I have 2 questions about puts/calls + shorting in my learning about options.
- I'm confused about how "short selling" a stock is the same/different as "writing a covered call." In my learning... it seemed that there were multiple ways that an institution could act if they think a stock is going to go down. 2 of these I'm pretty certain exist, but it just clicked that this 3rd way might be one of the other two...
Buy to open on a put option ("Buy > Put" in Robinhood)
Sell to open by "writing a covered call" ("Sell > Call" in Robinhood)
c) Now... this third one is leftover remnants from many different articles I've read online trying to understand this. It seems like these guides allude to some method where an institution asks the the broker for shares to borrow, sometimes illegally, and then once they get them, those shares now get marked in the "short interest" percentage. Then, they have to buy to close to exit.
It just occurred to me that this 3rd option, which was always different in my mind (and in my mind wasnt even an "option" requiring 100 shares), actually must be alluding to item b) ... is that correct? Are there more than 4 combinations (buy call, write call, buy put, write put)... or is that it? Are huge hedge funds and institutions just using these 4 methods, or is there a 5th or more method for "shorting" stocks? I guess it threw me off with the "illegal" bit (which Im assuming no online broker lets you do), and the "asks broker for shares" part, rather than robinhood where you literally just create your own contracts. On top of that, all these stupid examples use 10 shares or 5 shares or 1 share so it makes it seem like its something OTHER than an option, as they never say
- If I choose one of the 2 "short" options... some guides make it sound like I can "buy back" that option even after someone bought it from me. Am I misunderstanding? I know the other party can exercise, but it made it sound like someone could
buy to open... hold that contract, but then I could revoke it or sell it or something and it would get it back. This seemed counter intuitive (ie it must expire, or the buyer has all the power). Maybe I misunderstood