Overwriting

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Call

    1. The period of time between the opening and closing of some ...
  2. Option

    A financial derivative that represents a contract sold by one ...
  3. Overtrading

    1. Excessive buying and selling of stocks by a broker on an investor's ...
  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, ...
  6. Smart Beta

    Investment strategies that emphasize the use of alternative weighting ...
Related Articles
  1. Options & Futures

    Naked Call Writing: A Risky Options Strategy

    Learn about this aggressive trading strategy to generate income as part of a diversified portfolio.
  2. Options & Futures

    The Basics Of Covered Calls

    Learn how this simple options contract can work for you, even when your stock isn't.
  3. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  4. Options & Futures

    Should Your Options Go Naked?

    Compare naked strategies to credit spreads and see if the unlimited risk of going naked is worth it.
  5. Options & Futures

    Going Long On Calls

    Learn how to buy calls and then sell or exercise them to earn a profit.
  6. Trading Strategies

    The 10 Worst Mistakes Beginner Traders Make

    Traders generally buy and sell securities more frequently and hold positions for much shorter periods than investors, which can result in costly mistakes.
  7. Options & Futures

    What is the difference between arbitrage and hedging?

    Dive into two very important financial concepts: arbitrage and hedging. See how each of these strategies can play a role for savvy investors.
  8. Options & Futures

    A Detailed Look Into China's Options Market

    As the Chinese options market gradually takes shape, we provide an overview, including details of the initial phase and building blocks, primary beneficiaries, the impact on the overall financial ...
  9. Trading Strategies

    Rise and Shine With This Pre-Market Checklist

    Your pre-market routine sets the stage for the rest of the trading day. Use this comprehensive checklist to get up to speed, ahead of the opening bell.
  10. Options & Futures

    How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option writing.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center