In contrast to buying options, selling stock options does come with an
obligation - the obligation to sell the underlying equity to a buyer if that
buyer decides to exercise the option and you are "assigned" the
exercise obligation. "Selling" options is often referred to as
"writing" options.
When you sell (or "write") a Call - you are selling a buyer the
right to purchase stock from you at a specified strike price for a specified
period of time, regardless of how high the market price of the stock may climb.
Covered Calls
One of the most popular call writing strategies is known as
a covered call. In a covered call, you are selling the right to buy an equity
that you own. If a buyer decides to exercise his or her option to buy the
underlying equity, you are obligated to sell to them at the strike price -
whether the strike price is higher or lower than your original cost of the
equity. Sometimes an investor may buy an equity and simultaneously sell (or
write) a call on the equity. This is referred to as a "buy-write."
