Summary
Can you close an option position before its expiration date? This is a common question among option buyers. Below, we explore the answer in detail.
In options trading, buyers often encounter situations where their held contracts haven’t expired, but favorable market conditions prompt them to exit early. Is this possible? Here’s what you need to know.
Can You Close an Option Position Before Expiration?
Yes, you can. Options support T+0 trading, meaning traders can buy or sell contracts within the same trading day during valid market hours.
Buying or selling in the investment world translates to opening and closing positions. Therefore, you don’t need to wait until the contract expires to close it—early closure is entirely feasible.
The Difference Between Closing a Position and Exercising
Confusion arises when traders mix up closing a position and exercising an option. These are distinct concepts:
- Closing a position: Selling the held contract.
- Exercising: Executing the option’s terms as per trading rules.
For example, in 50ETF options or CSI 300 options, exercising is only allowed on the expiration day. However, closing a position can occur anytime during valid trading hours.
What Should You Consider When Closing a Position?
- Market Judgment: Ensure you’ve analyzed the market before closing. Once you exit, you forfeit any future gains or losses from that contract.
- Avoid Premature Exits: Closing too early may mean missing profitable trends.
- Move Forward: If you’ve already closed, focus on identifying the next opportunity instead of dwelling on past decisions.
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FAQs
Q1: Can I close a call/put option before expiration?
A: Yes, as long as the market is open, you can close it anytime.
Q2: Does closing an option early affect its value?
A: The value depends on market conditions (e.g., volatility, time decay). Closing early locks in the current price.
Q3: What’s the main risk of early closure?
A: Missing potential profits if the market later moves favorably.
Q4: Is there a fee for closing options early?
A: Brokerage fees may apply—check with your platform.
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Key Takeaways
- Early closure is allowed in options trading.
- Distinguish between closing and exercising.
- Assess market conditions before exiting.
- Stay proactive for future opportunities.
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Disclaimer: This content is for informational purposes only and does not constitute financial advice. Trade at your own risk.