writing a call or put

means selling a call or put???

Yeah if you write a call or put you are on the short side of the call or put. Just think if you write it, you are hoping someone will buy it (go long).

and why writing a call is the riskiest single option transaction???

because it is the only option transaction in which losses can be unlimited. If the stock goes to a billion, it could still go to 2 billion.

Yeah I remember hearing Buffet’s stock Bershirehathway was at like $50,000 a share or something, how would you like to write a call option on that?

There’s no listed options for BRK-A or B shares.

I don’t want to confuse you guys but we should try to be correct here. No, writing a call is not the same thing as selling a call, as it depends on the context. The more appropriate wording I use is short or long calls. Writing a call - otherwise known as ‘sell to open’ - this is where you receive a premium and open a contract with someone who buys the call. You are “writing” the contract. HOWEVER, if you were long a call (you bought a call option) and now you want to sell it (you’d want to do this because in very rare cases you’d actually want to exercise) you could still technically say you are “selling the call option.” In this case though, you are ‘selling to close’ which means you are offsetting your long position and closing out your position, exactly like how you learned in the futures chapter. The key to watch here is whether or not you were initially in a position or not. So if I initially sell a call (and had no prior position), that means I wrote the call option. If I was long a call option and now I want to sell it, it could still be called “selling the call option.” You might these below terms used from your broker to separate these ideas when you actually go to trade options: Call: Buy to open - long call (buy the call option) Sell to close - sell your call (offset your long position and exit the contract eliminating your exposure) Sell to open - Write a call/short a call. Buy to close - Buy back your call from the market, hopefully at a lower premium than what you made initially writing it (offset your short position and close out your position) Repeat for puts.

For purposes of taking the exam, it is safe to assume writing = selling. As my Stalla instructor once said, “This is not reality. This is the world according to the CFA Institute.”

He he… So the call writer is selling a call. But a call seller is not necessarily writing a call… (don’t worry about that for test day though… write=sell in most discussions) BTW, I got my charter recently and am struck by how many things from L1 I’ve forgotten (though admittedly I feel like I could get back into it with a quick review).

Yep, “I bought those GS 120 calls. I’ve gotten killed in them. Maybe I should just write them and take the tax loss” As Ali points out, makes no sense.