Selling Options

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At this point, you might well ask, who sells the options that option buyers purchase? The answer is that options are sold by other market participants known as option writers, or grantors. Their sole reason for writing options is to earn the premium paid by the option buyer. If the option expires without being exercised (which is what the option writer hopes will happen), the writer retains the full amount of the premium. If the option buyer exercises the option, however, the writer must pay the difference between the market value and the exercise price. It should be emphasized and clearly recognized that unlike an option buyer who has a limited risk (the loss of the option premium), the writer of an option has unlimited risk. This is because any gain realized by the option buyer if and when he exercises the option will become a loss for the option writer.

	Reward	Risk
Option Buyer	Except for the premium, an option buyer has the same profit potential as someone with an outright position in the underlying futures contract.	An option maximum loss: is the premium paid for the option
Option Writer	An option writer's maximum profit is premium received for writing the option	An option writer's loss is unlimited. Except for the premium received, risk is the same as having an outright position in the underlying futures contract.