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"Can I write or buy options at any strike price?"


Question By Mayor

"Can I write or buy options at any strike price?"

Can I write and buy an option position at any strike price I wish even with high difference between the underlying stock current price and my option's order strike price? Will I be able to find a buyer or seller for all my open position or order?

Asked on 29 March 2009

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Answered by Mr. OppiE

Hi Mayor,

Yes, in options trading, you can buy or write options at any strike price at all even if there is a big difference between the price of the underlying stock and the strike price. For instance, if AAPL is trading at $100, you can buy or write its $70 strike price or even the $120 strike price call options if you want to. Both in the money options and out of the money options have their own advantages and disadvantages so you need to know exactly why you choose to trade a certain strike price but yes, you can choose to buy or write at any strike price at all in options trading.

You need to take note that margin requirement is different when writing options of different strike prices. In general, margin requirement is lower for writing out of the money options than it is for writing in the money or at the money options due to the lower risk of loss.

In options trading, you don't have to worry if you will be able to find someone to sell you the options or buy from you because it is the job of the exchange to do that. In reality, when you buy options from an exchange, you are really buying the options from a market maker. A market maker is a member of the exchange who is responsible for maintaining a liquid market by selling options to investors from their own inventory of options and to buy options from investors back into their own inventory. All you have to do is to make sure that the option you are buying or writing has good liquidity as indicated by its volume and open interest.




In conclusion, there are no restrictions on which strike price you can buy or write options at as long as you have enough funds to fulfill the higher margin requirement of writing in the money options. You don't have to worry about getting people to sell you options you wish to buy nor need you worry about getting someone to buy the options you are writing because you are really doing it with a market maker whose job is to buy from you and sell to you.


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