Stock call & put option?

Question

Hi,

If I already have particular stock,and put option for that stock. but didnt excrcise the put option because it became out of the money (other words, stock went well above the put strike prices,and I made a profit without execrising put option)..can i still offset (sell) that put option before expiration to collect remianing premium balance...

please help me out

thank you

mike

Answer 1

Sometimes.

If the option is so far out of the money (relative to the amount of time before expiration) that it has become worthless then it is quite likely that you will not be able to find a buyer.

Look at most option chains a day or two before expiration and you are likely to find examples of options that have a bid quote of $0.00 and an ask quote of $0.05. It is quite likely that you would not be able to find a buyer for those options. If the bid quote is not zero you can be sure you can sell the option.

Answer 2

Yes, if you don't anticipate that the stock price will fall, then it would make sense to sell the put option and reap whatever "time value" may be remaining.

That happened to me once. I bought a put option on a stock I owned for downside insurance, but it soon became apparent that the price was rising not falling, so I sold the put option for a loss.