Options writing

Options writing

Options writing is a term used to describe any option trading strategy that involves selling options. The primary objective in writing options is to earn the premium paid by the option buyer. An option writer sells options intending to profit from the decline of extrinsic value on options, referred to as time value. If the option expires without being exercised, the writer keeps the full amount of the premium. [1] If the option buyer exercises the option, however, the writer must pay the difference between the market value and the exercise price.[2]


The term option writing, however, does not refer to any actual writing of a contract.


Option writing strategies include covered calls, Naked calls naked puts, bear call spreads and bull put spreads. If the writer offsets (closes) an open position at a lower price than at which it was opened, the writer realizes a profit.[2]


References

  1. ^ Selling Options 21 September 2009
  2. ^ a b McMillan, Lawrence G. (2002). Options as a Strategic Investment, 4th ed., New York : New York Institute of Finance. ISBN 0-7352-0197-8

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