Okay, so I am semi-good with option buying, so now I trying to learn about option writing now, and lets see if i know whats up. Buying a Call - you have the right but not obligation to buy a stock at a certain price in the future. Ex: You buy an April 50 call on a stock trading at 45, and when the expiration comes, if the stock is above 50 you would exercise and get the stock for $50 a share. (i'm not including what u paid as a premium) Buying a Put - You have the right but not obligation to sell a stock at a specific future price. Ex: You buy an April 40 put on a stock trading at 45, and when the expiration comes, if the stock is below 40 you would exercise and sell the stock at the 40$ when the market value is much lower. Question: Seems like you need to own the stock to buy a put then? Selling (Writing) a Call - You have the obligation to sell a stock at a certain price. The only profit you could make is the premium u got for writing? Selling (Writing) a Put - You have the obligation to buy a stock at a certain price. The only profit you could make is the premium u got for writing? For both of the above, when you write it you instantly get the premium added to your account. So my real question is, when do you need to own the stock to buy/sell a call/put, and when do you not? - Buy Call: dont need to own shares - Buy Put: Need to own shares - Sell Call: need to own shares - Sell Put: Dont need to own shares And when does naked writing apply? On long puts and short calls when u write it w/o owning shares? Thanks!
buy a good option book because most of what you think at this moment is wrong. Try options as strategic investment http://www.amazon.co.uk/Options-Str...=sr_1_2?ie=UTF8&s=books&qid=1202549846&sr=1-2 if you want to go even further buy http://www.amazon.co.uk/Option-Vola...=sr_1_1?ie=UTF8&s=books&qid=1202549786&sr=1-1