----- Original Message -----
Sent: Monday, March 22, 2004 3:21
PM
Subject: [sharechat] Option trading
I have been doing a bit of reading about the
use of options as an alternative to buying the underlying stock. However, I
can't find anywhere the answer to the following question.
If I decide
to directly sell a call option (after I have initially bought the option on
the market) before the expiration date (and not purchase the underlying
stock), am I then required to purchase and deliver the underlying stock to the
person who has bought my call option if they decide to exercise the call
(before the expiration date)?
A simple question indeed but my reading
provides no clear answer. Obviously, you can make a profit if you sell the
option directly (rather than exercising), but there appears to be a huge risk
if you have to deliver the stock at the strike price once you have sold it. Is
the answer that you can simply 'close' the option (and take the money) and the
call option then ceases to exist without any further obligation?
Paul
See IRG research reports
