Question

6- On January 11, I purchased a call option on Exxon at a premium of $14.5, exercise price of $50 and March 15, maturity. On January 21,I decide to close my position by buying a put option on Exxon at a premium of $8.5, exercise price of $50 and March 15, maturity. Is my original position closed? Comment critically.

Answer 1

Hello

Call Option provides a right to buy the security at the exercise price at the maturity date, while Put Option Provides a right to sell the security at the exercise price.

Hence, purchasing a call option provides a right to buy whereas purchasing a put option provides a right to sell. Both the contracts provides a different right. Hence, buying the put option after buying a call does not cancel call. It just provides a hedge against call option, but does not closes the call option position.

Thanks!

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