DEFINITION of 'Overwriting'

An options strategy that involves the sale of call or put options on stocks that are believed to be overpriced or underpriced, with the assumption that the options will not be exercised. Overwriting is a speculative strategy that some option writers may employ when they believe the underlying security is incorrectly valued, in order to collect a premium.

Also called overriding.

BREAKING DOWN 'Overwriting'

The writer of an option has an obligation to perform a certain action, while the holder of the option is not obligated to perform any action. Overwriting is a technique used by speculative option writers to attempt to profit from the premiums paid by option buyers for option contracts the writer hopes will simply expire without being exercised. Because the holder could exercise the option, this strategy is considered risky and should only be attempted by those with a comprehensive understanding of options and options strategies.

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  4. Writer

    The seller of an option who collects the premium payment from ...
  5. Put

    An option contract giving the owner the right, but not the obligation, ...
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    A principle that defines the relationship between the price of ...
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