What should your know about buying and selling options? Well to begin with, you should know what to consider when starting the process of buying and selling the two different types of options. We will take a look at this in this article.
Remember that there are two different kinds of options. When we think of buying an option, you want to think about the call option. When you buy a call option, then this gives you the ability to buy the financial product or instrument at the strike price. Remember that the strike price is the specific price of the instrument. If you choose to buy a call option it has to be bought either before or on the expiration date. Remember that the expiration date is the date that the option loses its value.
When you think of selling an option, then you want to think about the put option. You have the ability to sell the financial product before the date expires. Whatever the case may be, if you are the option holder, you also can sell the option to someone else that might want to buy during the term or you can let it just expire.
There is another situation known as write and option or it is also called “sell to open”. In this case, you are the writer and it is your duty to make sure that you take care of your end of the contract if the holder of the option wants to exercise it.
If you end up selling a call option as an opening transaction, then you have to sell the at the strike price if you are assigned. If you sell a put option as an opening transaction, then you have to buy the interest if it is assigned.
If you are a writer, you basically have no options or control over whether the contract gets exercised, and you have to remember that the exercise can happen at any time up until the expiration date.
Remember that the buyer can sell the option back to the market if they don’t want to exercise it. If you are a writer, you can always purchase the offsetting contract as long as you have not been assigned. This allows you to stop any obligations to meet the terms of the contract. This type of transaction is called a buy to close transaction.