amqata

Miss*Yiota Wrote:
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> Joey, please can you come back on this ? "If your
> option is deep in the money you don't exercise
> the option and blow away your time value, you sell
> the option. "
> why you don't exercise an option that's is deeply
> in the money...and how come you sell it ? sorry, i
> might be slow on this
>
>
I can tell you what I understood... Say you are long on a call at 25.. the stock's current price is 50 so intrinsic value of the option is 50-25 = 25. There is also a time value which is quite high since the option is extremely volatile. It could go even more up very quickly so someone will pay you $25 + time value to buy it. If you want to get rid of the option because you expect it to go down, you should sell it, not exercise it... you may get, say $45 where $20 is the time value of the option when you sell the option. If you exercise it, all you will get is $25.



Edited 1 time(s). Last edit at Tuesday, May 10, 2011 at 11:39AM by anish.