I have been learning about options trading on various platforms. Everywhere i see examples of insurance company, textile factory, etc. So i have a very big confusion may be many of people may have same confusion.
(1).When a person writes an option, do he trade with only 1 option buyer or multiple option buyers have position for an option writer?
(2). When a person buy or write an option, does it make a new position or he get transferred into the contract which was squared off by another person?
I hope what i am saying is understandable.
if you are buying or selling only one lot then you are dealing with only one seller or buyer but if it is multiple lots chances are there will be multiple sellers or buyers…
answer to second question is quite tricky actually… you maybe creating new position or you maybe someone else squaring-off their position is being transferred to you making you the buyer or seller if they are selling or buying… it’s tricky and there’s no way to know if you created new position or were transferred by someone else… doesn’t matter much thought, as at the end of the trade what matters is so it’s better not to dwell too much on this…