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generally this is correct.

but if you are exercising a tactical view, you have more than just stochastic modelling to go on, and the down probability of ending in a down state (in this case) is high enough that the ev lost by selling in time value is made up for in reduced intrinsic value if you view the stock as a loser.

alternatively, you could double up your view and sell the most ITM options and use some of the proceeds as margin to short the stock.

Barron

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the value of exercising now is obviously higher if you believe the stock price is going down.

but if you want to lock in what your options are worth, there's better ways to do it. shorting the stock is one possibility, as you mentioned.

the more obvious hedge would be to sell call options with the same strike prices and maturities as the options you hold. you would get more money this way than you would by exercising outright. you could also sell puts and short the stock, which would give you a smoother return than simply shorting the stock. you could get into trouble with margin calls if the stock rises a lot, but in that case you could always liquidate everything - the net result should still be better than exercising now, as by then the call option prices should be closer to the stock price minus the strike price.

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now thats the best idea yet. nice job pete.

if you are absolutely neutral on the stock, what is the optimal move here? sell calls on the same strikes and take the premiums risk free i think, right?

if you are negative on the stock then sell puts + short stock + sell calls on strikes?

if you are positive on the stock then hold all and do nothing?

thanks,
Barron