430]

14:04 Is this really true though? As the seller of the call how would you pocket the extrinsic value if assigned? You don't own the option; the option (and its extrinsic value) disappear and the option writer has the obligation to sell the stock at the strike price. What am I missing?

[@projectfinance]

Say a stock is $105 and you short the 100 call for $11. You collect $1,100 into your account. You get assigned shortly after and short 100 shares at $100/share. You close the shares at $105/share and lose $5 per share x 100 shares = $500. You collected $1,100 on the call initially and lost $500 through assignment events. Your profit is $600, the extrinsic value that was in the option.

[@bassilredman9430]

@@projectfinance Oh ok, in the case the premium has enough extrinsic value and the stock price hasn't risen by much then you are right. Now it makes sense. Thanks.

[@projectfinance]

@@bassilredman9430 In every case, the extrinsic value benefits the short option holder if the option is exercised. But that doesn’t always mean your entire trade will be profitable.

[@ryanfuller4931]

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]

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)

[@livingobject]

At 11:07 how is the option worth being calculated? I know the initial cost is $2,500 since it's purchase price x 100. I'm not sure how the option worth is being calculated.

[@stockchartsteve]

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]

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]

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]

@@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]

@@russellnotestine6436 exactly what I was thinking

[@dont.ripfuller6587]

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

[@lazerbeamshredder]

Dude, BEST explanation of buying and selling call options on KZbin hands down. THANK YOU! Goated

[@projectfinance]

Glad it helped!

[@galanopouloc]

Wallstreetbets has left the chat.

[@jlhumor1565]

Haha.

[@mauriliogouveia555]

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]

😂

[@overplayed3553]

You predicted them bro

[@brady2758]

This aged we

[@NW1ABLitz]

Chris, I learned how to trade options by watching your videos. On my first trade (CCL Puts) a few months ago, I made +800% ROI!! It was definitely beginners luck, but couldn’t have happened without your help. Thanks!!

[@projectfinance]

Nice work!

[@damianalvarado1320]

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]

Then you paid more than the strike price

[@arshiabeigi9727]

If you hold a call option until near expiration date for some reason, and market price is above strike price, would you consider exercising the option (since the extrinsic value is near 0 around expiration date) if you think the price will continue to go up beyond the expiration date, or would you simply recommend selling the option and buying a new call option?

[@projectfinance]

Depends if you want (and can) own 100 shares, of if you just want leveraged exposure to the stock price increases. If you want the shares, you can let the option expire ITM, or sell the option and buy 100 shares (both are the same if the option has no extrinsic, but exercising would be more straightforward).

[@soblueskyzll]

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]

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

[@NamLeLa]

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.

[@cawag98]

To skip to the core of this video, start at about 9:00 I arrived here because the tickler title suggested to me that no one holds option contracts long, or stays in short options until expiration (the way "European" options exercise). Actually, the video is explaining why regular options ("American" style options that allow exercise at any point) aren't actually exercised until the end. In other words, you don't exercise an option before expiration because a portion of the price of the option (the extrinsic value) is lost at exercise. To capture the extrinsic while there's still time to expiration left, you just trade away the option.

[@JohnDoe-xt6ow]

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]

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?

[@malachi4516]

Do you have to sell the shares immediately after you exercised the option or are those yours to hold onto till whenever you feel like? Bc in your scenarios if the call options were to expire soon I would feel exercising would be the way to go

[@Decker4]

Depends on which way the market is going. If it were steadily increasing then obviously hold but if the stock price were to start to go down you would want to sell. But to clarify your question no, once you buy the option or convert the option, it is yours to do whatever you please with. It is also important to note that whenever the expiration date runs out if the option still has intrinsic value then the option will automatically go through.

[@MohYYC]

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]

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]

@@MoltenMouseMetal thanks for explaining this

[@tspice11]

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

[@Tr7law]

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!! 🥃

[@jaybyars2479]

Chris, great video. Can you tell me how an option on a dividend stock, that is nearing it's ex dividend date, might be exercised early. Thanks in advance, Jay

[@trevorwestman393]

Wow, this helped a lot. Slow and methodical.

[@alfonsocelentano6137]

Does the same thing go for put options? Let's say I have put options in XYZ for $100 and the stock is currently at $120? Can I exercise those puts and now buy that stock at $100 or should I just take the loss on my option?

[@projectfinance]

If you have a 120 put on a stock that's $100, exercising your put would mean you'd sell 100 shares of stock at $120/share. With the stock price at $100, you'd have a $2,000 cost basis benefit. But if you exercise a put option with lots of extrinsic value (> $1.00) the same applies. You will lose the extrinsic value for no good reason. If you are going to exercise an option, it's usually best to do so if the option is deep in-the-money and expiring soon. Or, you can hold it through expiration and it will automatically be exercised. Of course, the changes in the stock price before expiration will result in changes in the value of the put option.

[@alfonsocelentano6137]

Thanks. I got it now. Wish I’d come across your videos a few months ago.

[@teflonmusk11B]

I didn't know Linkin Park sold options

[@theshounfiles7898]

Lol

[@depreciatingasset]

😂😂

[@bboichirok661]

🤭🤭

[@PhilneyeOfTheClient]

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

[@RedBeardOps]

This was extremely useful. Thank you sir.

[@projectfinance]

Glad it was helpful!

[@biaodu2925]

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!

[@Lottodds]

If the call option is about to expire and you believe the stock price will increase then makes sense to exercise the option and hold onto the stock instead of rolling over the option? Also a call can be used as insurance. For example, selling a call option and being forced to sell your stock when the strike price is hit. You can than use the call option to buy back your stock at a lower price?

[@northeastbirdsmore2281]

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

[@johnhansen6802]

Great video. My apologies if you covered this question. I missed it. I sold a covered call for $6.5. Strike price is $60. Stock RISES and now the market value of the contract is now valued at $1500. Buyer decides to sell the contract before expiration date and collect the $1500. Where does the $850 ($1500 - $650) come from? Am I responsible for coming up with the $850???

[@TruePaige]

Covered calls mean you lose the shares and keep the premium when assigned. No cash out of your pocket, you just lose 100 shares per contract when assigned.

[@titaniumsandwedge]

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]

@@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.

[@thebuddingmusician]

This is very normal, actual expiration extends beyond market closing hours, all in terms

[@titaniumsandwedge]

@@thebuddingmusician Actual expiration time, 4:30 pm Central time, makes no difference in the STX assignment.

[@thebuddingmusician]

PIN risk, seems to me your situation just fell into that scenario

[@arastus3372]

14:20 mark: "therefore, as someone who was short an option, you instantly make that extrinsic value and you make an instant profit". Could you clarify on that? Do you mean you save out on the extrinsic value loss? Wouldn't making instant profit depend on initial investment. Please clarify, thank you so much!

[@tomlang80]

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!

[@milesbanares]

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.

[@abbasakhan]

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]

Also curious as I plan on doing this..

[@Pavetheplanetbigdaddy]

Me too

[@ALIHASSAN-cy5hy]

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]

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.

[@therealVitalWill83]

The time in force was good for a day Limit price was 4.05 July 2nd 2020 at 930 AM I closed the contract right before expiration on 7/10 at $510 a minimum of $44.25 per share. Average price per contract was $4425.00 per contract.

[@okopnik]

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.)

[@Ramsefall]

So, two questions, sir: 1) if an option is exercised (in the case you outlined where the original buyer of the call option is long AAPL), is the purchase at strike price and the sale at current market price automated by the system and executed simultaneously; and 2) rather than exercising the option prior to expiration, wouldn't it be better to simply close that contract with the strike price purchase and hold the stock while its price continues to climb and then sell when the profit margin is even more lucrative? Thanks for your time and insight. Cheers!

[@walterclark3274]

That's what I was thinking. Let's say someone bought tesla options back when strike price was $100. Exercised at expiration and held long until the shares reached $3000, and decided to sell then... I would think that profits outweighs the premium?

[@vripiatbuzoi9188]

@@walterclark3274 I think the video is about why in the money options are not exercised before expiration. But you're taking about at expiration.

[@00sra]

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

[@markelwood1853]

Does this include the Bid/Ask spread? if you had a bought call/put option deep in the money, wouldn't it be safer to exercise that option and gain the ask price then have to give up profit to make sure the option sold on the open market in time to still be ahead? I've lost a lot of profit from selling fast and not being able to sell the option for closer to ask price

[@artebyade]

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]

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]

@@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]

@@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.

[@mattte.9307]

My question is do you have to sell them right away if you choose to exercise the contract and buy the 100 stocks. Example i buy stock strike price at 20$ stock price is 25$ right now. Contract is for 01/15/2 500$ premium. By then if price is 45 $ , but i want to buy more at $20. These 100 stocks can they instantly add to your portfolio to lower your average if you're already invested in a comlany? Or must they be sold after you exercise the contract to buy 100?

[@americanIDOLfan11111]

I always force assignment because I know people love it.

[@projectfinance]

You're sinister!

[@rudyluna4193]

What about an AMC Option, strike price $12 , June 18 expiration date? It seems that you would want to exercise it and hold it until the big the squeeze since it should go up more than the current price at $56.19. Thoughts???

[@pinch-and-roll]

I’m wondering the same

[@projectfinance]

You never want to exercise an option with lots of extrinsic value. You're burning money. If you want the stock in that moment, sell the call and buy 100 shares. Same result without losing extrinsic.

[@dmac80]

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]

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

[@johnsam100]

omg same here..i felt the pain too

[@neuvocastezero1838]

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

[@ewlinitis]

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

[@DCUPtoejuice]

17:00 If you hold a call option, does it automatically get exercised at expiration if the price of the stock is above the strike price in the contract at the closing of that day?

[@Mazen416]

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]

Did you find out

[@aduckett5168]

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

[@davidchen5661]

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

[@animated000]

I understand now. Thanks! Question for anyone that knows. If you're pretty sure a stock is going to trade sideways for...4 months between 2.5 and 3.5, what option strategy should you take

[@nataliehinnes5221]

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]

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

[@stanleyfujiwara1394]

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]

@@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]

@@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]

@@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

[@JohnBowl14690]

Fantastic video. Very well explained. I was told bits and pieces, but this video filled in a couple of missing pieces and solidified my understanding.

[@projectfinance]

Awesome, I'm glad this video cleared things up!

[@rahulsony77]

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]

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]

@@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]

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

[@caiocbrunofb7670]

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.

[@sisijames1219]

This is the first time that i understood properly what call exercise is...thank u sir...

[@dharris5887]

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

[@jayjay-br3xv]

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

[@hothotheat3000]

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!

[@rjf7023]

i watched the video and it makes sense but i have a few quick noob questions 1.lets say you have call options in the money and it hits maturity. Is the option automatically exercised? do u need to actually do anything? 2 if it is exercised and u dont have enough $ in ur account with your broker/trading platform to pay the strike price, what happens? i would assume ur broker would buy it at strike and sell at market at the exact same time since you're "in the money" and essentially in a net profit position.

[@riverz7457]

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 !!

[@ergonautilus]

14:03 - How would I profit the extrinsic value if I sold a call that expired ITM and got exercised, wouldn't that value just evaporate?

[@JZ-oz5tv]

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

[@glorymanheretosleep]

How to calculate that?

[@JK-vb9ps]

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

[@kdtallllll]

What's that you're using at 6:17 ? Looks like it has a lot of valuable data! Also how do I find out the Annual risk-free interest rate for Black Scholes? I'm using Robinhood(ik ik) if that helps anybody answer it. Is annualized volatility the same as intrinsic volatility? I read the APY for Robinhood is 0.3%, is that what I'm looking for for the annual risk-free interest rate?

[@falsepaul5215]

Ahh you alleviated my anxiety, I can sleep now 😴

[@anoobistrading3332]

for all germans trading within a german llc (named "GmbH"): if your OTM call expires ITM you want to exercise your option, if your UL is a stock.

[@calvin6429]

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

[@theoldbk5419]

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!!

[@Nochillnickk]

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

[@projectfinance]

When you have an options KZbin 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

[@vitalesiak]

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.

[@CaptainAdd49]

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

[@mcinnisthemenace216]

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]

@@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..

[@421mantis]

Thanks for the VIDEO!!!!!! What if the BID price is way lower than the ASK price and you are up enough to want to sell..... good time to exercise? thanks!!

[@anecdotalgardener8057]

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

[@projectfinance]

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

[@andypagakis]

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

[@projectfinance]

@@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]

@@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]

@@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.

[@12345678938594]

How do you exercise a put option if you don't how the stock? Does the trading platform automatically buy the stock for you and then sell it immediately?

[@klintonbright8940]

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

[@kennedymatt6474]

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]

Yeah you're right

[@Elmerolockerjr726]

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__]

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

[@mrmb3333]

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

[@millenialmusings8451]

Bro if you can stop repeating numbers (stock and option values) it would be great

[@projectfinance]

Yeah this was a tough video for that! My bad lol

[@RicardoGarcia-gi7yw]

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

[@minhmeoquay]

this guy suck at explanation

[@ClintonJohnson714]

@@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?

[@JoshRenton91]

Thank you for the great video. What are the mechanics behind the assignee gaining the extrinsic value? I understand it intuitively, but can't envision the steps. Wait, is it because they didn't have to buy back the option after selling it, so they capture the entire premium?

[@projectfinance]

It's because it converts it into a stock position and the option is "consumed." As an example, imagine a stock at $102.50 and I buy a 100-strike call for $10. I immediately exercise the option, consuming it, and ending up with +100 shares at $102.50/share. I can then turn around and sell the shares for $102.50, making $2.50 per share (the option's intrinsic value at the time of exercising it). So I paid $10 for the call, consumed it, then sold my shares for a $2.50 gain. The net loss is therefore -$7.50 because I consumed a $10 option for a $2.50 stock gain. The trader who sold short that call for $10 ended up getting assigned short stock at $100, then covering/buying back the shares for $102.50, realizing a $2.50 loss per share. But they collected $10 initially for the option, so their net P/L is +$7.50. The extrinsic value in the option at the time of exercising it was $7.50, which was lost by the option owner and given to the short option trader. Does this make sense?

[@martinbishop9042]

There was only 6 words in this whole video.

[@muffinman15]

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

[@projectfinance]

wasn't the best

[@ryanstanley5634]

@@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]

Ignore MB and carry on please 🤙

[@Giganfan2k1]

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

[@jmnbt9178]

hi. when should you sell an option deep in the money? a day before it expires? a week? a month? thanks in advance.

[@jaepee1359]

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

[@jkk20]

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]

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.

[@zanedelgadillo9390]

So how do I sell the option when I hold a long call? This wouldnt be the same as writing calls would it? I want to make sure to maximize my profits.

[@jmatt98]

Same. I also have a long call. I want actually accumulate the stock.

[@lennybrewster4673]

If you're holding a long call and want to sell it you just (depending on your broker) usually highlight "close position" which will be a sell to close. A limit sell price will probably already be populated and you just send out the order to close and realize your gains. Just remember you're going to be getting the BID price not the Ask when you're closing a long call. A lot of people get confused on why they're getting a little bit less. That's what the market is paying for that particular option at that exact moment

[@bigtone5108]

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

[@JenMarco]

Best explanation I’ve ever seen! Thank you. New subscriber now.

[@Tom-tk3du]

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.

[@walterjoyce5023]

If you do have DITM calls with no extrinsic value and you like the stock would the benefit of excercising early allow you to 1) defer paying taxes until you actually sell the stock? and/or 2) reset the capital gains clock earlier than if you wait until closer to expiry?? Thanks.

[@danielmanahan692]

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

[@benjapolcycling]

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]

LOL

[@benjapolcycling]

@@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]

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

[@benjapolcycling]

@@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..

[@JosephRaj-cl4pk]

Excellent explanation!!!! Best I have found on a LONG CALL option profit scenario. Keep it up.

[@raymondbull3609]

I made much profits from APPL Forex.

[@raymondbull3609]

@ibra udinov When you make the right decisions and take the right steps in trading the chances of losing your funds becomes slimmer and almost impossible especially when you have the right broker helping you trade, Mr Phillip does mine.

[@alexanderlorenzo7140]

I have come to realize that making profits in Forex trading is when you invest with a broker who has vast knowledge and working strategy that yields huge profits..i have great respect for Sir Phillip.

[@raymondbull3609]

@ibra udinov OK, you can go write him at

[@samuelbarth-ibe6612]

Working with Phillip Bolton I see how broad and profitable trading the online market can be. I’m most pleased.

[@sm0othdude]

this could of been simplified even more but it made perfect sense. technically you can make money exercising the call option if the the stock goes past your break even point but you’ll still make more money if you just sell the option back to the market.

[@travgramm]

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

[@Vietnameseee]

why

[@Embole-uk1tl]

Whst is assigned ?

[@OFM1209]

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

[@michaelkueny3804]

As someone who exercises options early, I do it for 2 reasons. 1) Tax purposes. My choice is to either sell the whole option or buy a partial amount of shares to square up. If Ive made money on option like AAPL in 2020, then I only pay taxes on the profits of the exercised shares I sold. Because I do leaps to transition to shares I often have already eaten a lot of extrinsic value when Im ready to exercise. 2) I can sell ITM leaps for liquid short term options, thereby monetizing theta & putting that monetization towards more shares with same constraints as 1) above.