From the course: Finance Foundations: Risk Management

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Financial solutions: Seller options

Financial solutions: Seller options

From the course: Finance Foundations: Risk Management

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Financial solutions: Seller options

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- Until now, we've talked about option buyers, so let's talk about option sellers. There are two sides to an option contract and the seller of an option is also called the option writer. If a contract is going to pay out for the option buyer and the buyer is in the money, the option sellers said to be out of the money. In this case, for the seller out of the money means that they will be actually out some money that they will need to pay the buyer. Let's take that oil call option with a strike price of 50. It's a call option, so if the oil price goes to $55, the contract is in the money for the option buyer by $5, because the price of oil is $5 above the strike price for that call option. For the seller of the option contract, that contract is said to be out of the money by $5, because if the call buyer exercises the option, the seller will be out $5, he will have to pay that $5 to the buyer. Of course, the seller also got…

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