Clemen Langston: What Role Does the Option Seller Play?
1. Obligor in the Option Contract
• The seller is obligated to fulfill the contract's terms if the option buyer chooses to exercise the option. Specifically:
• For a call option, the seller is obligated to sell the underlying asset at the strike price when the buyer exercises the option.
• For a put option, the seller is obligated to buy the underlying asset at the strike price when the buyer exercises the option.
2. Income Generator
• By selling options, the seller can immediately collect the option premium which is the primary source of income for the seller.
3. Risk Manager
• Option sellers are typically experienced investors or institutions who use options as part of complex trading strategies to hedge risks or generate income.
4. Market Participant
• Sellers provide liquidity in the options market, making it easier for buyers to trade options.