Explore Your Options by Tome Gentile
EXERCISE FOR FINANCIAL HEALTH?
When is it a good time to exercise a long put?
Thatís a good question, but kind of a broad subject. In theory, traders look to exercise a put when the carrying cost to hold a combined long stock/long put (that is, a long synthetic call) is greater than the value of the actual listed call market.
This decision to exercise typically occurs when the put is deep enough in the money and the matching strike call maintains little or no extrinsic value. For instance, letís say an out-of-the money call has a quoted market of $0.00 bid/$0.05 ask. At the same time, if the cost of carrying the synthetic call or married put amounts to $0.10 if held until expiration, thereís a negative benefit to holding that position versus simply purchasing the long call.