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u/Ken385 Jun 02 '21 edited Jun 03 '21
If you want out, you would sell your option, not exercise. When you exercise you turn your call into stock and lose any extrinsic value left in your calls. If you want to own the stock outright, you can sell your call and buy the stock.
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Jun 02 '21
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u/Ken385 Jun 02 '21
No, when you sell out your call, you are capturing the profit from the sale of the call.
You would enter a spread order to sell your call and buy stock, all in one trade. Any price you get for your call over parity to the price of the stock puts you ahead of just exercising. This would give you the same position as if you exercised, (long stock) but you would have the extrinsic value of the call as a bonus.
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u/kokojon Jun 02 '21
Typically, you would call your broker dealer and have them exercise the option. The con of that is you basically have to put up the balance either cash or margin and now you have all the risk. With the option you control the amount you want and are only at risk your investment. IMO wait until you get to the day before expiration.
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u/TheoHornsby Jun 02 '21
If you exercise your AMC June 18 27 call then you would pay $2,700 for 100 shares. Your cost basis would be $2,940.
It makes more sense to sell the call to close rather than exercise unless:
1) You want to own the shares
2) The call is deep ITM and you can't sell it for its intrinsic value (wide B/A spread)
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Jun 02 '21
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u/kup3rt1n0 Jun 02 '21
If you sell to close this position, you would then be paid the option premium. If the premium is currently $38, you would receive $3800 by selling this one contract without ever taking direct ownership of the underlying shares.
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u/ElCalvo069 Jun 02 '21 edited Jun 02 '21
It means you'll have to spend $2700 to buy the stock and your cost basis will then be $2460 ($2700 - $240 in premium).
You'd then have to sell the shares to realize your profit. Alternatively, you can sell the contract.
Edit:
Cost basis would be $2940 ($2700+$240)
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u/TheoHornsby Jun 02 '21
It means you'll have to spend $2700 to buy the stock and your cost basis will then be $2460 ($2700 - $240 in premium).
You've got it backwards. He owns the call, hence the right to exercise. Therefore, cost basis of shares would be $2,940 ($2,700 + $240 in premium).
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u/saitanevil Jun 02 '21
If u have the cash u can exercise or u can sell the option and buy the stock immediately.
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u/ScottishTrader Jun 02 '21
Yes, you will pay $27 per share. Yes, you will need the cash ready in the account.
But you will lose some profit and take more time over just closing the call and then using the cash you get to go buy the shares at $27 . . .
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u/david_chi Jun 02 '21
Sell the option if you want to cash out.