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R'Ters

If you sell a call/put option, and it starts moving against you, you then
have the option to buy it back (loss) before you get excercised.
What then happens to the entitiy on the other side of that deal, ie. the guy
who bought the call/put. Is is position cancelled out as well, or can he
hold on as long as he likes.
If he can hold on, who then is the entity that pays him out.?

Regards

Trevor De Vries