Options Writer Dilemma

[optionspro]

Hi,

I am a newbie trader who wants to learn about options.
I learned it from some e book that options writer is liable to pay back to the new buyer and sits on an unlimited loss for limited premium.

But, i was not very sure that who actually qualifies as the options writer.
So, for example, if i purchased a call of CE 5500 for Rs 150 and sold it 3 days later for 180 and the same call becomes 220 after another 5 days then am i liable to pay the difference (210 - 180) to the new buyer?

Am i the options writer here? and would i have to pay the further rise in this call? Please help .

Thanks,

PS: I know my name does not suggest i am a newbie

 

[absolute.zero]

So, for example, if i purchased a call of CE 5500 for Rs 150 and sold it 3 days later for 180 and the same call becomes 220 after another 5 days then am i liable to pay the difference (210 - 180) to the new buyer?

Am i the options writer here? and would i have to pay the further rise in this call? Please help .

No, you squared off your position, so you have nothing to do with the future rise in the price of option. You are not an option writer here as you just did two things....you bought / you sold.

 

[optionspro]

thanks absolute zero,

can you please help me understand then that who is an options writer?

Thanking in anticipation

 

[optionspro]

No, you squared off your position, so you have nothing to do with the future rise in the price of option. You are not an option writer here as you just did two things....you bought / you sold.

Thanks Absolute Zero!!!

Can you please tell me who is an options writer then?

Thanking in anticipation

 

[stoch_guy]

Thanks Absolute Zero!!!

Can you please tell me who is an options writer then?

Thanking in anticipation

For every buyer there has be a seller. When you buyed, some one has sold(this seller is option writer here, some refer option writing as shorting).

 

[optionspro]

Thanks for explaining the concept of options writer , that is what my understanding was as well.

But, then if i am first buying a call and then selling it off then would i also not qualify as an options writer (for selling the call) and hence there is a potential to incur unlimited loss for the premium the new buyer might have.

Is my understanding correct guys or i misunderstood something?

Thanks

 

[optionspro]

For every buyer there has be a seller. When you buyed, some one has sold(this seller is option writer here, some refer option writing as shorting).

Thanks stoch guy for explaining the concept of options writer , that is what my understanding was as well.

But, then if i am first buying a call and then selling it off then would i also not qualify as an options writer (for selling the call) and hence there is a potential to incur unlimited loss for the premium the new buyer might have.

Is my understanding correct guys or i misunderstood something?

Thanks

 

[AW10]

First time when you are buying it, someone out there is selling it. Assume that you are the first person in new option series to buy and other person is first person who is selling it. That person is called option writer.. He is selling option, without owning it.. Also called as Naked option selling. This person is collecting limited premium and hoping that option will expire worthless and he keeps the money (if done correctly than option writer will be able to keep it cause odds are in their favour)... but if market goes against them then they are at the mercy of market's move for their risk.

In your second case, when u sell option at 180, it is not Naked selling cause you already own option and you are just disowning them, hence no risk to you.

Hope this makes a bit more clear now..
Happy Trading.

 

[Vector]

Hi,

I am a newbie trader who wants to learn about options.
I learned it from some e book that options writer is liable to pay back to the new buyer and sits on an unlimited loss for limited premium.

But, i was not very sure that who actually qualifies as the options writer.
So, for example, if i purchased a call of CE 5500 for Rs 150 and sold it 3 days later for 180 and the same call becomes 220 after another 5 days then am i liable to pay the difference (210 - 180) to the new buyer?

Am i the options writer here? and would i have to pay the further rise in this call? Please help .

Thanks,

PS: I know my name does not suggest i am a newbie

Arre bhai, if u short sell to open an option position you are a writer.

 

[optionspro]

Thanks everyone for clearing up this doubt, really appreciate it.
This is one of the most active forums i have seen, Thanks again
Cheers