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Selling Options
Who sells the options that option buyer's purchase? The answer is that other commodity market participant's known as option writers, or grantors sell options. 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 the objective the option writer hopes to attain, the writer keeps the full amount of the premium. If the option buyer exercises the option, however, the writer must pay the difference between the option 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
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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. |
 Option Premiums Commodity Futures Menu In Closing 
Information is believed to be reliable and is provided 'as is' without warranty.
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