Should You Close an Option Early or Hold to Expiration?

The temptation to let it expire

You sold an option, the price moved in your favor, and it's now worth a fraction of what you collected. Closing it costs a few dollars; letting it expire is free. It's very tempting to wait.

But you need to compare the two sides carefully: what you still stand to gain (a few dollars) versus what you could lose if the price reverses in the final days.

Why the final stretch is dangerous

Close to expiration, options react much more to price moves. A sharp drop on the last day can turn a short put that was worth almost nothing into a major loss, or into an assignment we didn't expect. It has happened to us: a stock fell more than 30% on expiration day and caught us squarely. When you've already captured a very high percentage of the premium, don't give the market a chance to hurt you.

What we do at MTO

• Short options: if we've already captured most of the premium, we usually leave a buy-to-close order at a low price and close the position as soon as it fills. That frees up margin and removes the risk.
• Spreads: we close them as soon as they show a reasonable profit, often weeks before expiration.
• Long options: if the profit is good and we see little room left, we close; sometimes we'd rather exit with a small gain than wait for something we don't believe will happen.

When is it better to wait?

Holding to the last day can make sense when the option is so far from the price that closing it costs practically the same as the remaining premium, or when there's another leg that offsets it (for example, long puts against stock): in that case, waiting until the end is a somewhat more conservative choice because it locks in a price closer to the market price at that moment.

There's no approach that is always better: it depends on how much is left to gain and how much you're willing to risk for it. You can see how much time value your option has left with our options calculator.