Trade Management
Exiting an Option Position
You don't have to wait until the end. Most traders (90%+) exit early. Here are your three choices.
1. Close Your Position Early
This is the gold standard. You simply reverse your opening trade to lock in profits or stop losses instantly.
Opening Trade
Buy to Open
1 Contract-$500 (Paid)
Closing Trade
Sell to Close
1 Contract+$700 (Received)
Net Profit+$200
Why do this?
- Lock in gains: If you're up 50% in 2 days, why wait for expiration? Take the money.
- Stop the bleeding: If a trade goes against you, close it to save remaining capital.
- No assignment risk: You eliminate the risk of owning the stock unexpectedly.
2. Let it Expire
Worthless Expiration
If the option is "Out of the Money" (OTM) at 4:00 PM on expiration day:
$0.00
Final Value
It simply disappears from your account.
Profitable Expiration
If the option is "In the Money" (ITM) by even $0.01:
Auto-Exercise
Broker handles it
Your broker will convert it to stock (shares) for you.
3. Exercise (Rare)
Exercising means you choose to enforce your contract right to buy or sell the actual shares immediately.
⚠️
Capital HeavyThis requires enough cash to buy 100 shares of the stock (e.g., $150 stock = $15,000 cash needed). Most traders don't have this liquid cash lying around.
Frequency
10%Use this
Quick Recap
1
Close Early
The smart move. Lock in profits, cut losses.
2
Expire
The lazy move. Let it go to zero or auto-exercise.
3
Exercise
The expensive move. Buy/Sell the actual stock.