Overwrite

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Overwrite

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.