spread order question

G

ggelitetrader000

Hi all, I ordered a bull spread options for particular stock
buy to open with strike price at current market price
sell to open with strike price at current market price+XX

Now my understanding is sell to open is writing an option and someone must have purchased it when I executed it and that individual is I supposed market maker and will likely to sell it furhter to another investor. And this call option will change hand till expiration date. Before that I can buy to cover. However as long as I did not buy to close this position, i would be obligated to deliver the stocks if whoever purchased it at the time of my writing decides to exercise before expiration date? Am I correct? Which I supposed could put me in vulnerable position? Thansk!
 
Assuming that you bought/sold calls (which your post seems to indicate), you can respond to an exercise on your written option by simply exercising the option you bought, delivering the stocks, and keeping the difference in strike prices. Worst case, you buy the stocks to deliver them, then exercise your option and sell the resulting stocks for a small net gain on exercise. The only real vulnerability (other than a sharp movement in the stock price between the two exercises) is loss of the difference between the premiums (since you bought at a lower strike price than you sold, you presumably paid a higher premium than you got.)
 
Quote from ggelitetrader000:

Hi all, I ordered a bull spread options for particular stock
buy to open with strike price at current market price
sell to open with strike price at current market price+XX

Now my understanding is sell to open is writing an option and someone must have purchased it when I executed it and that individual is I supposed market maker and will likely to sell it furhter to another investor. And this call option will change hand till expiration date. Before that I can buy to cover. However as long as I did not buy to close this position, i would be obligated to deliver the stocks if whoever purchased it at the time of my writing decides to exercise before expiration date? Am I correct? Which I supposed could put me in vulnerable position? Thansk!
More...

You will not get excised before expiration... This isn't a particular large risk relative to all the other ones you are taking..

Don't worry about who is on the opposite side of the trade.. worry about who is on your side of the trade.. YOU..
 
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