Option Writer
The party that sells an option and takes on the obligation to perform if the holder exercises.
How it is identified
Test: the party received the premium at inception and must deliver or take delivery at the strike if assigned
Unit
qualitative
In depth
Writing is the mirror of buying only in cash terms, not in risk: the writer's gain is capped at the premium while the loss can be many multiples of it. Writers must post margin, and that margin is recalculated daily and can rise sharply when volatility increases, so a position can require more capital precisely when it is losing. Assignment can occur at any time for American-style options, and in India single-stock options are American-style and physically settled, so assignment brings a delivery obligation. Writing is often presented as a steady income strategy, which describes its usual outcome and not its risk.
Worked example
A writer collects ₹22,500 in premium and posts ₹1,80,000 of margin. A move that triples the option's price creates a ₹45,000 mark-to-market loss and a margin call, both before expiry and regardless of where the contract eventually settles.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Option Writer” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.