How to Close an Option Early: Sell to Close, Buy to Close, and What Exercising Gives Up
Michael Whitman
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Trading since 2017, full-time since 2020
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YouTube creator, 137K subscribers
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Published 2026-09-08
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Updated
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Reviewed
To close an option early, sell the contract back rather than exercising it, using a limit order priced at or near the current bid. Closing this way captures whatever time value remains, which exercising the contract or letting it expire gives away in full.
You close an option early with one order that reverses the one you opened with. If you bought the contract, you sell to close. If you wrote it, you buy to close. The contract leaves your account, the cash settles the next day, and no shares change hands.
That last part is what separates closing from exercising, and on a real chain the difference is worth hundreds of dollars a contract.
Every number below comes from one snapshot: Cboe’s delayed SPY option quotes at the end of Friday 30 Oct 2026. SPY shares closed at $755.72 at 4 p.m. ET, but SPY options trade for 15 minutes longer, and the last trades in the chain came in that final quarter hour. By then SPY’s bid in the same snapshot was $757.00, and the call and put prices themselves imply a share price of about $757. So every exercise value on this page uses $757.00, the same moment as the option quotes. Quotes move every second the market is open, so treat them as a dated record of one session, not as today’s prices.
Before you start
The exit levels written down when the position was opened. One price for taking the gain and one date by which the idea has to have played out. Both were set when nothing was at stake.
The current bid on your contract, because that is what you can actually get. On 30 Oct 2026 the SPY $740 call expiring 20 Nov 2026 last traded at $24.15 at 3:58 p.m. ET, yet when the options closed about 17 minutes later the bid was $24.43 and the ask $24.98. A seller reading the last trade would have priced the order off a fill about 17 minutes old, below what buyers were then offering.
A decision about whether you are closing on price, on time, or on the view changing. Write which one it is on the order ticket or in your notes. A review of ten exits is useless if you cannot tell which rule each one followed.
The steps
1. Check which written trigger has fired
Price target, deadline, or a move in the underlying that breaks the reason for the trade. If none of the three has happened, the position stays open, however the last hour looked.
2. Pick the closing order type for your side
Long contracts get a sell to close order. Short contracts get a buy to close order. Choosing “sell to open” by mistake writes a second contract instead of ending the first, so read the ticket before sending it.
3. Read the bid and ask, then work out the midpoint
For the $740 call above, the midpoint was ($24.43 + $24.98) / 2 = $24.705. The full spread was $0.55, or $55 on one contract of 100 shares.
4. Enter a limit order at the midpoint
A limit order names the worst price you accept. A market order to sell fills at the bid or below, which hands the whole bid-ask spread to the other side.
5. Step the limit toward the bid in small amounts
Wait a minute at each price on a busy contract. On the $740 call, two $0.10 steps take the order from $24.70 to $24.50, still $0.07 above the bid.
6. Compare the bid with exercising before choosing
If the option is in the money, compare the bid with what exercising would leave you (the worked example below does this). In every in-the-money SPY call checked on 30 Oct 2026, the bid was larger.
7. Write down the trigger, the fill and the time
One line is enough: which trigger fired, the fill price, and how far the fill landed from the midpoint.
A worked example on the 30 Oct 2026 chain
Suppose you hold one SPY $740 call expiring 20 Nov 2026, and your price target has been reached. At the option close, 15 minutes after the stock close, SPY was bid at $757.00, so the call is $17.00 in the money.
| Choice | What you receive | Per contract |
|---|---|---|
| Sell to close at the bid | $24.43 × 100 | $2,443 |
| Sell to close at the midpoint | $24.705 × 100 | $2,470.50 |
| Exercise, then hold shares worth $757.00 | ($757.00 − $740) × 100 | $1,700 |
Exercising means paying $74,000 for 100 shares worth $75,700. The gain on paper is $1,700, which is $743 less than simply selling at the bid.
That $743 is the time value: what buyers on 30 Oct 2026 would still pay for three more weeks of upside on the contract. Exercise also needs $74,000 in the account and leaves you holding shares you then have to sell, paying the stock’s spread a second time.
The short side works the same way in reverse. Someone who wrote the SPY $740 put expiring 20 Nov 2026 would buy it back at the $6.18 ask, or $618 a contract. That put was out of the money, so every cent of the $618 was time value, and buying it back ends the obligation to buy 100 shares at $740.
A short $700 put on the same date cost $1.91 to close, or $191.
The original data
On 30 Oct 2026, all 22 in-the-money SPY calls expiring 20 Nov 2026 (strikes $650 to $755 in $5 steps) bid more than their exercise value.
The smallest gap was $90 per contract at the $650 strike, the deepest one checked, and the largest was $1,174 at the $755 strike, which was only $2.00 in the money. The gap broadly shrinks as a call goes deeper in the money because more of its price is the plain difference between share price and strike, and less is time value.
Measured against the 4 p.m. close of $755.72 instead, every gap would read $128 larger ($218 to $1,302), but that compares a 4 p.m. share price with option quotes from 15 minutes later. On either basis, all 22 bids were above exercise value.
The cost of selling rather than exercising is the spread. Across the same 22 calls, the ask minus the bid was 0.91% of the midpoint at the narrowest ($745 strike) and 6.12% at the widest ($720 strike), with a median of 2.23%.
The busiest strikes were the tightest: the $750 and $755 calls traded 1,685 and 2,049 contracts that day with spreads near 1%, while five of the deep strikes traded fewer than ten contracts each.
This is one session on one fund’s chain, where the strikes nearest the price traded thousands of contracts, so the pattern shows the mechanics rather than a measured average. On a thinly traded stock option the spread can swallow far more of the time value, which the steps above deal with by starting at the midpoint.
The same strike at six expiries shows how little time value is left near the end. On 30 Oct 2026 the $740 call held $260 of time value per contract for 6 Nov (7 days, $37.14 a day), $532.50 for 13 Nov (14 days, $38.04 a day), $770.50 for 20 Nov (21 days, $36.69 a day), $932.50 for 27 Nov (28 days, $33.30 a day), $1,430.50 for 18 Dec (49 days, $29.19 a day) and $1,913.50 for 15 Jan 2027 (77 days, $24.85 a day).
These are six contracts on one day, not one contract followed through time, but they show the shape the theta page describes: the contracts within a month of expiry hold more time value per remaining day than the ones two and a half months out.
How to tell it worked
The position shows zero contracts in your account after the fill, not one fewer or one more.
The fill sits between the bid and the ask you read in step 3, and you know how far from the midpoint it landed.
Any short option is gone 5 days or more before expiry. That is a house rule, not a safe window: a short American-style option can be assigned on any business day.
Your notes name the trigger that fired, so the exit can be checked against the plan later.
When exercising is the right tool
There are narrow cases where exercise is the intended action. One is wanting the shares themselves and having the cash for them.
Another is a call whose bid has fallen to roughly its exercise value, which happens on deep in-the-money contracts close to expiry; even then the chain above shows a gap of $90 at the deepest strike three weeks out. A third is the day before an ex-dividend date, when the holder of a deep call can collect the dividend by owning the shares. That third case is also why writers of calls get assigned early: someone on the other side made the same comparison.
Early assignment on a short position
A short option can be exercised against you before expiry, and the options expiry week is when the risk is highest.
You get no warning and no choice; the shares arrive or leave and the cash moves with them. Buying back the SPY $700 put for $191 on 30 Oct 2026 would have ended an obligation to buy $70,000 of shares, which is why closing a short is a risk decision more than a profit one.
When it fails
The exit that keeps moving. A position runs past the written target, the target moves up because it is working, and the gain goes back. Or the deadline arrives, gets pushed out, and the premium expires. Both swap a level set calmly for one set while holding the position.
Selling at the bid on reflex. On the $740 call that costs $27.50 per contract against the midpoint. Small once, but it is paid on every exit.
A market order on a quiet contract. On the $720 call the spread was $2.55, or $255 per contract, and a market order hands all of it to the buyer.
Pricing off the last trade. The $740 call’s last trade, about 17 minutes before the options closed, was $0.28 below the final bid, and on quieter strikes the gap can be wider in either direction.
Exercising out of habit. On 30 Oct 2026 that gave up between $90 and $1,174 per contract across the in-the-money SPY 20 Nov calls.
Questions people ask
Can you sell an option before it expires?
Yes. A listed option can be sold to close on any trading day before expiry, as long as someone is bidding for it. Buying it back works the same way for a contract you wrote.
Is it better to sell or exercise an option?
Compare the bid with the exercise value. On 30 Oct 2026 the SPY $740 call bid $24.43 against an exercise value of $17.00, so selling paid $743 more per contract.
Do you lose money closing an option early?
Closing locks in whatever the contract is worth at that moment, plus or minus the spread. The result is a gain or a loss depending on the price you opened at, not on the act of closing.
What happens if you do not close an option before expiry?
An in-the-money option is normally exercised automatically and one out of the money expires worthless. The options expiry page covers both, and rolling covers closing one contract and opening a later one in a single order.
Related
Options expiry covers what happens if you do nothing. Assignment is the risk that makes short positions worth closing before the last week. In the money explains the part of the price that exercising captures, and the bid-ask spread page shows what leaving costs on other contracts.
I close at the level I wrote down rather than at the level that feels right on the day. The written level is chosen with no position and nothing at stake. The one that feels right is chosen by whichever way the last two bars went, and it is always slightly further away.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.