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Options is a sum zero game. both buyer and seller can make money no matter
which way it moves. It is all in knowing what you are doing.
Richard Parsons wrote:
> 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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