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how the gears turn

Buying and Selling Options

How long and short options work
True or False: A long call obligates the owner to buy 100 shares of stock at the strike price.
True
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False
Your are correct. Long options give the owner the right, not the obligation, to trade 100 shares at the strike price.
When you are short an option you have the __________ to ___________.
Obligation, fulfill the contract at the owner’s discretion
Correct! When you are short an option you have the obligation to fulfill the agreement at the owner’s discretion.
right, exercise the contract at your discretion
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Obligation, exercise the contract
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Right, exercise the contract at the owner’s expense
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True or False: When you are short an option, you must pay interest until it is closed or assigned.
True
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False
Nice work. Short options do not require any borrowing so they do not incur interest costs.
Which of these is a major difference between short shares and short options?
Short stock is an investment, short options are not
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Short options are the sale of a borrowed asset, short shares are the sale of a price guarantee
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Short shares are bearish, short options are bullish
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Short shares are the sale of a borrowed asset, short options are the sale of a price guarantee
Correct! Short shares require you to borrow them from someone else. Shorting options doesn’t require any borrowing – you are selling your guarantee to fulfill a share price if requested by the long side.
What is it called when you find that your short option’s obligation has been fulfilled
Exercise
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Assignment
Correct! If the long side decides to exercise their option, the short side gets "assigned"
Fulfillment
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Acknowledgement
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