What is a Short Call?
In a call option transaction, there must be one option seller and one option buyer.
For the option buyer
, they have the right to purchase the underlying asset at an agreed strike price on or before the expiration date.
For the option seller
, they are obligated to sell the underlying asset.
Suppose you are an option seller:
you sell a call option that tracks TUTU stock with a strike price of $110 and an expiration date of March 1, collecting a premium of $9 per share.
You sell this call because you believe that the TUTU stock price will not exceed $110 by March 1.
Since you think the stock price will not rise above $110, you predict that the option buyer is unlikely to exercise this right, thus you won’t need to fulfill your obligation to sell the stock, allowing you to easily earn the $9 per share you collected earlier.
As the option seller, you believe the odds are in your favor, so you choose to sell this call.
In this transaction, you and the option buyer are counterparties：
Option Seller(Option Writer):
You receive $900 from the buyer ($9 per share × 100 shares) and are obligated accordingly.
This means that on any day before or on March 1, if the buyer wants to purchase 100 shares at $110, you must provide the corresponding number of shares and cannot refuse.
Of course, regardless of whether the buyer exercises this right, the premium you received earlier does not need to be refunded.
Option Buyer (Option Holder):
The buyer pays $900 ($9 × 100) to purchase a right, allowing them to buy 100 shares at $110 on any day before or on March 1.
The buyer can exercise this right or not, but the previously paid $900 is non-refundable.
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This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. Read more
