While I think I understand the mechanics of opening a call position, I am confused about the mechanics of closing a call option prior to expiry. I am party A.
- Party A (buy-side) is bullish on a stock and places a buy-to-open order for a call option
- Party B (sell-side) is bearish on that stock and sells-to-open that call to party A
- Party A now has the right (not the obligation) to buy the stock on strike date/price from party B
- Party B has the obligation to sell the stock on strike date/price to party A
If party A's call is in-the-money prior to the strike date, the call's intrinsic value increased. Let's assume party A wants to take profits now.
- Party A wants to take those profits and places a sell-to-close order for the call
- The order is filled
- After party A sells-to-close, party A does not have any right/obligation to buy/sell the underlying
Who is party B on the buy-side of A's sell-to-close trade?
If party A doesn't have the obligation to sell anything to party B following B's purchase of A's in-the-money call option, why does party B buy the call?