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No. of Recommendations: 2
RBMunkin: 3. The seller must think TESLA is going to crash, since the share price is MUCH higher than that now

captainccs has already answered from his perspective as a Call seller. I just want to add some additional thoughts.

First, let me commend you for trying to think about what could be motivating the counter party in an options transaction. It's very appropriate to be aware that there IS a person on the other side of each and every transaction (yes, sometimes, there's a market maker in the middle...but lets leave that aside for now).

And one aspect of this is to think, "I'm doing my buying of a Call expecting to benefit by ______." I'm going to assume that the counter party is selling also expecting to benefit. But how can both of us benefit??

In other words, options transactions are not necessarily a zero sum game, transactions in which one party's gain is another party's loss.

I have shares in AAPL for which my basis is around $19. AAPL is now in the vicinity of $130, higher some days, lower others. It has grown to be a larger presence in my overall portfolio than I need or want it to be. I'm willing to sell some of it to get cash to invest in other areas (or simply, as a retiree, to fund the RMD I now am required to take from the IRA in which those shares sit). So I set up a covered Call, willing to let it go if it goes another 8 or 9% higher, NOT AT ALL because I'm "expecting it to crash"; rather, I'm expecting it to continue to grow and want to keep the balance in my portfolio something I'm comfortable with. So as a seller, I benefit from selling that Call. You benefit as well, because you'll get in on a stock (if you choose to exercise at expiration) at a good price [nowhere near as good as I got 7 or 8 years ago, but..].

Another scenario briefly: I worked for a major corporation, one that gave every full-time employee stock options every year. There were factory workers who retired as millionaires due to that corporate generosity. Higher level employees as well. Many of them, I heard--especially top level execs--would routinely be selling Calls, happy to get the extra income and keep rolling, but equally content to have some of the shares called away through assignment. [As an aside, it's one reason "insider selling" doesn't indicate a reason to panic...the very top execs are required to do selling of those stock option acquired shares on a scheduled basis, so that it's not a case of insider knowledge triggering sales. Not with reputable companies at any rate.]

Anyway, as captainccs said, you have no idea why somebody is selling the option. I just want to extend his point to suggest you try to think of how the counter party may be viewing the transaction quite positively. One of the wonders of open market trading, in fact, is that both parties benefit in some way. That free market truism is true in the options market as well.

mathetes
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