Can I Sell an Option Contract Before Expiration, or Do I Have to Hold It Until Then?

Options Trading Podcast

Many traders, even experienced ones, fall into the trap of thinking they're "locked in" to an options contract until its expiration date. But is this true?

Can I sell an option contract before expiration, or do I have to hold it until then?

In this fundamental episode, we completely debunk this common myth. The short answer is: YES, you can (and often should) exit your position early. We explore the core reasons why savvy traders close their trades before expiration, including locking in profits, cutting losses, avoiding unwanted exercise or assignment, and freeing up capital for new opportunities.

You'll learn the difference between a "sell to close" order (for options you bought) and a "buy to close" order (for options you sold). We also cover the three things that happen if you do hold until expiration (ITM, OTM, ATM) and why active management is usually the smarter, more disciplined approach.

After listening, how will active management change your approach to taking profits or cutting losses?

Key Takeaways

• Yes, You Can Exit Early: You can absolutely exit an option contract before it expires. In many cases, it is the smarter, more disciplined strategy, not a "badge of honor" to wait.
• The 4 Core Reasons to Exit Early:
  1. Lock in Profits: Sell your option to take a "sure thing" profit before time decay or a price reversal erodes it.
  2. Cut Losses: Sell a losing trade to prevent a small loss from turning into a total wipeout. Hope is not a strategy.
  3. Avoid Assignment: Closing your position (especially in-the-money options) before expiration helps you avoid the risk of being assigned shares.
  4. Free Up Capital: Exit a mediocre trade to redeploy your money into a more promising opportunity.
• How to Exit (Buy vs. Sell): You exit an option you bought by using a "sell to close" order. You exit an option you sold (a short position) by using a "buy to close" order.
• Holding to Expiration is Risky: Passively letting an option expire often means leaving profit on the table, taking unnecessary assignment risk, or passively accepting a 100% loss when you could have cut it smaller.

"Waiting for expiration. It's not some badge of honor. Frankly, it's often just bad trading."

Timestamped Summary

• (01:00) The "Concert Ticket" Analogy: Why you should take profits when you have them.
• (02:35) 4 Key Reasons to Sell Early: Locking profits, cutting losses, avoiding assignment, and freeing capital.
• (06:58) How to Exit a Sold Option: Understanding the "buy to close" order.
• (08:24) What Happens at Expiration? The 3 outcomes: In-the-Money (ITM), Out-of-the-Money (OTM), and At-the-Money (ATM).
• (12:32) The Bottom Line: Why active management is a core skill for disciplined traders.

If you learned something new about managing trades, please leave us a 5-star review on Apple Podcasts! Know someone who's just starting with options? Share this episode with them to help them avoid this common trap.

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