Purchase or Write Options

You may purchase either a call or a put, although it may sound strange to purchase the right to sell.

You may either purchase or write an option -- either a call or a put. Remember, an option is a contract between a purchaser and a writer. An option writer collects the premium as income from the purchaser. The writer of a call must be ready to have her spot position called away or purchase a spot position if the buyer exercises her option. The writer of a put must be ready to purchase (or repurchase) the spot position from the buyer of the put.

If a writer holds a spot position when he enters an options contract, he is said to be a covered writer.
If he does not hold a position, he is said to be uncovered, or a naked writer.

Generally, an options purchaser does so for profit or protection. An options writer does so for income or protection.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

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