Difference between writing an option and selling it and buying an option and selling it?

Question

I think i sort of understand options, but not quite exactly.

If I buy an option and sell it, I have no obligation, is that right? Only the original writer of the option has the obligation to sell or buy shares at the strike price?

If I write an option and sell it, then I do have an obligation, is that right?

Thank you.

Matthew C, thank you for your response. I understand your point. But my uncle trades options, and he was telling me something about how when you sell an option, you have no obligation, but only the "original" writer has an obligation, the person who actually first released the options into the market. My uncle also writes options too, in which he says he does have an obligation and he said it brokerages, for example Etrade charge around a $2 fee for "writing" options. And thats the pro of writing them over simply buying and selling them. Because when you buy and sell them, you have to pay for the options, contract fees, etc.

Now since he told me this last night, I've been trying to search everywhere on the web if he is right that only the "original" option writer has the obligation, but that anybody else can buy and sell the options with no obligation. Was he wrong? I'm dying to know.

Thanks again guys.

Answer 1

Writing and selling are the same thing. Buying is different. If you are a seller you are obligated to deliver the stock if the buyer of the stock exercises the option. This happens only if the option is in the money. Usually you will be asked to pay the difference between the expiration day price and the strike price if you are a writer of a call and the option expires in the money. But the buyer has the right to claim the physical shares and in which case you are obligated to deliver physical shares. Usually this won't happen since option players play to take side on the price movement of underlying security and they won't have that large cash in hand to make payment.
If you buy an option and sell it you have obligation on the written side and the right on the bought side. Only thing there is a cancelling effect since you pass on the right to some one and the obligation to someone others by initiating the opposite stand. Usually this don't happen simoltaneously it happens after a few days when you feel that your risk is high on your position. It is the similar logic with your last question also.

Answer 2

the one who crate something put his or her trying and his time on it. but when anybody else go and do a copy on it, well... I dont think its a very good idea. think about what do you do and what do you feel when you see your own writing somewhere with somebody else`s name under it.