Hello all,
Stupid question here. Saythe price of a stock is now trading at $100. What would happen if I sell a call at with the strike price of $150? I understand when you sell a call, I have the obligation to sell the stocks at strike price if the buyer decides to exercise it when the underlying goes below strike price. But the current price is already below the strike of 150, so will the option be exercised as soon as I sell the call?
Thank you in advance
When you sell a Call Option, you are obliged to deliver shares on expiry, but only if the Option you have shorted is ITM (ie. for Call Option when underlying price is above your strike price), if it expires OTM (ie. for Call Option when underlying price is below your strike price) it will expire worthless, in this case you won’t have to deliver underlying shares.
Request you to give Options Theory module on Varsity a read, you will get to understand more about Options in detail.