NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
In the options market, the term 'writer' of an option refers to which of the following?
The writer of an option is the seller, who receives the premium from the buyer and takes on the obligation to buy or sell the underlying if the buyer exercises. The buyer pays the premium and holds the right only.
- AThe party who buys the option and pays the premium
- BThe party who sells the option, receives the premium and takes on the obligation if exercisedCorrect
- CThe clearing corporation that guarantees settlement
- DThe exchange member who executes the order for the buyer
Explanation
An option writer is the seller. The writer receives the premium upfront and is obliged to perform if the buyer exercises. The buyer holds the right and pays the premium, so the first option describes the holder, not the writer.
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