Stocks & Commodities V. 29:3 (45): Explore Your Options by Tom Gentile

Stocks & Commodities V. 29:3 (45): Explore Your Options by Tom Gentile
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Explore Your Options by Tom Gentile


With a long call, what would be the best time to sell? I know that directionally, the higher a stock goes up the more the call stands to profit as it goes further in-the-money. But if a call went from out-of-the money toward being at-the-money, doesn’t it put the option at more risk because of time decay?

Knowing when the best time to sell is something all option traders strive for. Unfortunately, there is no one universal rule that we can work as simply as a light switch in order to capture the best guaranteed results. Traders look to understand the greeks of a position and work with them as effectively as they can while taking unique risk tolerance levels into consideration.

In holding a long call, the trader is working with the risks (and rewards) associated with a long delta, negative theta, positive vega, long gamma, and then a distant rho factor. Where an option is in its life cycle will influence your concern with potential time decay — that is, the negative theta component of the position. The closer you are to expiration while holding an at-the-money contract, the greater the exposure to this risk. The longer out we go, concern regarding time decay will be a distant third to delta and vega risks.

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