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Zecco.com » General Investing » Margin Trading » Exercising options
Last post 03-21-2008, 4:17 PM by griff750. 2 replies.
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  •  03-20-2008, 12:42 PM 25418

    Exercising options

    Reply Quote
    Hi,

    I'm curious to know how option trading works.  Say I have a put option and the price of the stock goes below the strike price.  Is it possible to exercise the option by buying at the current price and immediately selling at the strike price and pocketing the difference without physically buying and selling the stock?  In other words, I don't have the money to physically buy the stock first at the current price and then sell it at the strike price.  Also, what are the commands on how to do this.  I'm confused about the differences of "buy to open", "sell to close", "sell to open", and "buy to close".  Any advice on how this works would be greatly appreciated.

  •  03-20-2008, 9:57 PM 25463 in reply to 25418

    Re: Exercising options

    Reply Quote
    Hey, i'm new to options trading, but I can share some stuff.  I would assume (but i'm not 100% sure) that you could borrow money on margin to actually exercise the options and then turnaround and sell the shares.  Maybe someone else can back me up on that....

    However, I do know this: Buy to open means to buy a regular stock option. Sell to Close means to sell your regular stock option (each refers to a long position).  Whereas the inverse would be a sell to open and then a buy to close.  Thus in the second segment you are selling the option short, and then covering it (buying it back) to close the position. 

    If you need help or more references goto 888options.com.  The site is great, it is funded by the Options Industry Council.  Somewhere on there they have live (free) chat which I have used, which is with a real options person.  Unbelieveable site for the price (nothing).

    Hope that helps!
    Adam Heim
    Portfolio Analyst
    B.W. Investment Club
    Class of 2008

  •  03-21-2008, 4:17 PM 25496 in reply to 25463

    Re: Exercising options

    Reply Quote
    Thank you pyrodude6686!  I'll definitely check out the site. 
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