option writer

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Option writer

Option Writer

One who originally sells an option contract. In exchange for the premium, the option writer takes on an obligation to buy or sell (depending on the type of option) the underlying asset at the discretion of the option holder. For example, in a call, the option writer must sell the underlying asset to the option holder if the holder decides to exercise the option. If the option writer does not already have a long position in the underlying asset, he/she must obtain one so as to sell the position and fulfill the contract.

option writer

The seller of a call option or a put option in an opening transaction. The option writer receives a premium and incurs an obligation to sell (if a call is sold) or to purchase (if a put is sold) the underlying asset at a stipulated price until a predetermined date. See also writing.
References in periodicals archive ?
In sum, option writers are generally willing to accept the risks of
deductions for option writers would also have adverse collateral
their creation, and that option writers are effectively financing option
Option writers, however, quote their prices based on the volatility of the log closing price change [[sigma].
They also note that option writers should be compensated for bearing the risk of shocks in volatility.
This right/obligation asymmetry that is inherent in options prompts the risk-averse option writers to mark up the premium to account for any unexpected hike in volatility.
In the second scenario, dynamic hedging strategies used by option writers produce selling pressures that impair market liquidity and amplify price declines, and, in the event, render the dynamic hedges ineffective.
Option writers command more premium for taking that risk, but the proportional price increase in premium is far larger the nearer the option is to expiration.
Essentially, an option writer is likely to earn more premium by writing a series of short-term combinations versus one longer-term combination.
Using our hypothetical example as a basis, an option writer can earn 10.
Credit enhancers and option writers efficiently price principal protection options, guarantees and total rate of return swaps for the structures built on a consistent volatility platform.