What happens when your option contract expires
What happens to all options when they expire?
First, "Most options traders don't want to buy or sell the underlying stocks."
This is totally wrong
Perhaps the problem is that you are only familiar with the BUY side of options trading.
On the sell side of options trading, an option switch deals with DELTA HEDGING. When we sell an option to a customer. We will also buy a reasonable amount of Underlyings that corresponds to the option's delta position.
During the term of the option. We will adjust our hedging position if the delta changes (those who follow Black Scholes will know that this is usually due to (underlying) price changes).
However, we lose money with every underlying change (we have to cross the bid-ask spread for every trade). That is why we lose money when there is volatility. That is why we are called "Short VEGA" or "Short Volatility".
One way to think about "buying" options is to have you pay someone to perform a particular trading strategy.
In general, those who sell options are also happy to buy back options (at a discount, of course, so we can make a profit). In doing so, however, we have to reduce our hedging position, which in turn generates costs (for us, the bank).
In the end. As this is "money" batch swap rather than funding. They are most likely referring to "warrants" rather than "options" listed on exchanges. Exchanges in most regions give us very specific and restrictive rules that we have to adhere to. A very common one is that we MUST always quote a price at which we are willing to buy back the warrants (which may not be an unreasonable spread from the sell price).
Since an option is a synthetically created investment vehicle, when we buy back the option from the investor, we simply dissolve the underlying hedging positions with which we have synthesized the options.
Source: I worked as a desk developer on a warrant desk for 2 years.
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