An option strategy that involves
writing more
option contracts than the
writer expects to have exercised. A writer overwrites contracts in order to collect the
premiums. He/she chooses the
securities underlying the contracts based on whether they are
overvalued or
undervalued. One overwrites
calls if one believes that the underlying securities are overvalued because one expects a
price correction that will result in the calls going
out-of-the-money. For the same reason, one overwrites
puts if one believes that the underlying securities are undervalued.