How exactly does offsetting an options contract work , for example if we're to go long on a call or put position in order to offset it i would need to short a call or put position, this eventually makes my returns net 0 and im assuming the exchange knows this fact so if you were to ever go through these motions of offsetting i described above , the exchange considers it an offset rather than two separate unrelated transactions being carried out right?

However if i was to say short a call position and someone buys this off me , and i then close my position before expiry ,im out of the transaction ,but then what happens to the person i sold the call position ,what happens to the person i bought the call position from ,are they paired up ? The other question i had was i read on investopedia that when offsetting ,it doesnt matter what securities that are being used in the contract as long as they all have the same issuer, strike, and maturity features.How is this possible though,like if im shorting a call option and then want to offset it ,i cant write another call option and then buy that to offset my original short position , it just doesnt make sense ,and on top of that surely what securities you use matter when you are offsetting ,as in it has to be the same type and amount of shares ,cant just be in any shares. investopedia link :https://www.investopedia.com/terms/o/offsetting-transaction.asp its under the headline Understanding Offsetting Transactions

This lead to the rise of the question of when i do short a call position, and i write the contract,does the exchange write the contract for me ? Furthermore when i wrote this short contract can i sell my position to someone else ?as in the position of delivering the underlying stock to whoever bought my call or put(is their a term for this) , in a similar way when someone buys a call or put they can sell their position to someone else (or offset it ).

So that is essentially 4 different questions, i hope i made myself clear as i sometimes write in a confusing manner ,please tell me if you are unsure of what i wrote.

1 Answer 1


When you place an order to open a trade your broker will indicate that the order is either Sell to Open (STO) or Buy to Open (BTO). When you close the trade by either buying back the option you sold or selling the option you bought you'll see selling or buying to close (STC/BTC). A closing order exits you from the trade, you won't see two open positions that negate each other. You can't choose this in any broker I've encountered, so you can't buy to open a contract that you're already short, it will be a buy to close order.

Assignment on options is done randomly. There was a specific buyer (counterparty) for your short call (trades don't happen without buyer and seller), but if that specific buyer exercises their long call it can be assigned to anyone that sold that call. Similarly, when you close your short call you aren't necessarily buying the exact contract back that you sold, just one that has the same characteristics as the one you sold. That's what the linked article is highlighting, you don't need the counterparty on your short call to sell it back to you, you can buy the call from anyone that is selling it and it will offset yours. This also means that your counterparty can sell their long call to someone else. This assumes there are multiple people interested in trading these options, I'd suggest doing some research on option liquidity/slippage.

Tracking and enforcing options contracts is not something you really need to worry about, that is facilitated by brokers and exchanges. Your first concern with options should be understanding your obligations/risks when opening positions. Lots of good training videos available on options trading.

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