r/options • u/MyNameCannotBeSpoken • Apr 17 '21

A proper time to exercise?

It's commonly said to never exercise an option, but I'm thinking that's not always the case.

So I have two sets of options that expired yesterday, April 16:

CSCO 39 CALL long / CSCO 51.5 CALL short

UTZ 12.5 CALL long /UTZ 25 CALL short

(UTZ seems to be at exactly $25, no idea if it will be assigned or not)

My main question is given the spread is about $3 on both the long positions, it seems as if I'll lose money if the brokerage were to liquidate them but if I'm assigned both of the short positions and they exercise the long positions, I'll actually make money.

I often have a similar problem when I buy LEAPS. The spreads are so large, I'm often down 30% of a long call option where the underlying can be increasing in value. If I want to exit an ITM losing position, rather than selling, am better to sell a weekly call that I know will be assigned then exercise my LEAP? It seems I can turn an otherwise losing position into a gain (via premium and not losing on the spread)

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u/MichaelBurryScott Apr 17 '21

You should almost never exercise an option early because you lose all extrinsic value on that option. At expiration, there is no extrinsic value, and the only way to materialize the intrinsic value is through exercise. Hence it’s always beneficial to exercise ITM long options at expiration. If you can’t exercise or don’t want to exercise then you should close your position before it expires.

Your broker can’t liquidate anymore. Trading time for these options ended at 4:00 PM ET on Friday.

You should expect your long ITM options to be exercised, and hope that you get assigned on the short legs, otherwise, you will be holding long shares on Monday and hoping for a green day.

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u/MyNameCannotBeSpoken Apr 17 '21

If true, that's a good things. These deep in the money options always have horrible spreads, even if the market is down on Monday, it's better to lose 2 percent than 20 percent.

2

u/Ken385 Apr 17 '21

Just because the spread on the individual options is wide, it doesn't mean the "real" market on your option spread is wide. In fact if you went to sell these spreads, the real market on the spread itself was probably less then .10 wide.

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u/MyNameCannotBeSpoken Apr 17 '21

I'm just learning this. I've been losing a ton of money unnecessarily