Grantor

What is a 'Grantor'

A grantor is seller of either call or put options who profits from the premium for which the options are sold. Options are sold through exchanges to option holders who are responsible for the payment of the premium. The term can also refer to the creator of a trust – the individual whose assets are put into the trust – regardless of whether the grantor also functions as the trustee.

BREAKING DOWN 'Grantor'

Synonymous with "option writer," a grantor creates contracts for selling options for an underlying interest or asset. For example, say a grantor has sold a call option or assumed a short position in a call option. If the call option is exercised, then the grantor has to sell the underlying stock at the strike price. Conversely, if the grantor sells a put option, the grantor is said to be long and must purchase the underlying stock at the strike price. Serving the function of an option writer is relatively risky, especially on a naked position when the writer does not actually have possession of the asset involved in the contract.

Options Contracts

Options are contracts that provide the buyer and seller the right, but not the obligation, to purchase or sell a particular asset at a specified price, referred to as the strike price, on a particular date. These contracts are supported by the presence of the underlying asset, which may be comprised of a particular stock, an exchange-traded fund (ETF) or another applicable financial products.

The options writer, or grantor, has no authority as to whether the option will be exercised before the contract expires. In cases where a grantor anticipates a loss based on his position, he can choose to participate in a secondary deal with another party designed to offset the risk associated with the obligation.

Trust Creation

The grantor is the person who creates a trust, and the beneficiaries are the persons identified in the trust to receive the assets. The grantor may also be referred to as the settlor, trustmaker or trustor.

The assets in the trust are supplied by the grantor. The associated property and funds are transitioned into the ownership of the trust. The grantor may function as the trustee, allowing him to manage the property contained therein, but it is not required. If the grantor is the trustee, the trust is referred to as a grantor trust. Non-grantor trusts are still funded by the grantor, but control of the assets are relinquished, allowing the trust to function as a separate tax entity from the grantor.

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