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Track 'n Trade Futures End of Day Options

Exercising an Option

Video Transcript

In this Track 'n Trade Pro Options trading training video, I want to show you how to exercise an option in Track 'n Track.

Let's say, for example we have our Cotton #2 March 2004 contract up, and we want to buy a 67.00 Call. We're looking down here at our OSV indicator and it's telling us the price of the 67.00 Call are currently undervalued. We're going to come in and we're going to buy a 67.00 Call and we stretch that up to 67.00, so there's a Call 67.00, the value is $775.00 today. So, we release our mouse button and we want to buy (1) 67.00 Call. Our brokerage fee for this trade is going to be $20.00 in $20.00 out so I'm going to set to a $40.00 round turn. On screen text, I'm going to Buy/Sell Quantity, Strike, Call, Put and the Value. So, that's what my example is going to look like. I go ahead and hit Okay. Then, I step my market forward, my option is now filled.

As I watch this market go against me, you can see my profits and losses accumulate over in the left hand Accounting window. As we move that market one day at a time, by clicking our Advance key, we see our profits change... now we're up $900.00. The market is coming in our favor very well. $800.00.. $1,500.00, now the value of that option is right around $1,500.00, $1,400.00.. $2,000.00... $4,200.00. So, that's a good increase in that option. That was a nice trade for us.

Now, rather than just liquidating the option and taking the profits of the option, we want to- for whatever reason, exercise the option. What we do is we right click on the option on the screen and on the right click menu, we just type, we hit exercise. We only had 1 option, so we want to exercise only one of the options. We go ahead and we hit Okay. That puts us a little indicator on the screen of where we're going to exercise our 1 Call. That's where we would become long the Cotton contract. An option gives us the right, but not the obligation to buy the underlying futures.

This is exercising that right. We're taking the right, and we're going to exercise our option, and we're going to buy the futures at the 67.00 Call strike price. In doing so, we will not be long 1 contract, of the Cotton contract from 67.00.

If you'll look over here in our Accounting window, you'll notice that the profit went from our option and jumped up into where we exercise the option into the contract. So, now we have $5,645.00 in profit on the contract. The only expense we have is our options commission. That's how we exercise an option in Track 'n Trade Pro.


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