How can the writer of, say, a call option cancel or reverse the position and its obligation (to deliver shares) before the option is exercised or the expiration date reached?
Can an option that has been written be "cancelled", per se? Assuming not, what's the right way to get out of the obligation undertaken after having written an option contract?
Remember writing a call is the same as being short a call, aka, selling-to-open. The correct method to cancel the obligation is to buy-to-close that same contract on the open market.
Most brokers offer a drop-down list in the order entry tab, just select buy-to-close instead of sell-to-open. From Investopedia - Definition of 'Buy To Close'
The closing of a short position in option transactions. Buying to close involves taking an opposing position from the short position which is no longer desirable, in order to synthetically close out exposure to the position. The new long position's performance should net out with the short position's. It's a strategy used by many brokerages.
Investopedia explains 'Buy To Close'
Investors can buy to close either puts or calls, or a combination of the two, and thus will be relinquishing obligations associated with the option(s). The distinguishing factor of a buy to close is that the option position must have been held short in the account during the transaction. This is a common practice as it is not uncommon for option positions to be closed prior to maturity.
