Etrade Options Trading

Options writing vs. options buying and selling?

My uncle trades options, and he was telling me something about how when you sell an option, you have no obligation, but only the “original” writer has an obligation, the person who actually first released the options into the market. My uncle also writes options too, in which he says he does have an obligation and he said it brokerages, for example Etrade charge around a $2 fee for “writing” options. And thats the pro of writing them over simply buying and selling them. Because when you buy and sell them, you have to pay for the options, contract fees, etc.

I have given the answer to your additional details in your email. See if it is sufficient. Let me state though to your last paragraph. Two things can happen. Profit is made only during the expiration day to your bought option in which some one will be conditionaly assigned or your original seller pays for the already gone to ‘in the money’ state of your option.
The other is if you feel that your bought option has gone into ‘in the money’ if you realise your profit by writing an option and if by chance your option moves up in higher beyond the price you got for writing then you will have to pay for the difference. But you will have your original bought option which will also be making money as the price move up and you break even.
In case when you write on your bought option if the price starts moving down after you sold or wrote then you will get you can keep your price. But you will forefeit only the price you paid for buying the option.
For your question of obligation when writing, the answer is you will be always obligated. The only way you can get out of it is when you write and price move down in which case you can pocket the premium or price you got for selling the option.
If the price move up you will be asked to pay the difference between that days price of the underlying security and the strike price. Only rarely you will be obligated for physical delivery of shares. When you pay the difference that is what is happening the physical delivery since the buyer will pay the strike price and you will pay the difference which will add up to the price on expiry day and the broker puts down this money buys the stock and hand it over to the buyer of the option who insists on physical delivery. This happens rarely. When you pay the difference your obligation is satisfied.
All what I have written is about European Options where you cannot get out till period of expiry. In American option you can liquidate your position before expiry.

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