I sold options on a stock, and "before" the expiration date, the stock drops greatly. Can I stop out of the stock, and keep the premium I have sold, or
do I need to buy back the option.
You ALWAYS keep the premium you collected, no matter what else happens.
The answer to your question depends on 'the rules.'
Some brokers have rules that do not allow their customers to be naked short (uncovered) call options at any time for any reason.
If your broker belongs to that group, then they will not allow you to sell the stock unless you also buy back the call option.
If your broker does allow its clients to be short naked options, they may limit that right to their more experienced customers.
Thus, you must ask your broker about their policy.
There are brokers who will allow you to own any position - regardless of the risk or your experience. If that appeals to you 9be careful) you can find such brokers.
I offer a word of advice (based on some sad experience). When the price of the call option is so low that little profit potential remains, it doesn't pay to leave those options outstanding. There is too little to gain and too much to lose (stocks do reverse direction and soar after crumbling - at least once in a while).
Mark D. Wolfinger
The Rookie's Guide to Options:
The Beginner's Handbook of Trading Equity Options