Options Trading Tutorial

will called option be exercised when stock price is far beyond the strike price BEFORE it expires ?

my stock is $27, far beyond the strike price of $22, but my stock is still not sold, is this the only way that I have to wait until the option expires in order for my stock to be bought ? or under what circumstance that stock will be bought before option is expired ? and it is too expensive to buy back and close the called option right now.

Public Comments

1. You can buy back the option or wait until it expires and see if the stock gets called away. American options must wait until the expiration before getting called away, European options can be called away at anytime. When selling options you should understand that is the price you are willing to sell for, the person buying the options seldom exercise them, they usually sell them for the profit when they go up. The broker may exercise it if they need the stock, but chances are it will go back down causing them to expire worthless. (95% of all options expire un exercised)
2. <<<will called option be exercised when stock price is far beyond the strike price BEFORE it expires ?>>> The decision rests solely with the option holder. Since no one can predict what someone else will do all of the time, there is a chance it will be exercised early even though it is unlikely. <<<my stock is $27, far beyond the strike price of $22, but my stock is still not sold, is this the only way that I have to wait until the option expires in order for my stock to be bought ?>>> You always have the ability to close the position with a closing transaction instead of waiting for assignment. <<<under what circumstance that stock will be bought before option is expired ?>>> "Dave at Sogotrade" correctly noted that if there is a significant dividend on the stock you may be assigned just before the stock goes ex-dividend. Otherwise it is unlikely that you will be assigned much before expiration, but it is always possible. <<<it is too expensive to buy back and close the called option right now.>>> Essentially that cannot be true if you sell the underlying stock at the same time. Since you have agreed to allow someone to buy your stock for $22 per share, it is now worth roughly $22 per share. If you put in a spread order to simultaneously close both your stock position and your option position you will receive close to $22 per share, maybe $21.80 or $21.90 per share. If you are willing to give up that extra dime or two, someone will be willing to take it. If you are not familiar with a spread order (called a combo order by some brokers) it allows you to make two trades simultameously. You can specify a limit just as you would with a standard limit order. Example: "Sell to close 200 shares of XYZ and buy to close 2 XYZ April $22 call options for a credit of $21.90 per share." ----- It should also be noted that the answer by "Chuck P" has the difference between European-style settlement and American-style settlement backwards. European-style options cannot be exercised before expiration; American-style options can be exercised any time before expiration. All options on stock traded on American exchanges are American-style and can be exercised at any time before expiration.
3. Chuck P got it backwards; if this is an American-style option, it can be exercised any time up until expiration. If European-style, it can only be exercised on expiration date. I assume you wrote the option (ie, short position), though you didn't mention this important fact in your post. If you buy it back now to close it out, it will probably cost you around $5 per share. Basically you sold the up-side on your shares in return for the option premium. I would say that if you do NOT get assigned on this option then you are very, very lucky. If the price of the underlying stays significantly above the strike price, you are virtually guaranteed to get assigned.
4. 1.yes, most likely you have to wait. 2. it's up to the call option buyers. 3. no, because you are in profit position, right?