Defining Possible Outcomes Of Closing Options

| Total Words: 379

Every option will be canceled by an offsetting closing transaction, by exercise, or by expiration. The results of each affect buyers and sellers in different ways.

Results for the Buyer

If you cancel your open long position with a closing sale transaction, you will receive payment. If the closing price is higher than the original purchase amount, you realize a profit; if lower, you suffer a loss.

If you exercise the option, you will receive 100 shares (if a call) or sell 100 shares (if a put) at the striking price. You will exercise only when that action is advantageous based on current market value of the underlying stock. To justify exercise, market value has to be higher than the striking price (of a call) or lower than the striking price (of a put). At that time, you will be required to pay the striking price plus trading fees, acquiring stock below current market value.

If you allow the option to expire, you will lose the entire amount of premium paid at the time of purchase. It will be a complete loss.

Results for the Seller

If you cancel your open position with a closing purchase transaction, you pay the premium. If the price...

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