what is an option writer 
a writer sometimes referred to as a grantor is the seller of an option who opens a position to collect a premium payment from the buyer writers can sell call or put options that are covered or uncovered an uncovered position is also referred to as a naked option for example the owner of 100 shares of stock can sell a call option on those shares to collect a premium from the buyer of the option the position is covered because the writer owns the stock that underlies the option and has agreed to sell those shares at the strike price of the contract a covered put option would involve being short the shares and writing a put on them if an option is not covered the option writer theoretically faces the risk of very large losses if the underlying moves against them understanding the writeroption buyers are given the right to buy or sell an underlying security within a certain time frame at a specified price by the option seller or writer for this right the option has a cost called the premium the premium is what option writers are after they get paid upfront but face high risk if uncovered if the option becomes very valuable to the buyer for example a put writer is hoping an underlying stock won t drop below the strike price the buyer is hoping it will the further below the put s strike price the underlying falls the larger the loss for the writer and the bigger the profit for the put buyer an option is uncovered when the writer does not have an offsetting position in the account for example the writer of a put option who agrees to buy shares at the contract s strike price is uncovered if there is not a corresponding short position in their account to offset the risk of buying shares the writer faces potentially large losses if the options they write are uncovered that means they don t own shares they write calls on or don t hold short shares in the options they write puts on the large losses can result from an adverse move in the underlying s price with a call for example the writer is agreeing to sell shares to the buyer at the strike price say 50 but assume that the stock currently trading at 45 is offered a buyout by another company for 70 per share the underlying instantly launch to 65 and oscillates there it doesn t go to 70 because there is a chance the deal won t go through the writer of the option now needs to buy shares at 65 to sell them at 50 to the option buyer if the buyer exercises the option even if the option hasn t expired yet the option writer is still facing a large loss since they will need to buy the option back for roughly 15 more 65 50 than they wrote it for to close out the position the primary objective for option writers is to generate income by collecting premiums when contracts are sold to open a position the largest gains occur when contracts that have been sold expire out of the money for call writers options expire out of the money when the share price closes below the strike price of the contract out of the money puts expire when the price of the underlying shares closes above the strike price in both situations the writer keeps the entire premium received for the sale of the contracts 