NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
In the options market, the term 'writer' of an option refers to the party who:
The option writer is the seller who receives the premium and takes on an obligation to perform the contract if the buyer exercises. The buyer holds the right and pays the premium, whereas the writer carries potentially large risk in return for the premium income.
- APays the premium and obtains the right to exercise
- BReceives the premium and takes on an obligation to perform if the buyer exercisesCorrect
- CActs only as a clearing member for the contract
- DHolds the contract until expiry without any obligation
Explanation
The option writer (seller) receives the premium from the buyer and is obliged to perform if the buyer exercises. The buyer pays the premium and holds the right, not the obligation. A clearing member only guarantees and settles trades.
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