Microsoft is under 25 and I am in the money on a July 25 put option. Sell or keep?
Do you want to sell the actual option, or do you want to exercise (and sell the stock)? If you sell the option, you’ll get market value and won’t lose anything except for the transaction cost. If you exercise, then you’re losing the full value of the option that you paid for. With call options it’s almost always a bad idea to exercise early, but with puts the case can be made to exercise early (since your upside is limited).
Thanks for the reply. At what point does it become worth it to exercise the option rather than to sell it? I bought the put at 1.30 and now it is at 1.75. Should I exercise (sell stock) or sell option and pocket the small profit? How much in transaction fees am I looking at if I go ahead and exercise it? THANKS.
I’m sorry. I totally misread your original post. Selling (or writing) options involves selling someone else the risk associated with the option. If they’re in the money on the option that you wrote, you must pay. You didn’t ask about that.
You’re already holding the put options so your only choice is to exercise or hold. So, IF you exercise, you’re probably giving up some of the risk that you initially paid for. Think about it, you could’ve purchased March (instead of June) options for a cheaper price. Sure, MSFT may spike up and put you out of the money before June. That’s the risk. But right now, the option that you paid for is cheap, since you’ve already pointed out that it’s selling for 45 cents higher.
What do you want to do with the stock? If you are, for some reason, going to hold the stock, you can exercise. If not, ask your broker how much you can get for selling the option.
Not to be rude, but how the hell did you end up with an option and not know what the transaction fees are? I suggest that you either get a new broker or learn about your account before trading again.