Can You Sell Call Options You Purchased?

Can You Sell Call Options You Purchased?
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A call option gives the buyer the right, but not the obligation, to purchase a stock at the call option's strike price on or before the contract's expiration date. When you buy a call, you go long and have the "option" of buying the underlying stock at the option's strike price. You do not have to exercise this option, however. Instead, you also have the right to close your long call position by selling it in the open market.

Exploring Options Terminology

Options are one variant of what is known as a derivative. Derivatives are sold as part of contracts which fundamentally dictate the time and value that a particular asset can be traded for. Options pricing can be influenced by a number of factors, including market volatility, interest rates, the amount of time until an options contract expires, as well as the current price of the asset in question.

Options are traded within the derivatives market, which can be divided into two primary arenas: Within the over-the-counter derivative marketplace, or OTC for short, these contracts are negotiation between a buyer and seller without the use of an exchange or other third-pary. With exchange-traded derivatives, however, investors buy and sell derivative contracts that have first been defined and standardized by a single exchange.

To understand if you can sell call options you purchased, you must first wrap your head around basic options terminology. When you "buy to open" a call option, you give yourself the right to purchase the underlying stock at the option's strike price on or before the contract's expiration day.

For instance, if you buy a $15 call option on stock XYZ with an August expiration, you can exercise your option to buy 100 shares of the stock for each option contract you own at $15 per share on or before the August options expiration date.

Sell to Close

As the owner of a call option, you can elect not to exercise your option to buy the underlying stock. In most cases, investors who do not exercise their option usually sell it. When you do this, you "sell to close" your position. In this case, you have sold a call option that you originally purchased.

Evaluating Profit or Loss

Just like when buying and selling shares of stock, you realize a profit or loss when you sell to close a call option contract. When you purchase a call, you pay a premium for the right to buy the underlying security. Depending upon the movement of the underlying stock, you can sell the call position to close prior to option expiration day for a premium that is either higher or lower than your purchase price. Many factors, including how much time remains until options expiration day (time decay), impact the price.

Assessing Options Expiration

Every derivatives contract being traded carries with it a specific day and time of expiration. In the options marketplace, the term 'options expiration date' is used to define the last day in which an options contract can remain open. Traders holding the options contract are forced to close the contract prior to the expiration date, or more specifically, the expiration time. Profit or loss on the options contract will occur at this time.

As the Chicago Board Options Exchange website explains, options contracts can expire worthless. Generally, if you own a call option that is "in-the-money" (the market price of the underlying stock at expiration is higher than the option's strike price), your broker will exercise the option for you and you will purchase 100 shares of the underlying stock for each contract you own.

If, however, the option is out-of-the-money at expiration and you have not sold to close your position, it will expire worthless. This simply means that the option no longer has value and you will lose the entire amount of your original investment.