in case of "call option" who is the seller and how he profits?

Question

is the seller the broker or another investor.......and if i make a large profit does he lose hard

Answer 1

A call option is sold by another investor based on the shares that he or she owns. For instance, if the person owns 100 IBM shares, they can sell 1 call option (or 1 put option) for the price listed for that month and price. If you make a profit it depends on how much the seller paid for the stock in the first place if he loses or not. Generally you can close the option at any time (with American Style options) for a profit. It is quite a complex subject, but I think I have tried to answer your question as well as I could.

Answer 2

When I invest, I often sell covered calls.

That means I buy the stock first, I normally look for a very solid stock that I am sure will go up long term, and wait for it to dip a bit, then I place a limit order to buy 100 shares at about 5% lower than the low for that day.

Then I wait until the stock goes up about 25%, then I place a limit order to sell the right to buy the stock for about 25% more than it is selling for now, and I offer this call option for about 25% of the current price.

I give the call an expiration date, of at least 1 year from when I first bought the stock.

So, when the call sells, the buyer pays me the money, and I am giving the 25% in cash in my brokerage account. My stock is now worth 25% more and I made and extra 25% in cash.

If the stock price is not at the strike price by the expiration date, the call expires worthless, and I keep the 25% and can sell another covered call on the stock, or sell the stock.

If the stock prices passes the strike price on the expiration date, the owner of the call automatically purchases the stock from me, then sells it for an immediate gain. I gained 50% on the stock, and another 25% on the call. If the stock went way up, I won't see that gain, someone else will.

If the stock price goes way down, it would have to drop at least 50% for me to actually lose any money. Selling a covered call has reduced my risk.

What is risky, is selling an uncovered call. This has no limit on it's risk. I have never tried it.

Answer 3

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You do not know who the seller is. It may be another investor or it may be a market maker. It is not your broker.

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He profits if the amount he receives from you is more than the amount it costs him to hedge and/or close the position.

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Maybe, but probably not.

Most people who sell call options hedge the short calls. For example, if XYZ is trading at $100 per share and you buy 100 calls with a strike price of $100 from a market maker, the market maker will almost certainly immediatly buy about 5,000 shares of XYZ to make his position delta-neutral. (A delta-neutral position is one that neither gains nor loses value due to a small change in the price of the stock.) As the price of the stock changes he will continue to adjust his position to keep it close to delta neutral by buying and selling other options on the same underlying and/or the underlying stock itself.

Answer 4

The seller of the Call is betting the stock will NOT go up. Note: It does not have to go down, just not go up. He collects the premium immediately and that is his sole income on this contract.

He must deliver 100 shares at the strike price(e.g. 50) when the option is exercised by the holder/ buyer. If the stock price remains at 50 or less no one will exercise and he will keep the premium and that is the end.
As the price rises above $50, then he starts getting into more and more negative territory and theoretically his losses are unlimited.

if he does not already own 100 shares then he must go to the open market to buy them, let's say for $80. His contract calls for him to sell them at $50. He loses $30 per share or $3,000 (minus the Premium that he collected initially) on one contract. This is said to be a "Naked" Call.

if he already owns 100 shares, this is a "Covered" Call and he merely loses the potential gain that his shares WOULD have gone up.

Answer 5

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