I'm having some difficulty understanding how this sort of a trade example would play out. Some input would be very much appreciated!
Let's say $FB is trading at $184 today.
I write OTM naked calls at $200 strike, expiring Dec 21, for $9. I now have $900 in profit.
Between now and Dec 1st, $FB plummets to $100.
On Dec 1st, I still only have $900 of profit. But now, I can "buy to close" my position by buying $200, Dec 21, $FB calls for a lot cheaper premium than I sold it for.
I now have the $900 premium profit for writing the calls minus the price of the premium I paid to buy calls to close my position.
Questions:
1) What if no one is selling $200, Dec 21, $FB calls. From what I understand, most people holding these calls will just let them expire worthless, meaning it's theoretically possible no one will sell $200 calls and also theoretically possible that no one is writing any $200 calls. Does this sort of liquidity issue occur in real life?
2) Suppose I did not enter a "buy to close" trade and it is now Dec 21st. What would happen?