注册 登录
上一主题：Thoughts on my next approach
下一主题：Options - underpriced/overpriced puts
返回列表 发帖
Wendy01

Rank: 2

UID
222274 
帖子
339 
主题
76 
注册时间
2011-7-2 
最后登录
2013-9-15 
1# 跳转到 » 倒序看帖
打印
tT
发表于 2011-7-13 17:02 | 只看该作者

why short call is a liability?

like, management, liability, example, written
I would like to know why short a call is a liability.
In the derivative application for risk management study session the concept is written on the Schweser notes.

When short a call, get a premium for example $ 50.
Call seller has now U$ 20, then why it is a liability?

If the call in the money, say + 100 at expiration then the payoff to the seller is - 100 & profit -80
If the call is out of money then the payoff to seller is 0 & profit +20

with this trait, how a premium on short call seens as liability? when in the money, the premium 20 protected the loss for amount of 20 (loss 100 to 80)

 

相关主题：

. duration of swaps

. L 3 Contingent immunization 问题

. Finance Leases & Accounting Equation

. 请教老师 lesson 3 问题_patent royalty

. buy-side credit analyst

收藏 分享

jmh530

Rank: 2

UID
222310 
帖子
357 
主题
13 
注册时间
2011-7-2 
最后登录
2015-12-18 
2#
发表于 2011-7-13 17:02 | 只看该作者
Short call is a liability because the short has an obligation to deliver when the long "calls" for th security...

TOP

Iginla2011

Rank: 2

UID
222302 
帖子
408 
主题
11 
注册时间
2011-7-2 
最后登录
2016-6-23 
3#
发表于 2011-7-13 17:02 | 只看该作者
Think about it in terms of credit risk...If exercise you owe the other party.

TOP

Darien

Rank: 2

UID
222308 
帖子
397 
主题
6 
注册时间
2011-7-2 
最后登录
2016-8-1 
4#
发表于 2011-7-13 17:02 | 只看该作者
Good point, no credit risk but higher market risk and liquidity risk.

TOP

mik82

Rank: 2

UID
222318 
帖子
396 
主题
8 
注册时间
2011-7-2 
最后登录
2016-3-20 
5#
发表于 2011-7-13 17:02 | 只看该作者
what is the higher market risk and liquidity risk for a short side on the call?

CP

TOP

zwjy

Rank: 3Rank: 3

UID
218215 
帖子
532 
主题
118 
注册时间
2011-5-26 
最后登录
2012-9-12 
6#
发表于 2011-7-13 17:02 | 只看该作者
The loss of call short position is unlimited. A market risk, please correct me if I'm wrong.

A [American] Call could be assigned if it's deep in the money and closer to the maturity date. Call buyers do not bear a risk like this.

It's just my thought, not completed SS15 yet. Derivatives are used to hedge various risks and the derivatives market "allocate" the risks to the parties who know how to manage them. Overall, it's more than a zero-sum game since each party then can focus on its expertise. The overall wealth increases.



Edited 1 time(s). Last edit at Thursday, March 31, 2011 at 12:33PM by deriv108.

TOP

Windjam

Rank: 2

UID
222304 
帖子
402 
主题
6 
注册时间
2011-7-2 
最后登录
2016-8-13 
7#
发表于 2011-7-13 17:02 | 只看该作者
you sold the call. you earned your premium.
you are going to renege on the deal and not deliver the contract. (which means prices of the underlying has actually gone up - which is why the buyer has exercised the right to use the option).

not sure about market risk and/or liquidity risk in this situation. we are talking about the call OPTION not the underlying itself. There is however a credit risk to the long party (which is not unfounded since you are, as the short, going to renege on fulfilling the obligation). Short call thus becomes a liability as well.

CP

TOP

Colum

Rank: 2

UID
222311 
帖子
394 
主题
19 
注册时间
2011-7-2 
最后登录
2016-8-1 
8#
发表于 2011-7-13 17:02 | 只看该作者
There is definitaly credit risk to the long as the short could always renege - that's the definition of credit risk right there. However, I'm not sure there is NO mkt or liquidity risk in options trading.

For mkt risk you still hold an asset that can fluctuate in price, really the issue would lie in whether you intend to sell it(or unwind the position) or let it expire. If you unwind the position you are certainly at the mercy of the mkt prices of the option available at that time. I'm not sure you can exclude mkt risk based on intent (Bonds still have mkt risk whether you plan on holding till maturity or just trying to capture a narrowing spread return)

For liquidity risk, I'm sure some options are easier to sell in the market than others. If you are planning to unwind your position you may not be able to find a counterparty in time and end up with an assignment you didn't want. (this may be why you reneged - bringing the credit risk to a reality - because your option was too illiquid to unwind!)


Just a couple of thoughts. Anyone agree?

TOP

former

Rank: 3Rank: 3

UID
222293 
帖子
680 
主题
67 
注册时间
2011-7-2 
最后登录
2016-4-19 
9#
发表于 2011-7-13 17:02 | 只看该作者
Thanks. I'll keep the discussion relevant to the exam.

Options is asymmetric -- naked call is much risker than buying call. The financial risks are Market, Credit and Liquidity risks. That's my basic thinking.

The call writer bears no Credit Risk, I have no problem with it. What does the largest risk a call option writer take?

TOP

bpdulog

Rank: 3Rank: 3

UID
222299 
帖子
420 
主题
7 
注册时间
2011-7-2 
最后登录
2015-12-15 
10#
发表于 2011-7-13 17:02 | 只看该作者
the credit call can be unlimited as the profit is not limited

TOP

返回列表
上一主题：Thoughts on my next approach
下一主题：Options - underpriced/overpriced puts