buying a call option to open and then selling it to close are you still be obligated to provide the shares?

Question

Say I bought 10 contracts at $1.00 and sold at $2.00 to close
because I sold the option I bought from someone else am I still liable to provide the stock shares that I sold to close if someone wants to excercize there option?

Answer 1

If you BOUGHT the option, you were NEVER obligated to provide the stock. As a BUYER of an option, if you exercised the option, the SELLER of that option would be obligated to provide the stock to you. An option BUYER is never obligated to provide the underlying asset.

If you had SOLD/WRITTEN 10 contracts, then you'd only be obligated to provide the stock if the option were exercised. If you are a SELLER and you bought to close the position, then no exercise could be assigned to you, so you would not be obligated.

You're getting your positions mixed up. It's the option SELLER/WRITER that runs the risk of being assigned an exerciase I must provide the stock. An option buyer is NEVER obligated to provide a stock. It is only the BUYER that can exercise an option and then the SELLER/WRITER must either provide the stock on a short call or purchase the stock on a short put. That's how the "Calls" and "Puts" got their name. Let's see if I can explain.

Let's say you're buying options and you're looking at XYZ Corp. stock and it's trading at $53. You think it's going up, so you buy a 55 Call. Let's say the stock goes to 58 and you exercise the option. What happens is that you "Call" away the stock from the option seller, that is, the seller has to sell you the stock at $55 per share.

On the flip side, let's say you think XYZ is going to go down, so you buy a 50 Put. Let's say the price goes down to $47 and you exercise the option, what happens is that the stock is "Put" to the option seller. Meaning that he has to buy the stock from you for $50. If you don't own the stock, you buy it in the market at $47 and the seller must buy it from you for $50.

I don't trade equity options (futures options is what I trade), but the principle should still be the same.

Hope this helps.

Answer 2

First, if you buy a call option, you have the right to purchase the shares, but not the obligation. If you wish, you can let the option expire as worthless. Most options do just this, and never get exercised.

Since you sold the option, that does not obligate you in any way, shape, or form with respect to this stock or this option. By closing the position, you have eliminated the exposure of this option to your portfolio, and you are done.

Of course, this assumes that you sold the same option that you purchased. For example, if you purchased a 04/15 $25 option, you would have to sell the same option to not have to provide the stock. I have seen people purchase a 04/15 $25 option and sell a 06/15 $30 option and think that they are out of the transaction, simply because they bought an option and sold an option on the same stock.

However, short answer is: If you sold the option that you owned, you have transferred your right to someone else, and have no further obligation or rights with regard to this security.

Answer 3

If you bought the call options and then sold it later at a higher price because the price of the underlying stock has gone up, you are not liable to provide the shares because you have sold to close. Once you sell to close, your transaction is closed and you have nothing more to do with what happens to that option.

For more option trading basics, you may wish to explore the most authoritative option trading education site at http://www.optiontradingpedia.com/

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Answer 4

Buy/Sell is what you do with the options. (self explanatory) Open~ is the amount ($) the option will open at when the market opens for business...Close~ is where that option closes at ($) the end of the day.