I'm learning more about options as I'm considering including them in my portfolio. I've seen some YouTube videos about people buying/selling options just to play the premiums, and not actually planning on exercising the option. I've tried writing my question a few times and I feel like it is best explained through a hypothetical scenario.
Person A writes a call option with a $1 premium. Person B buys the call option at the $1 premium. The stock goes up in price and now there are other buyers willing to buy the option for a $1.20 premium. Person B lists the call option for $1.20 premium. Person C purchases the option at the $1.20 premium. Person C decides they want to exercise the option so that they can own the stock. Is person B responsible for providing those 100 shares on the contract, or do the shares come from person A?
My thought is that when person A (the original writer) creates the option, either the shares or equivalent cash is taken from their account to cover the contract. However, I couldn't really find an answer to this (probably wasn't searching for the right terms/phrase).
Thanks in advance!
Submitted December 14, 2018 at 08:54PM by the_ginga_ninja https://ift.tt/2A1a3xy
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