What does it mean when you “write” an option? In what situation would you want to write...

What does it mean when you “write” an option? In what situation would you want to write a call? In what situation would you want to write a put?

Expert Solution

Writing an option is means selling the option. That is you are going short on the respective option. You get a premium (as a fees) for selling it.

It is a financial contract in which you sell a right to buy or sell a share at a pre-fixed price, in exchange for a premium.

The situation in which you write the call option.

When the writer is of the opinion share price will stay below the strike price and the call will lapse.

So that he can benefit from the premium.

Even if share price will goes above the strike price, he believes it will go slightly above strike price such that he will earn a small profit.

The situation in which you write put option.

When the writer is of the opinion share price will stay above the strike price and put will lapse.

So that he can benefit from the premium.

Even if share price will goes below the strike price, he believes it will go slightly below strike price such that he will earn a small profit.

jeff jeffy answered 2 years ago

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