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Think about an option as of an insurance contract that protects you from something bad happening to you. For instance, if you plan to buy some stuff in the future the bad thing that can happen is the price increase. So you can buy a call option to protect yourself from the price going over a certain limit. If you want to sell something in the future you’d ...


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This is maybe kind of stupid, but it's a mnemonic device that worked OK for me to get the hang of these two varieties of option. It may only work for American English in my particular region, so if it doesn't immediately help it might be better to abandon: You might call someone up, and you might put someone down. These are idiomatic in the English I've ...


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The owner of a call has the right to buy the underlying at the strike price any time before expiration. The seller of that call has the obligation to sell the underlying at the strike price if an owner exercises the call (the seller is assigned). The owner of a put has the right to sell the underlying at the strike price any time before expiration. The ...


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Call is an Option-to-buy (at a given price by a given time) Put is an Option-to-sell (at a given price by a given time) And, you can buy or sell either one. When I buy a call, there is a trader at the other side of that trade, selling that call to me. Loads of Q&A here regarding options. The mechanics of trading is simple, the valuation is where the ...


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Put and call are options to sell and buy something, respectively. So if you think about them as "selling" and "buying" the underlying that might help you keep them straight. Or thing about "put" as putting something away (you release it), and call as calling something to you (you receive it). You can't completely replace the ...


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Options trade just like equities do. For every buyer of a contract there is a seller. It's an auction where the market participants place orders at whatever price they like. In the U.S., the quote that you receive is called NBBO (National Best Bid and Offer) which means the lowest ask price and the highest bid price on the order book. The counterparty ...


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Yes and no. You generally trade with another trader that wants to buy / sell at that moment what you want to sell / buy, for that price - exactly like with shares. However, there are ‘market makers’ whose role it is to make sure the market is liquid, and they will trade with you if nobody else wants to - but for a price they think is fair for them (this is ...


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Yes, it is feasible. While many people don't think it's a good idea, let's look into it in a little more detail. Option is a zero sum game. Overall, whose are the winners? the ones who sell the option, because most options expire worthless. Naturally, the option buyers are the losers. Not every option selling transaction profits. But when it's repeated many ...


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An in the money option will be exercised at expiration. In your case, you would find yourself short 100 shares. At that moment, you sold 100 shares for $100 (each share) and the stock can be bought for $98. You've recouped $200 of your $400 cost, but lost $200. By not completely closing out the position and actually covering, you are at risk should the stock ...


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The premium change throughout the life of the position is what's being overlooked in the example. If the underlying goes down in price, the option premium will go up, moving the margin requirement up with it. In the example, still assuming a $0 premium at-the-money option for simplicity, the margin for (a) will be $25 to start and the margin for (b) will be $...


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Your question is full of unrealistic simplifications, confusing statements, and misinterpretations so I can't begin to address it as asked. So let's try another approach. According to Fidelity, the margin requirement for such a position is as follows: The higher of the following requirements: (a) 25% of the underlying stock value, minus the out-of-the-...


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@BobBaerker's answer addresses your key questions and it got my +1 vote. However, since your question specifically pertains to terminology, I would like to add my pedantic two cents' worth to address confusion surrounding the terms "long" and "short" as they relate to option contracts: If you buy to open an option contract, then you're ...


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When you establish a new option position it is either: Buy to Open (BTO) or Sell To Open (STO) When you close an existing option position it is either: Buy To Close (BTC) or Sell To Close (STC) A closing position cancels an opening position. In other words: BTO + STC = no position STO + BTC = no position So if you sell to open a put and it is assigned (...


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You can be assigned at any time when you are short an in-the-money option but that is unlikely if the option has any remaining time premium. The exception to this general rule would be if there is a pending dividend and the dividend exceeds an ITM put's time premium (not true for a call). You can buy to close your short put at any time, ending your ...


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There's no way to accurately hedge a stock that doesn't offer options. There are some things that you can do but there's no guarantee that they will be effective and they could even make things worse: You could use the options of a similar stock or even short some stock (pairs trading which can be risky) You could use the options of SPDR ETF if you are ...


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This reminds me of someone sitting behind the class idiot in school and copying his answers to an exam. The end result is that both get it wrong, as did both of your linked articles. There is no unlimited loss possibility in a Synthetic Long Stock option strategy. While the potential loss could be substantial, it is limited to strike price plus the net ...


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Suppose you buy a put at a strike price of $32. Then you're betting that the price will go below $32, and the writer of the option is betting that the price will stay at or above $32. If the price goes to $30, then the writer of the put is down $2. The simplest resolution is for the writer to just buy the put back from you and eat the $2 loss. You can also ...


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Traditional margin is 150% of the short proceeds (brokers can require more) but the proceeds are used against the 150% so effectively, the margin requirement is 50% (cash or marginable securities). A drawback to shorting stock is the borrow rate. Each day it's the closing price of the stock times the borrow rate times the number of shares short. If it's a ...


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If I buy a put option (which would be an option to sell stocks as far as I understood), who will provide the stocks to sell if I decide to exercise it? Should I have/provide the stocks or is it the option writer who provides them? And at what price would they be provided? A put gives the owner the right to sell the stock at the strike price. If you ...


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Open interest declines for three reasons: Option expiration Option exercise A pair of closing option transaction (one counterparty buys to close and the other sells to close and the contract ceases to exist). Since it expires today, I know for sure it hasn't expired yet. So some of the open interest must have been exercised, which means somebody sold ...


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There should be a spike (or various spikes) of $800 where these contracts were exercised. No there shouldn't. Option exercises do not go through the exchange's open outcry (bid/ask) process and so do not show up on the trade price history. They are direct exchanges, probably through a clearing house, but I am unfamiliar with these specifics (I don't think ...


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With no ticker cited, I'd suggest - The option wasn't exercised, it was sold. i.e. the option seller bought it back. The volume caused by option execution didn't create enough volume to move the market.In general, the open interest goes down as expiration approaches, for multiple reasons, so the final Friday executions are low compared to the natural volume....


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The Wheel Strategy is yet another situation where someone takes two equivalent strategies and needlessly fabricates a new name for alternating back and forth between the two strategies. To grasp this, you need to understand that short puts and covered calls (same strike price and expiration) are synthetically equivalent strategies, meaning a similar P&L....


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