≈ Keep it in your pocket. ≈
Today we have the last Absolute Truth, number 8.
Absolute Truth n.8: Option buyers have rights. Option sellers have obligations.
Let’s keep it simple:
If you sell an option contract (a.k.a. naked position), either a call or a put, you incur in some obligations. If the option gets in-the-money (ITM), at expiration date you will have to:
– Buy the stock at the strike price, in case you sold a put option (naked put).
– Sell the stock at the strike price, in case you sold a call option (naked call).
If you buy an option contract (a.k.a. long position), either a call or a put, you are entitled to some rights. If the option gets in-the-money (ITM), at expiration date you will have the right to:
– Sell the stock at the strike price, in case you bought a put option (long put).
– Buy the stock at the strike price, in case you bought a call option (long call).
We will detail these concepts further down the Heuristic Series. For now, let’s focus on learning these high-level concepts.
You can download and print the flashcard HERE.
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Absolute Truth n.8
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