Quote:
Originally posted by ray
LK-
You mention that if I were to purchase an Put or Call option that I would HAVE to exercise it (buy/sell at a certain strike price). I was under the assumption that the option is only a right to buy/sell at a certain price, but not an obligation to. Hence, I could trade the option itself, right?
For example: I buy Call Option X for 1.00 with expiration in 12 months. In the 11th month, the Call Option price has risen to 20 bucks. Couldn't I just sell the Call Option for 20 bucks and make a profit of 19?
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Buying a call or put is the right, not the obligation to buy/sell. However, selling a call or put is the OBLIGATION to buy/sell at the whim of the purchaser.
You are correct in saying that you can just sell the option, all of my examples are holding the option to exercise date. As long as you have sold the option you are at risk.
LK