Short an option: Difference between revisions
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{{g}}If you are [[short an option]], you stand to lose if an event that you can’t control happens. In the literal sense, it means you have sold to another person (or “gone [[short]]”) the right (an “[[option]]”) to buy (a “[[call option]]”) or sell you (a “[[put option]]”) an asset at a pre-agreed price the “[[strike price]]”. If the market value of that asset goes above the strike price (for a call) or below it (for a put) then the random can force you to trade the asset at the strike price. You can define your loss as the difference between the market price and the strike price. The loss on a [[call option]] is potentially unlimited; for a [[put option]] it is bounded at the [[strike price]] (seeing as assets can’t really go negative in value). | {{g}}If you are [[short an option]], you stand to lose if an event that you can’t control happens. In the literal sense, it means you have sold to another person (or “gone [[short]]”) the right (an “[[option]]”) to buy (a “[[call option]]”) or sell you (a “[[put option]]”) an asset at a pre-agreed price the “[[strike price]]”. If the market value of that asset goes above the strike price (for a call) or below it (for a put) then the random can force you to trade the asset at the strike price. You can define your loss as the difference between the market price and the strike price. The loss on a [[call option]] is potentially unlimited; for a [[put option]] it is bounded at the [[strike price]] (seeing as assets can’t really go negative in value). | ||
One often uses the expression figuratively. | One often uses the expression figuratively. Trading types will often document [[OTC]] [[option]]s using the argot of the {{eqderivs}}. | ||
{{sa}} | {{sa}} | ||
*{{br|Antifragile}} by {{author|Nassim Nicholas Taleb}}, which discusses the convexity and concavity of options at length | *{{br|Antifragile}} by {{author|Nassim Nicholas Taleb}}, which discusses the convexity and concavity of options at length | ||
*[[Equity Derivatives Anatomy]] | |||
*The [[commercial imperative]] being bounded as it is by all kinds of [[option|options]]. | *The [[commercial imperative]] being bounded as it is by all kinds of [[option|options]]. | ||
Revision as of 06:49, 27 September 2019
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If you are short an option, you stand to lose if an event that you can’t control happens. In the literal sense, it means you have sold to another person (or “gone short”) the right (an “option”) to buy (a “call option”) or sell you (a “put option”) an asset at a pre-agreed price the “strike price”. If the market value of that asset goes above the strike price (for a call) or below it (for a put) then the random can force you to trade the asset at the strike price. You can define your loss as the difference between the market price and the strike price. The loss on a call option is potentially unlimited; for a put option it is bounded at the strike price (seeing as assets can’t really go negative in value).
One often uses the expression figuratively. Trading types will often document OTC options using the argot of the Template:Eqderivs.
See also
- Antifragile by Nassim Nicholas Taleb, which discusses the convexity and concavity of options at length
- Equity Derivatives Anatomy
- The commercial imperative being bounded as it is by all kinds of options.