There can be three different outcomes:
- you purchased or sold options before expiration;
- options expire out-of-the-money,meaning they are already worthless;
- options expire in-the-money, resulting in a trade;
The most common outcome is the first one. Therefore, after you have purchased an option for any position be it long or short– the next step would be to consider what to do next.
Open Interest Options
Open interest is a conception that supposes that any option contract can be closed or opened anytime before the expiration date. That’s why very often this concept confuses traders/investors and sometimes even leads to certain misunderstanding.
A well-known fact is that there presented only two ways out of possible prediction outcome: either a trader wins everything (gets the invested money back plus additional payout percentage that varies from 80% to 600% depending on the option type) or lose everything (invested money). In case if a trade is positive for you – it is time to end the position before the option expires. Yet if the trader is not in your favor then it is better to cut it because there is no need to wait and look at the result especially if it is already clear.
As it was said above, once you have an option or options, there are two methods how to get profits and avoid any kind of loss. The first one is to close the position and the second one is to let an option expire.
Closing out method
The closing out method leads to the execution of a trade. For example, if you bought a Put option – you have to sell it with the same expiration and price. If you have bought a Call option – it needs to be sold at its original strike price and expiration. All this is very easy as the platforms which are used for these simple manipulations are user-friendly, advanced and you can even do it using your tablet or smartphone.
Expiration method should be used when an option has already no value but isn’t closed out – no further action is needed. For an option to be in-the-money at expiration time means that your personal account will purchase the currency instrument at the strike price or sell the currency instrument also at the strike price. Therefore, no matter if your account calls or puts, the result will always be profitable underlying currency position. If you have no desire to maintain it – it can be easily closed out.
These methods might seem to be a little bit complicated, yet if you spend some time studying the platform you use for trading, you will see that everything is pretty simple and clear.