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The call owner can exercise the option, putting up cash to buy the stock at the strike price. Or the owner can simply sell the option at its fair market value to another buyer before it expires.
In most cases, options should not be exercised before expiration because doing so gives away inherent value. Selling them would almost invariably yield more. For an American-style call option, early exercise is a possibility whenever the benefits of being long the underlier outweigh the cost of surrendering the option early. For instance, on ...
When you sell a call option, you have the obligation to deliver the underlying stock if the call option buyer exercises the option. As the seller of a call option, you hope the stock price stays ...
A compound option is an option on another option, and as such presents the holder with two separate exercise dates and decisions. If the first exercise date arrives and the 'inner' option's market price is below the agreed strike the first option will be exercised (European style), giving the holder a further option at final maturity.
Option values vary with the value of the underlying instrument over time. The price of the call contract must act as a proxy response for the valuation of: the expected intrinsic value of the option, defined as the expected value of the difference between the strike price and the market value, i.e., max[S−X, 0]. [3]
Here are a few guides on the basics of call options and put options before we get started. (Take our exclusive intro to investing course.) 5 options trading strategies for beginners 1. Long call