Explore Your Options  |  JAN 2007

Explore Your Options by Tom Gentile

Stocks & Commodities V. 25:1 (65): Explore Your Options by Tom Gentile Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C. EXPIRATION QUESTION What happens if I hold my put option until expiration and forget to close it out? Is there anything I can do after the fact? The short answer is that once expiration has passed, the contract no longer exists and there is nothing left to do. But keep in mind two things can happen to an open option contract at expiration: It expires worthless or it is subject to automatic exercise. If an option has no intrinsic value at expiration, it will expire worthless and cease to exist. If XYZ is trading for $51 a share heading into January expiration, the XYZ January 50 put will have no intrinsic value and expire worthless. It is out-of-the-money (OTM). After all, why would someone pay for the right to sell or “put” XYZ for $50 a share, when it can be sold in the market for $51? A call option will expire worthless if the strike price of the option contract is greater than the stock price. In that case, the option holder has no need to buy or “call” the stock at the strike price of the option. It would be cheaper to buy the stock than through the exercise of the option contract.

by Tom Gentile