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Firstly, your lecture on the option pricing was fantastic, combined with the notes my concepts are much clearer as compared to the ones I had previously.
Just a quick one, with reference to the short call and put, I can understand the concept of a delta hedge and how a short call / a long put would address the concern of Martin at your example.
Just wanted to be clear about my understanding about short call or put, would this mean that a person doing shorts – is effectively an underwriter (may be the selection of the word could be different), and long as a buyer of that option?
‘shorts’ can actually mean different things.
However usually what it is is that you are able to sell shares/options or whatever before you buy. You can sell first (even though you do not have anything) and then buy later. So, if the price of the instrument falls, you make a profit because you sold when the price was high and then sell later when the price is lower.
This is known as short selling.
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