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What is the difference between closing a contract and exercising a contract? Would it ever be beneficial to let an option expire?

By Matt McCallDec 15, 2017

You can either sell an option for a profit or loss (closing a contract on the open market) or you can exercise the option and carry out the terms of the contract. When exercising a call option, the owner purchases the underlying shares at the strike price; when exercising a put option, the owner sells the underlying shares at the strike price to the option seller. In both cases, the position is no longer open.

Letting one expire occurs when the option is held into expiration. Here in Profit Multiplier, we will generally always close out our option trades before expiration. In my opinion, letting an option expire is the same as throwing money away. It’s better to sell for a small something that nothing at all.

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