Do I have to close my option position to take a profit?

If the option is out of the money at expiration (can't be determined from what you gave us) then you simply let it expire and the premium is yours. If you want to safeguard any profit you now have, then buy back the option now at the much lower premium now and close it out.

Update Edit: Based on the additional details the 2 call options you sold are in fact in the money by about $1.50 per share, as TLM closed today at $12.57. If by the end of trading on Friday Feb. 17 the options are still at least 25 cents in the money (with the stock price at $11.25 or better) they will automatically be exercised the next day. Your stock broker will have to deliver 200 shares and you will be paid $11 per share, the strike price of the option. There is nothing you can do at this stage other than to hope that the bottom falls out of the TLM stock this week and the shares are selling at $11 or less, in which case you simply pocket the premium, which is yours to keep in any case.

There are three possible things that can happen with your options.

(1) You can "buy to close" (aka "buy to cover") the options. If you do that, the difference between the purchase price and the sale price will be your profit or loss, depending upon which is greater. As of the close today, Tuesday 2/14/12, the stock price was $12.57, the option bid quote was $1.45 and the option ask quote was $1.60. If you had entered a market order to buy the options just before the close today you would have paid $160 per contract plus your commission to close. So, if your commission is greater than $7.55 you would have a loss; if your commission is less than $7.55 you would have a profit.

(2) The option holder may exercise the options, in which case your brokerage has to sell the shares for $11.00 per share. Neither you nor your brokerage have any control over the decision. Only the option holder can decide whether or not to exercise an option. Technically it does not matter what current market price is, but for practical purposes if the stock price is $11.01 or higher at expiration there is at least a 99.9% chance the option will be exercised and 200 shares of your stock will be sold. If the option is exercised the total amount you received for the shares (the $2,200 for the stock plus the $327.55 for the options less the commission for the stock sale) is compared to the amount you paid for the stock. If the amount you received is greater than the amount you paid you have taken a profit; if the amount you received is less than the amount paid you have taken a loss.

(3) The options may expire. Technically this can happen regardless of the stock price at expiration, but for practical purposes these is at least a 99.9% chance the option will expire if the stock price is $10.99 or less at expiration. Neither you nor the brokerage have any control over the decision to let the options expire or not. That decision is up to the option holder. If the options expire it will be considered a closing transaction so you will have taken a profit equal to the amount you received for selling the options ($327.55). People who talk about letting an option expire are normally talking about options that are out of the money;

most brokers automatically exercise options that are in the money on expiry on behalf of the client.

-as do market makers..

So if the price of TLM is over $11 on Feb 18. you'll going to sell 200 of your TLM shares for $2200.

You paid $2516 for those 200 shares, so you'll be down $316 - but the sale of the calls has already credited you $327, so you pretty much break even or make (not taking brokerage into account).

If I were you, I would consider rolling your calls over to next month..

No, you do not have to close the position now to take a profit (this assumes the stock price remains the same and that you're in the profit zone right now).

Since the option you sold is currently "in-the-money," it will be exercised come Feb 18th — that is, your brokerage will take the shares you own and sell them to the option holder you sold to.

So, you will receive $11.00 for each share you own (100 shares per contract you sold) plus whatever premium you received for the option (hopefully your premium was in excess of $1.60).

If you wanted to take your gains now, you would have to buy the option(s) back from the person you sold to. At this point, I would imagine they're near intrinsic and somewhere around $1.70... So, you COULD take your gains now, there wouldn't be much of a difference in how much you make.

Hi there,

Assuming that you have 100 units of the stock per call contract.

if you buy back your option contract now, you get to close your option position and take your option profits (if any). You are also able to retain your stock.

Assuming that the stock price is above $11 now.

If you do it upon expiration, as your option is in the money, your stocks will be called away at $11. you keep the full $11 option premium.

Hope this helps.