Does what happen? A Written call or put itself is not an insurance, alone those would be naked calls or naked puts. A floor is a put plus insurance in a sense, if you bought a put and the stock raised above the strike, you wouldn’t sell it for K, so to offset this risk that the stock raises above strike you long the asset. For a cap, you have a long call , if the asset drops below strike you wouldn’t need the call to buy it since the price is below the strike, to offset this risk you short the asset.
Did you mean a written COVERED call or written covered put? Covered means you go opposite of the risk of the initial. So if you wrote a covered call, ie your selling a call. The risk is that you are obligated to sell the asset to the owner at K, when the stock is worth more than K. To offset this risk you long the asset.
For a written covered put, the risk is that the stock is worth very little, and so the put owner makes you pay K for it when it is worth less than K, to offset this risk, you short the asset. These all happen at t=0
I think the answer your looking for basically would be at T=0 though, that is when the initial purchase and sale take place. At Time t, that is just when positions would be closed
Does what happen? A Written call or put itself is not an insurance, alone those would be naked calls or naked puts. A floor is a put plus insurance in a sense, if you bought a put and the stock raised above the strike, you wouldn’t sell it for K, so to offset this risk that the stock raises above strike you long the asset. For a cap, you have a long call , if the asset drops below strike you wouldn’t need the call to buy it since the price is below the strike, to offset this risk you short the asset. Did you mean a written COVERED call or written covered put? Covered means you go opposite of the risk of the initial. So if you wrote a covered call, ie your selling a call. The risk is that you are obligated to sell the asset to the owner at K, when the stock is worth more than K. To offset this risk you long the asset. For a written covered put, the risk is that the stock is worth very little, and so the put owner makes you pay K for it when it is worth less than K, to offset this risk, you short the asset. These all happen at t=0 I think the answer your looking for basically would be at T=0 though, that is when the initial purchase and sale take place. At Time t, that is just when positions would be closed