Right. A call is an option contract. It’s a different instrument than the underlying shares of stock. You can be short a call option and not short shares. You’re still executing a bearish play on the stock, but you’re not shorting the stock.
If you get assigned on your call (unless it’s cash-settled), you will have to produce the shares to give to the contract holder. If you didn’t already have the shares, you will end up with a short position in the stock, which you will eventually have to cover by buying stock.
You can construct a synthetic short stock position using options, by selling a call, but you also have to buy a put at the same strike and expiry. This will behave very similarly to (typically) 100 short shares.
Oh so in this case you’re selling a call, but you can’t be said to be “shorting the stock” because you still benefit from a higher price?
Right. A call is an option contract. It’s a different instrument than the underlying shares of stock. You can be short a call option and not short shares. You’re still executing a bearish play on the stock, but you’re not shorting the stock.
If you get assigned on your call (unless it’s cash-settled), you will have to produce the shares to give to the contract holder. If you didn’t already have the shares, you will end up with a short position in the stock, which you will eventually have to cover by buying stock.
You can construct a synthetic short stock position using options, by selling a call, but you also have to buy a put at the same strike and expiry. This will behave very similarly to (typically) 100 short shares.