That person that takes the opposite side of the call option buyer is the "call option seller. Just to be clear here, there are really two types of call option selling. If you bought a call option and the price has gone up you can always just sell the call on the open market. This type of transaction is called a "Sell to Close" transaction because you are selling a position that you currently have.
If you do not currently own the call option, but rather you are creating a new option contract and selling someone the right to buy the stock from you, then this is called "Sell to Open", "Writing an Option", or sometimes just "Selling an Option. Writing or Selling a Call Option is when you give the buyer of the call option the right to buy a stock from you at a certain price by a certain date. In other words, the seller also known as the writer of the call option can be forced to sell a stock at the strike price.
The seller of the call receives the premium that the buyer of the call option pays. If the seller of the call owns the underlying stock, then it is called "writing a covered call. The best way to understand the writing of a call is to read the following example. It's January 1st and Mr. Pessimist thinks that the price of GOOG is going to stay the same or drop in the next month, but he wants to continue to own the stock for the long term. At the same time, Mr. Once the trade is made, Mr. There is a very simple explanation for this fact.
When you own the underlying stock and write the call it is called writing a covered call. This is considered a relative safe trading strategy.
If you do not own the underlying stock, then it is called writing a naked call. This is called the "time decay" of options in that each day that goes by the odds of a price movement become less and less.
Here are the top 10 option concepts you should understand before making your first real trade:. What are Stock Options? What is a Stock Option? What is a Call Option? What is a Put Option?
To think of this another way, think of option trading as the turtle and the hare story. Here are the top 10 option concepts you should understand before making your first real trade: What is a Call? What is a Put?More...