Options... Do they have to reach the strike price before you sell the option?

Question

If you don't want to exercice the option to buy the stock, do you still have to hit the strike price before the expiration date to make a profit?

For instance, if I buy a YUM (YUM Brands) call for $45 July 08, at .20, and the stock reaches only $43, but the ask is now $1.50, can I sell the option and take the $130 per contract profit?

Thanks in advance!

Nick

Answer 1

Sure, if it's not the last day that you can exercise the option; it still has inherent value as a hedge against volatility/ a speculative play.

Answer 2

You can sell the option whenever you want (up to expiration).

The bigger question is..... do you understand the "Greeks" and their effect on Option pricing?

Answer 3

As long as you aren't an officer and the stock must hit the exercise price you can sell it whenever you like.

If you buy a stock with a strike price considerably higher than the market price you can make a very good profit if the stock jumps but still hasn't hit the exercise price as long as their as some time left.

Answer 4

No the the strike does not need to be reached, only being profitable needs to be reached -  and a premium will rise in price as it approaches the strike.

The only thing that should be reached is a target profit factor.  This way you have a plan and a target in mind.

Your target should be directly related to the amount of money your putting at risk, and relative to the technical feasability of price action.

Mark

http://www.fibonaccigenius.com coveres this in a free download.

Answer 5

The More Advanced He Becomes!  http://www.robotstock.info

Answer 6

Yes, with the exception that you do not sell at "ask" price - you will sell at "bid" price (slighly lower). Otherwise your logic is correct. As long as somebody offers ("bids"), for example, $1.30 per contract - this is all that matters for you, $45 Jul'08 call holder.

Good luck,

Investreus

Answer 7

Yes, you can definately sell the option without having to buy the underlying stock.  In fact, that's usually what the vast majority of option traders do:buy and sell the contracts.  With an American styled option(and most stock options are), you can choose if and when you want to exercise the option up to expiration, regardless of the price of the underlying stock.  Just one point of clarification:you sell on the bid price, and buy on the ask price.  Hope this helps