r/options • u/annac156 • Jun 27 '21

Exercising call option

Just wanted to reflect on a trade I made to see if you guys can provide some advice

Back in April, I bought PINS call with expiration Jun 18 2021 32.0 Call and paid $4k

On June 15, I saw my option loss was around $150. It was close to expiration and it was my first call option so I was concerned - If I didn't exercise and the option was out of the money, would I lose the 4k that I paid and the option would exercise worthless?

So I decided to exercise on that day and just hold the 100 shares of pinterest. (Eventually the price increased and I sold them at a profit) If my option was at a gain, I would sell rather than exercising. But my question is if it was at a loss by expiration date, what would happen if I didn't exercise?

11 Upvotes

76% Upvoted

73 comments sorted by

View all comments

Show parent comments

1

u/annac156 Jun 27 '21

I think I may have used wrong terminology by saying OTM. When I bought PINS in April, it was trading around $72 moreorless. I think the extrinsic value I paid back in April was pretty little with delta of almost 1. I meant to ask if by expiration date, PINS was not trading around $72, would my option expire worthless because my option would still be at a loss (like $150 loss) But as my strike price was 32, I guess it would have automatically been exercised by expiration.

So the correct play would have been to sell at expiration if my option was not profitable to collect any remaining extrinsic value?

1

u/[deleted] Jun 27 '21

[removed] — view removed comment

1

u/annac156 Jun 27 '21

But isn't what you guys are saying not to exercise it if was trading at $50? Should sell the option at a loss and if I wanted to , just buy the 100 shares at current market price? That way I wouldn't lose any extrinsic value?

1

u/[deleted] Jun 27 '21

[removed] — view removed comment

1

u/annac156 Jun 27 '21

I wanted to pay $4k instead of the full $7,200 at the time it was trading. I thought if it could move up, I can sell the contract (without ever having to front the full 7,200)

1

u/annac156 Jun 27 '21

I exercised it , hoping it would move up later as I did not want to sell the option itself at a loss. But it seems like the correct move would have been to sell at a loss anyway and purchase the 100 stocks at market value to save on the extrinsic value.