#52 - Do I Have To Exercise My Option Contract To Take Profits?
Hey everyone. This is Kirk here again and welcome back to the daily call. Today’s question is – “Do I have to exercise my option contract to take profits?” This is a really good question. Before I even get to the question and answering this question, I have to remind you if you do have a question because I haven’t really actually talked about this a lot on the show which is my fault. But if you do have a question, the best way to get the question answered is to either shoot me an email, kirk@optionalpha.com, post on our Facebook, Twitter or Instagram or wherever else you follow us online or you can head on over to optionalpha.com/ask and you can leave me a voicemail there. There’s a big red record button there and you can leave me a voicemail. Again, we’ve got a lot of these shows coming up. It’s all first come, first serve. If you have a question or even a list of questions, I love those emails the best because that helps me get new content out there, helps me figure out what questions you guys have and puts in your own words versus me just asking random questions. This question actually did come from one of our members who said, “Do I have to exercise my option contract to take profits?” The simple answer to this is – No, you don’t have to exercise your contract to take profits. Now, I’m assuming that this guy was talking about being long an option contract. If you bought a put option or bought a call option, the assumption here is that you’d have to exercise it and basically take delivery of the stock or have the stock shares converted from the option contract to be able to take profits. The reality is that with options trading, you don’t have to do that. You can actually sell out of your contracts. You just sell your call option or sell your put option back to the market, reflecting the new value if the value has gone up or if you’re on the other side of a trade… Just for a minute to talk about being short option. If you sell an option contract to begin with, then you can buyback that option contract hopefully at a lower price in the future. You don’t have to deal with the stock. We actually try here at Option Alpha, like I try never to deal with the stock if possible. I think stock is inefficient and then also, brokers charge sometimes a pretty hefty fee for going through the exercise or assignment process. For us, it’s not something that we want to do though it does happen. We’ve talked about before in other podcasts that when we go back and track all of the times that we’ve ever been assigned on contracts, it’s less than 1% of the time and this is thousands of trades now that we’ve done. It happens for sure. It’s part of the game, part of the process. You should expect it for sure, but it’s not all the time and you definitely don’t have to do it to generate income and take profits. Hopefully that helps answer the question. As always, if you guys need anything else, please let me know. Until next time, happy trading!
