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No Chris, I was not joking; just stating what I considered to be the
obvious...!!
It is always going to be difficult to figure out how a trade was initiated.
When the market is very liquid and prices are moving very fast it is almost
impossible to tell if a trade was a buy or a sell; all we know is that a
trade occurred. One of the obligations of being a member of an exchange is
that a market maker must be prepared to make a bid price and an offer price.
Usually there is a limit as to how wide the spread can be.
If you have agreed with your broker that you will be writing options for
premium then, when you ask for a trade bid/offer price, you might choose the
bid price to sell at. If the trade goes through, you, as the writer, will
receive the premium from the market maker. If he hasn't got a buyer he will
have to bear the cost himself. His job is to 'make a market'.
Suppose the price of the underlying moves in your favour, right up until
expiry; you get to keep the premium.........!!
Of course, if it goes against you, you would be liable to the cost of buying
either the stock or the option to close the position.
It is generally accepted that 75% of options expire worthless; however, that
doesn't automatically mean that it is easier to make money writing options
rather than buying them.
-----Original Message-----
From: Mullin285@xxxxxxx <Mullin285@xxxxxxx>
To: richard.p.parsons@xxxxxxxxxx <richard.p.parsons@xxxxxxxxxx>
Date: 29 August 1998 18:04
Subject: Re: OEX P/C
>Thanks for the response.
>
>I understand about hedging at least in principal, and I agree that one
should
>understand the markets they wish to travel in. What I was asking though is
how
>can someone sell something unless someone is buying. I didn't understand
your
>comment 'Who says the calls have been bought.....? Can someone sell calls
if
>no one buys them. My understanding is that there are always two sides to a
>transaction. If no one buys the calls how does the seller get paid?
>
>Perhaps you were joking when you made that comment. I wanted to 1-help you
>understand or 2-learn something myself.
>
>Chris
>
>In a message dated 8/29/98 7:29:45 AM Eastern Daylight Time,
>richard.p.parsons@xxxxxxxxxx writes:
>
>> That's the job of the options specialists (market makers). They are
>> obligated to make a market for those who wish to sell. Part of their job
is
>> to offset the risk by hedging with futures.
>>
>> If you are proposing to deal in this market place you must understand
all
>> the implications. A bit like playing chess; lots of people understand
the
>> various moves but only a few get to master the game.
>
>>In a message dated 8/28/98 5:10:08 AM Eastern Daylight Time,
>>richard.p.parsons@xxxxxxxxxx writes:
>>
>>> Who says the calls have been bought.....?? What if someone wrote a whole
>>> bundle for the premium? Believing that they would be likely to keep the
>>> premium..!<g>
>>
>>Hmmm Can I sell some calls or puts if no one buys them? How do I get paid
>>then?
>>
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