# Who sells (goes short in) options?



## insight (18 June 2011)

Who goes short in options contracts? Fund managers? Investment banks? Retail banks? I have no idea am interested in finding out.... anyone know?


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## wayneL (18 June 2011)

*Re: Who sells (goes short in) options*



insight said:


> Who goes short in options contracts? Fund managers? Investment banks? Retail banks? I have no idea am interested in finding out.... anyone know?




Anyone can.


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## insight (19 June 2011)

I know anyone *can* but who does? 

If you were to take a cross section of the market right now and look at who's short on every single options on an ASX-listed stock, who would it be? 

What percentage of the market for shorts is comprised of mum and dads, I wonder? probably no more than 1-2% I'd imagine... so who do all the rest belong to? CEOs would have a fair few, so too would some banks (but which type of bank??)


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## colion (19 June 2011)

I do.


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## ROE (19 June 2011)

I do, there are some neat stuff with options
If you thinks banks isnt a great stock for next 12 months
sell a 12 months LEPO options.

Option is very risky if you dont have a statregy in place
It required margin and if assigned you have obligation to meet.

But if you dont intend to sell then no obligation on your part
Just put up the premium and exercise your right..


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## mazzatelli (19 June 2011)

insight said:


> I know anyone *can* but who does?
> 
> If you were to take a cross section of the market right now and look at who's short on every single options on an ASX-listed stock, who would it be?
> 
> What percentage of the market for shorts is comprised of mum and dads, I wonder? probably no more than 1-2% I'd imagine... so who do all the rest belong to? CEOs would have a fair few, so too would some banks (but which type of bank??)




Why would CEO's be short options?


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## FxTrader (19 June 2011)

insight said:


> I know anyone *can* but who does?
> 
> If you were to take a cross section of the market right now and look at who's short on every single options on an ASX-listed stock, who would it be?
> 
> What percentage of the market for shorts is comprised of mum and dads, I wonder? probably no more than 1-2% I'd imagine... so who do all the rest belong to? CEOs would have a fair few, so too would some banks (but which type of bank??)




First of all let's get the terminology right.  "Selling" an option contract does not automatically mean you are short the underlying instrument.  Let's take equity ETOs as an example. The seller of a put contract wants the price of the underlying equity to remain above the strike price (hence synthetically long), the seller of a call contract below the strike price (hence synthetically short) to avoid assignment or take a loss.

"Shorting" with options, meaning you expect to profit by a fall in price of the underlying instrument, means either buying (not selling) a put or selling a call.  

Corporate execs usually, as part of their compensation package, have company issued (not exchange traded) options that they can exercise at their discretion to purchase company stock at the option price declared by the company at the time.  No "shorting" is involved in this transaction.

As to who the individual parties are on each side of an ETO contract, the only entity who would have that information is the OCH and they don't publish that information for obvious reasons around privacy and confidentiality.  Shorting using options (and options trading in general) would be done in sheer volume more by institutions than individuals to hedge market risk/exposure.  Many individual traders I know mainly sell call options on their shares for extra income or buy puts to limit the downside risk of an existing share portfolio.


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## builder2818 (19 June 2011)

There is many a fool who has lost a lot of their money after going to a wealth creation seminar and learnt the basic concept of options and I think a lot of these fools have been wiped out over the last few weeks.

I thought about not calling them fools but if someone is willing to put their money in the markets on an option trade recommended by an "expert" they deserve what they get.


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## insight (19 June 2011)

ROE said:


> I do, there are some neat stuff with options
> If you thinks banks isnt a great stock for next 12 months
> sell a 12 months LEPO options.
> 
> ...




This doesn't really answer my question, but that's really interesting. Because it explains why (using BHP for an example) the exercise price of calls where $26 and above, but then there'd be these really tiny call prices (literally $0.01 and $1.00)..


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## insight (19 June 2011)

mazzatelli said:


> Why would CEO's be short options?




thanks for picking that up, my mistake, CEOs wouldn't hold short positions unless they lack confidence in their own ability 

Incidentally.. I wonder how that would change CEOs attitudes to risk taking if they did hold short positions??!


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## insight (19 June 2011)

I should have worded my question more precisely as: _*"who holds short ETO options positions??"*_ or even more simply... "who has to pay me if my long put/call positions finish in the money?"

the reason I ask is because if I go long, take a huge win, and go to collect, I want to know that who ever was on the other side of the contract is able to pay!! I don't want to enter any contracts with fly-by-nighters or institutions that could go bankrupt and therefore not have to pay.... is this a legitimate concern?


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## FxTrader (19 June 2011)

insight said:


> I should have worded my question more precisely as: _*"who holds short ETO options positions??"*_ or even more simply... "who has to pay me if my long put/call positions finish in the money?"
> 
> the reason I ask is because if I go long, take a huge win, and go to collect, I want to know that who ever was on the other side of the contract is able to pay!! I don't want to enter any contracts with fly-by-nighters or institutions that could go bankrupt and therefore not have to pay.... is this a legitimate concern?




It's only a legitimate concern if you believe that the ASX and OCH could ever be in a situation where they become insolvent institutions (in the case of ETOs) and counter parties can't settle obligations (a black swan catastrophy scenario).  Margin requirements exist for good reason, a tangible demonstration that you can meet your obligations.  Only a market wide collapse would see a default on options contracts since buyers and sellers are not immediately paired in an options contract.  Who ends up on the other side of the contract is of no concern to you, the integrity and financial strength of the institutions providing the market is.


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## ginar (19 June 2011)

Ironic is the word that comes to mind when i see headings like this on stock forums after a >10% correction :dunno: . opportunity  knocks sometimes but in this case hes way down the road :headshake


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## insight (19 June 2011)

FxTrader said:


> It's only a legitimate concern if you believe that the ASX and OCH could ever be in a situation where they become insolvent institutions (in the case of ETOs) and counter parties can't settle obligations (a black swan catastrophy scenario).  Margin requirements exist for good reason, a tangible demonstration that you can meet your obligations.  Only a market wide collapse would see a default on options contracts since buyers and sellers are not immediately paired in an options contract.  Who ends up on the other side of the contract is of no concern to you, the integrity and financial strength of the institutions providing the market is.




.. does this mean that it's actually the ASX who give me my money if I finish in the money (not the person on the other side of the contract)? 

say the other party defaults (say it was just a mum&dad investor like me), and he can't pay, does the ASX still pay me?

Thanks for letting me know that the ASX would only have trouble paying me if it became insolvent - is this the _only_ circumstance that it wouldn't have to cough up? i.e. are there little clauses in the terms and conditions that I should be wary of that could mean they don't have to pay up? (I might be relatively new to options trading but I've been around long enough to know that a financial institutions won't pay up unless it absolutely has to  )


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## insight (19 June 2011)

ginar said:


> Ironic is the word that comes to mind when i see headings like this on stock forums after a >10% correction :dunno: . opportunity  knocks sometimes but in this case hes way down the road :headshake




I'm not as short-sighted as I may seem - I'm a beginner and I know it, which is a 100 times smarter than a beginner who doesn't know it. I'm just looking to gain some understanding from ppl that've been there done that.. Personally I'm looking to get into options trading (long only) over the next 12-18 months. It's very unlikely I'll make any non-paper transactions any earlier than 2013 

I've noticed a couple of opportunities (in hindsight, one was very naive - and would have finished out of the money - 100% loss)... but I was never able to execute actual transactions for lack of full knowledge of the market and an actual options trading account


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## colion (19 June 2011)

insight said:


> Who goes short in options contracts? Fund managers? Investment banks? Retail banks? I have no idea am interested in finding out.... anyone know?




Anyone who wants to take advantage of the time decay associated with selling options.  If this sounds like Greek (or more specifically theta), Google selling options and I'm sure that you will find numerous articles about this characteristic that sellers are exploiting.  Sellers and buyers are both trying to take advantage of various option characteristics against a background of their view of the market.


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## wayneL (19 June 2011)

insight said:


> I should have worded my question more precisely as: _*"who holds short ETO options positions??"*_ or even more simply... "who has to pay me if my long put/call positions finish in the money?"
> 
> the reason I ask is because if I go long, take a huge win, and go to collect, I want to know that who ever was on the other side of the contract is able to pay!! I don't want to enter any contracts with fly-by-nighters or institutions that could go bankrupt and therefore not have to pay.... is this a legitimate concern?




What FX said, plus you have maintenance margin ensuring there are sufficient fund to cover losses.

Also bear in mind that probably the vast majority of options are either covered by stock, cash, or as part of a spread.

For instance a vertical spread - one  leg my suffer a huge  loss while the other has a slightly huger gain. This all results in an intricate web of positions most of which are covered in one way or another. 

Another factor is the principle of novation where these positions are pooled. Your counterparty is not directly tied to your position. Your "ipso facto" counterparty is ACH

Margin and ACH will cover any eventualities. In the event that it can't, I would say that would be the least of your worries.


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## village idiot (19 June 2011)

[  ] you are going to make so much buying (long only) options that you have to worry about counterparty risk


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## mazzatelli (19 June 2011)

FxTrader said:


> The seller of a put contract wants the price of the underlying equity to remain above the strike price (hence synthetically long), the seller of a call contract below the strike price (hence synthetically short) to avoid assignment or take a loss.




I'm nitpicking here and you won't like it, but to prevent confusion for future readers

Selling the put isn't a synthetic long - you are long delta's yes, but the synthetic is long call + short put

Vice versa for the synthetic short.


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## wayneL (20 June 2011)

mazzatelli said:


> I'm nitpicking here and you won't like it, but to prevent confusion for future readers
> 
> Selling the put isn't a synthetic long - you are long delta's yes, but the synthetic is long call + short put
> 
> Vice versa for the synthetic short.




I'm wondering if there is a slight misunderstanding of the meaning of "synthetic" there.


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## mazzatelli (22 June 2011)

wayneL said:


> I'm wondering if there is a slight misunderstanding of the meaning of "synthetic" there.




Think I was trying to say synthetic long.


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## wayneL (22 June 2011)

mazzatelli said:


> Think I was trying to say synthetic long.




Clarification: I was referring to FX's post not yours.


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## cutz (22 June 2011)

builder2818 said:


> There is many a fool who has lost a lot of their money after going to a wealth creation seminar and learnt the basic concept of options and I think a lot of these fools have been wiped out over the last few weeks.
> 
> I thought about not calling them fools but if someone is willing to put their money in the markets on an option trade recommended by an "expert" they deserve what they get.




Hi Builder,

Do you have some inside knowledge ?


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## mazzatelli (25 June 2011)

wayneL said:


> Clarification: I was referring to FX's post not yours.




Phew!!! Was teaching put-call parity a few weeks ago, could have misled so many....:badsmile:
Note: colion mentioned the Greeks and thread participation by another OP has instantly died :goodnight  No Greeks allowed to be mentioned henceforth in the derivatives forum.

They will be renamed as follows:
Delta = Deal 
Gamma = Game
Vega = Vegas
Theta = Tatas
Rho = Rodeo

In context e.g.:
"You want to take advantage of Tatas and Vegas, but this comes from taking on more Game" 

Why wouldn't you want to be positive Tatas, eh? I want to accumulate and profit from as much ta tas as possible:
Much more appealing


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## Tysonboss1 (6 July 2011)

insight said:


> Who goes short in options contracts?




I do,


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## insight (16 September 2011)

ginar said:


> Ironic is the word that comes to mind when i see headings like this on stock forums after a >10% correction :dunno: . opportunity  knocks sometimes but in this case hes way down the road :headshake




Hey mate, banks have dropped another 10% since you wrote this  just sayin'


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