It is very important for traders to understand the mystery that surrounds selling an option before expiration. Option traders are busiest around this time and it is important to know the best approaches for a South African trader so as to manage his or her positions. This is the time when the majority of traders make it or break it depending upon their conduct. It is true that IQ Option has given the traders in South Africa invaluable advice, but the expiration day is witnessed by some emotional decisions, which impact the overall profit of the traders. To the traders who do not trade emotionally during this time, there are high chances of extending profits or reducing losses commendably.
Exercising vs. Closing
As an option buyer, when a trader puts or calls, he or she has a right but not an obligation on how he wants to exit an option position. Therefore, a trader in South Africa has a number of alternatives when the option contract is still in effect. A trader can choose either to:
1. Close the position and reduce the losses or deposit the profits in a bank
2. Exercise the option meaning that he can inform the broker that he wants to buy the stock at the expiration of the option. This is applicable if the option is a call option. A trader can sell the shares if the option is a put option.
Most of the traders involve themselves in buying options with two main intentions:
1. If the option they bought was a call, then they can buy the stock.
2. When the traders have a put option, they can sell their shares to another investor at the price that the market dictates.
However, if a South African trader does not want to buy a stock that he does not want after expiration (or one that he or she cannot afford), it is important to issue instructions to the brokers before time so as to avoid last minute market disparages. A better option would be that of selling an option before expiration directly to close the position. In this manner, once a trader in South Africa fills an order form, the broker has no other option than to close down the trade and the trader cannot do anything more about the option or the stock that remains. What if the option in hand was a profitable one and a trader has no time left for his or her trade?
Rolling a trader’s own position
When a trader is sure of a winning position and he or she is sure that the trend will continue, it is not wise to close the trade at expiration. If a trader wants to make more profit from an option that favours him, he can lock in his profits and hence be exposed to additional trade time a technique called rolling. IQ Option advises traders not to wait until the expiration is due. A trader in South Africa can roll if he has some attractive profit. There is no reason to wait for a period of over 180 days so as to close a given position and lose all the gains made. Rolling gives a trader a chance to bank profits and uses them to purchase another option.