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Who owns an option?
- Thread starter cramerica
- Start date
Let's say you offer a call at 1.00, and Joe Blow buys it. Your contract now is not with Joe, it is with the Options Clearing Corporation. Joe's contract is also with the Options Clearing Corporation. So if you go bankrupt and can't meet your obligation to sell Joe stock at the strike price, Joe's option is still good. That's the function of the OCC - to guarantee every trade by standing between the two parties and assuming the obligation for that option to perform.
If at some point Joe decides to exercise his option, the OCC will assign it to somebody who is short that option, but not necessarily to you.
If at some point Joe decides to exercise his option, the OCC will assign it to somebody who is short that option, but not necessarily to you.
Lets say I sell a call for $2.00, the stock tanks from $30 to $20 and that option is now .50, then the stock comes back to $31. The first buyer is at a loss, but could the second buyer exercise my sell for a profit? Or does it have to be someone who paid the 2.00 to call my stock? Just wondering when I would know if I am in the clear and don't have to worry about being called. TIA
An option is the right to buy (call) or sell (put) a specific underlying.
The seller of the option has the obligation to fulfill the terms of the contract. It doesn't matter who bought it when or at what price or how many times it has changed hands or whether they made or lost money on their position. You are short that contract. If your short call is assigned, you must deliver the stock or carry a short stock position.
The seller of the option has the obligation to fulfill the terms of the contract. It doesn't matter who bought it when or at what price or how many times it has changed hands or whether they made or lost money on their position. You are short that contract. If your short call is assigned, you must deliver the stock or carry a short stock position.
Quote from dmo:
Let's say you offer a call at 1.00, and Joe Blow buys it. Your contract now is not with Joe, it is with the Options Clearing Corporation. Joe's contract is also with the Options Clearing Corporation. So if you go bankrupt and can't meet your obligation to sell Joe stock at the strike price, Joe's option is still good. That's the function of the OCC - to guarantee every trade by standing between the two parties and assuming the obligation for that option to perform.
If at some point Joe decides to exercise his option, the OCC will assign it to somebody who is short that option, but not necessarily to you.
Why don't they do that with Credit Default Swaps?