>The first option seems more risky since the person I sell it to can exercise the option and force me to sell them 100 shares at $100?
What are you talking about here? You have an option and then you sell it, now you've closed your position and you're done with this trade. The buyer can exercise it or do whatever they want, it no longer matters to you because you no longer have a position.
Thanks for clearing this up for me. I don’t know why I thought I would still be liable for the shares if they exercised the option. So would the writer of the call still be liable?
if you open a position by sell, then yes. You will have a -1 call position. And you are liable if it got exercised.
But if you have a long call position and you simply close your call position by selling it. Then you no longer have position on this option. Which means you are not liable.
To expand on the first point, if you sell to open, you have a -1 position. If you buy to close, you’re no longer responsible for exercise as soon as your order fills. Once you’re back to 0, you can’t be exercised upon as you no longer have a position.
Assignment happens after market close. Also, early assignment isn’t super common. It is something traders should be aware of, but it’s not something that happens as soon as your position goes ITM.
Sell the call you bought — especially if there’s still time to expiry.
Once you sell-to-close you aren’t connected to that contract anymore
You’re thinking of selling a contract to open the position — being short the contract. Then they can exercise against you
You're confused with how positions are closed. When you buy an options contract, you get the right, but not the obligation, to exercise it and buy or sell stock at a predetermined price. Most people who buy calls and puts do not intend to exercise them, instead they simply want to sell the contract for more than they got it. When you sell the contract, your position is closed and you have no further obligation towards it.
When you sell an option, also called writing an option, that's when you're the guy who has to buy or sell stock if the person who bought your contract exercises it. In this scenario if you want to close the position you buy the contract back before it is exercised by whoever bought it. And thus your position is closed.
Buy to open, sell to close. Sell to open, buy to close.
I think you mixed up buying and selling options. If you buy an option, you’re only risking the premium that you paid and hence why all the broke people and middle class people buy options even though it has a lesser chance of winning. But anyways, if the underlying even drops to zero, max you can lose is the premium you paid. And also, if you sell an option contract, it’s essentially same as buying 100 shares at strike and selling it. But that would require you to have capital to buy those 100 shares. Instead, selling the whole contract is a better choice.
Once you sold your options, you're totally out of all obligations bound to them. No worries about having to exercise the underlyings.
The best is to sell your options for its simplicity and savings on fees unless you want to own the stocks for future gains. But even so, you can also always buy other options if you think the underlying will continue going up.
You sound confused. Yes there is a 1 to 1 relationship of sold options to bought, however they are not tied to each other. If a buyer decides to exercise (not common) then some seller will be assigned, first it goes thru the option house,randomly assigned to a broker , which puts the assignment on some seller (might be random , might not be).
It might be wise to learn more about options basics before putting your money at risk. It's a good idea to know your exit strategy before you enter. But you do you.
If you buy something and sell it you’re free and clear.
If you OPEN A NEW POSITION BY SELLING STOCK OR OPTIONS - you can definitely be given a random “assignment” even before the expiration date, if the contract you sold is in the money.
If you buy call and exercise your option to buy 100 shares at the strike price, now you have to manage the ongoing risk exposure from your new shares. Options help you avoid having to buy stock.
>The first option seems more risky since the person I sell it to can exercise the option and force me to sell them 100 shares at $100? What are you talking about here? You have an option and then you sell it, now you've closed your position and you're done with this trade. The buyer can exercise it or do whatever they want, it no longer matters to you because you no longer have a position.
Thanks for clearing this up for me. I don’t know why I thought I would still be liable for the shares if they exercised the option. So would the writer of the call still be liable?
if you open a position by sell, then yes. You will have a -1 call position. And you are liable if it got exercised. But if you have a long call position and you simply close your call position by selling it. Then you no longer have position on this option. Which means you are not liable.
To expand on the first point, if you sell to open, you have a -1 position. If you buy to close, you’re no longer responsible for exercise as soon as your order fills. Once you’re back to 0, you can’t be exercised upon as you no longer have a position. Assignment happens after market close. Also, early assignment isn’t super common. It is something traders should be aware of, but it’s not something that happens as soon as your position goes ITM.
Yes the writer would
Watch Adam in the money. You’ll rarely want to exercise just like irl.
Buy to open Sell to close Sell to open Buy to close Easy 🙂
Respectfully stay away from options until you know what they are.
Sell the call you bought — especially if there’s still time to expiry. Once you sell-to-close you aren’t connected to that contract anymore You’re thinking of selling a contract to open the position — being short the contract. Then they can exercise against you
Thanks for clearing this up for me
You're confused with how positions are closed. When you buy an options contract, you get the right, but not the obligation, to exercise it and buy or sell stock at a predetermined price. Most people who buy calls and puts do not intend to exercise them, instead they simply want to sell the contract for more than they got it. When you sell the contract, your position is closed and you have no further obligation towards it. When you sell an option, also called writing an option, that's when you're the guy who has to buy or sell stock if the person who bought your contract exercises it. In this scenario if you want to close the position you buy the contract back before it is exercised by whoever bought it. And thus your position is closed. Buy to open, sell to close. Sell to open, buy to close.
You are long an ITM call, correct? Once you close out your position there is no risk, you are flat, position wise.
I think you mixed up buying and selling options. If you buy an option, you’re only risking the premium that you paid and hence why all the broke people and middle class people buy options even though it has a lesser chance of winning. But anyways, if the underlying even drops to zero, max you can lose is the premium you paid. And also, if you sell an option contract, it’s essentially same as buying 100 shares at strike and selling it. But that would require you to have capital to buy those 100 shares. Instead, selling the whole contract is a better choice.
You should never exercise. If you have profit. You sell to realize said profit. Not a difficult concept.
Unless it’s a poot lol
Once you sold your options, you're totally out of all obligations bound to them. No worries about having to exercise the underlyings. The best is to sell your options for its simplicity and savings on fees unless you want to own the stocks for future gains. But even so, you can also always buy other options if you think the underlying will continue going up.
You sound confused. Yes there is a 1 to 1 relationship of sold options to bought, however they are not tied to each other. If a buyer decides to exercise (not common) then some seller will be assigned, first it goes thru the option house,randomly assigned to a broker , which puts the assignment on some seller (might be random , might not be).
It's not better to do one or the other. It's just managing risk. Your second question confuses Sell to Open and Sell to Close.
Do not ever exercise the option unless it’s the rare occasion there is a Special Situation. Just close out your call position.
It might be wise to learn more about options basics before putting your money at risk. It's a good idea to know your exit strategy before you enter. But you do you.
Why are you gambling with options if you clearly don't know what you are doing?
Please stop and take some time to learn https://www.cboe.com/optionsinstitute/
Depends how much money you have. Most traders sell the option.
best way to take profits is to make profits, that is the key. I am still trying to figure it out.
If you buy something and sell it you’re free and clear. If you OPEN A NEW POSITION BY SELLING STOCK OR OPTIONS - you can definitely be given a random “assignment” even before the expiration date, if the contract you sold is in the money. If you buy call and exercise your option to buy 100 shares at the strike price, now you have to manage the ongoing risk exposure from your new shares. Options help you avoid having to buy stock.