Option seller

Option seller/writer is someone who receives the option premium from the buyer and assumes the obligation to sell shares in case of call options and to buy shares in case of put options if the buyer exercises on him.

It’s important to note, that there are 2 parties in the option contract and each option seller corresponds to the option buyer. Naturally, as with any trade transaction, the seller receives a premium from the buyer. Basically, the obligations of option sellers correspond to the rights that can be exercised by option holders and only to the extent indicated in the option contract. Therefore, the short position on the call option held by the option seller is the obligation to sell the underlying asset at a certain price (strike price) before/on a certain date. It’s important to know that the short position on the put option held by the option writer acts as an obligation to buy the underlying asset at a strike price before/on a predetermined date.

Suppose, the option contract has the following features:

  • Strike price is $80
  • Option price is $15
  • Expiration date is November, 20

The option seller receives $15 as the premium and the buyer since that time becomes the option owner. If it comes to the call, the buyer will strive to exercise his contract if the price is above $95 when the option is in-the-money and then the seller will have to fulfill his obligation.

Options Glossary