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

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Why Short Options Are Rarely Exercised (Written Guide): www.projectfin...
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!
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[@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?

[@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.

[@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?

[@dpalaoro]

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.

[@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

[@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.

[@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)?

[@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 .

[@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!! 🥃

[@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.

[@oneverse111]

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]

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]

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

[@SmallPocketsBigRockets]

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]

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

[@morganabdul-korah298]

@@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.

[@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?

[@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

[@vikrammalhotra3505]

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

[@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)

[@TopShineDetails]

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

[@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…

[@FormerlyFacebook]

What if you exercise the option with the intention of keeping the 100 stocks? Say you want to buy shares for a company but you don’t want to put the full amount for the shares at the current value for risk control reasons.

[@sonnykim6755]

yes you can do that. people exercised their long calls on GME.

[@trevorwestman393]

Wow, this helped a lot. Slow and methodical.

[@JosephRaj-cl4pk]

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

[@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

[@shanashay1399]

This video is incredibly helpful and easy to understand. Thank you for explaining this so clearly. Just the information I was looking for.

[@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!

[@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.

[@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

[@mntemel]

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?

[@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.

[@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.

[@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?

[@VIL4IN]

If i have a put option, do i then have to exercise the option to the current price, or can i do whatever i want with it. Am i stricly limited to the current price, when exercising options? Best regards. Mathias.

[@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

[@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.

[@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

[@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

[@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

[@tommy1273]

Put even more simply: If you buy an option that’s in the money, and immediately exercise it, you immediately lose the cost of the premium. The premium (extrinsic value) is just the potential for the option to be worth more in the future. As long as there’s still some extrinsic value in the option (time still available), you may as well sell the complete option to someone else, rather than exercise the option and leave the option seller with the extrinsic value.

[@00sra]

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

[@jayjay-br3xv]

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

[@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.

[@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!!

[@northeastbirdsmore2281]

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

[@tspice11]

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

[@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.

[@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?

[@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

[@SheenHL]

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?

[@americanIDOLfan11111]

I always force assignment because I know people love it.

[@projectfinance]

You're sinister!

[@buynsell365]

I understand this situation with a Call ..........but can you explain what happens when you exercise a Putt?

[@dharris5887]

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

[@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).

[@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.

[@JenMarco]

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

[@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.

[@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.

[@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.

[@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

[@josefalanis]

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

[@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?

[@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

[@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.)

[@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

[@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 !!

[@pradprad4321]

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

[@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

[@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.

[@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.

[@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?

[@sdkujn]

How would this work with commodities on a credit spread? Thanks!

[@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!

[@chilly2171]

What if the difference in price is higher than the premium paid.

[@falsepaul5215]

Ahh you alleviated my anxiety, I can sleep now 😴

[@skydragon3857]

what happens to an "in the money" option if it is never exercised? it has to be at some point for it not to go to waste right? if for some reason I have an "in the money" option, and I want to let it expire, can I just do that or something else happens?

[@lokkotez]

It disapeers and you loose the money

[@calvin6429]

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

[@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..

[@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.

[@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!

[@wimvandermeiren5950]

Hello Chris, many thanks for your interesting video’s. Just have this question. So I understand that the option holder will prefer to sell his ITM call option (with sufficient extrinsic value in it) in the market, instead of exercising his option and subsequently selling his shares in the market. But will there be sufficient buyers in the market for this “expensive option”, especially when the term to expiry is limited (a few days e.g.) ? Am I missing something here ? Many 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?

[@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!!

[@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.

[@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!

[@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????

[@Sorryformynegativity]

Thank you for clarifying with examples. Im a lot of slow sometimes my brain don’t take in information when listening to people talk

[@koolwill9862]

It’s not always a bad deal because you were talking about options that have a higher price point ....for instance I bought shares at $23 and in 4 months they went up to $46 .....the call option if I had actually sold it off would’ve been worth $550 but if I buy the shares the actual stocks they were at $46 versus $23 so I actually made thousands of dollars more versus hundreds of dollars more so this is not really a great example except when you are talking about stock that is priced higher like Apple or Amazon but when you have lower stock that have a lower price point and it goes up $25 or $ 30 which has happened to me before it makes sense to buy the stocks and sell them.

[@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?

[@thanigaiveldayanandan328]

Well if you don’t exercise the option for that apple stock example, you may lose the whole of $4680 value of the option . But instead why don’t you exercise the option and get the cost basis at 270$(lower than current) and then you can either wait for stock to go up or you can sell it and cut down your losses to just 186$

[@_WiseVibes]

So it doesn’t automatically sell the shares once your exercise? You just get the shares?

[@thanigaiveldayanandan328]

Yes u just get the shares . Call option means you can BUY at the strike price that was chosen when you exercise it

[@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..

[@nicolasparra8000]

So if I sell a call option, the buyer has to wait for it to hit the strike price before he can buy it correct?

[@ericbrown1801]

Please can I invest in Bitcoin on my own, I have been practicing on my demo trading account, I don’t want to make any mistake whatsoever.

[@binibest6069]

yes You can if you have fully understand the Bitcoin market

[@binibest6069]

if you haven’t I will advice you to look for a professional around your vicinity to help you understand the Bitcoin and forex market.

[@marcusrobert3528]

I’m from Belgium I have been an investor in the crypto market for over 3 years now.

[@marcusrobert3528]

Now is the greatest time to purchase and invest in Bitcoin

[@andrewbones5178]

Obviously trading in Bitcoin is very volatile and risky to trade that’s the reason most traders trade with a company.

[@sachit2394]

In the Apple examples, 270+46 = 316 which is more than 314 (not using decimals). Hence, you will not exercise the option because you will be at loss.

[@bigtone5108]

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

[@j10001]

Outstanding video. Thank you

[@projectfinance]

Thank you for the comment and you're welcome

[@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

[@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.

[@marcosrex2086]

I still think buying a home is the best investment any individual can make..

[@mooniamborepiied5053]

Wow, that's a great and nice ideal..

[@tommycruise1295]

I think investment psychology is by far the more important element, followed by risk control. With the least important consideration being the question of where to buy and sell.

[@migueltherapy7450]

Bitcoin trading right now will be at every wise individuals list.. In few minutes you'll be ecstatic with the decision you made today..

[@nelsonwax1564]

Bitcoin trading nowadays is a big change to make money...

[@joyfundx9146]

Bitcoin: Is the only true democracy ever exists in the world..

[@weechuantee400]

Good sharing.. If I understand right.. if I bought the Call option of SP 100 for 3.50 at stock price 102 and I sold the same option at 4.50 at stock price 122. I will make a intrinsic value of $20 and extrinsic value of $1. Making the total profit is $21. Since 1 option contract is 100 share. It will be $2,100 profit. Is my understanding right?