will my brokerage account receive some stocks after someone exercises put options that I wrote?

External question — Personal Finance Stack Exchange Author: govordovsky Original post: https://money.stackexchange.com/questions/151565 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I have some basic knowledge of how options operate. I have limited practical experience buying calls, and puts. I never tried shorting options, and before doing so, wanted to clarify some basic questions. am I right that terms “short selling” and “writing” in case of options mean the same thing? in my brokerage account (interactive brokers), I don’t see anything like “write option”. I see only “buy” and “sell”. So, if sell an option that I don't own, I basically “write” it? am I right that: when I sell options (that I don’t have), nothing like borrowing happens (like in short-selling stocks, when behind the scenes you borrow stocks from someone else). am I right that: when I sell options (that I don’t have), I “create” them? And the last question: Let's say stock FOO trades at price $P. I sold 10 out of the money put options with the strike price $S < $P. Now, when I login to my IB account, I’m seeing smith like “FOO (put $S) -10” indicating that I have a short position of size -10. One day stock price drops below $S to price $T < $S The put options holder now decides to exercise all 10 options and sells 10 x 100 = 1000 stocks at price $S to me. I’m obliged to buy them. In that case, am I right, that if I login to my IB account I’ll observe that: I no longer hold FOO (put $S) -10” position Instead there will be a long position of stock FOO +1000 I'll also observe that I have less cash, because I was obliged to buy 1000 of FOO stocks So, those changes will happen to my account even though I didn't do any actions myself? simply because somebody exercised options that I wrote?

External answer — Personal Finance Stack Exchange Author: Aganju Original post: https://money.stackexchange.com/a/151567 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Yes, yes, yes, yes, and yes. When you write / short sell an option, you are assumed to know what you are doing, and what the potential consequences are.

External answer — Personal Finance Stack Exchange Author: D Stanley Original post: https://money.stackexchange.com/a/151568 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. In options it's just "selling". "Short selling" is more commonly used to describe borrowing securities and selling them, so you owe (are "short") the securities. With options you just buy and sell contracts. But "sell" is the same as "write". And if you sell to open a position you are "short" the option. Yes Yes Possibly, but it really doesn't matter. You may be selling a contract to somebody that is closing out a position, so no new contract is created. But that's just minutia of the options market and isn't pertinent to your activity. It's much more common that the holder of the option will sell it rather than exercise it. Options are almost always worth more than the profit that is made by exercising them. In that case, their option will be sold to a different participant, again all transparent to you. But yes, if your short put option is exercised you are obligated to buy the security. But, just like the holder is better off selling, exercising early will almost always be a smaller loss than if you were forced to buy back the option for some reason.