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Buying and Selling Options
How long and short options work
Recap
Buying and Selling Options
- Long options reserve their owner the right, not the obligation, to buy (calls) or sell (puts) 100 shares at a predetermined price - this is called "exercising" an option
- Option short-sellers are obligated to fulfill 100 shares at the strike price should the long side decide to exercise their contract - this is called "assignment"
- Assignments happen automatically overnight, but are uncommon occurrences. They do not increase or decrease risk, but they do increase the capital requirement for the position.
After the quiz, let's dive into the pricing dynamics of stock and options.
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