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. Writer

    The seller of an option who collects the premium payment from ...
  3. Option

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

    1. Excessive buying and selling of stocks by a broker on an investor's ...
  5. Put

    An option contract giving the owner the right, but not the obligation, ...
  6. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all ...
Related Articles
  1. Naked Call Writing: A Risky Options ...
    Options & Futures

    Naked Call Writing: A Risky Options ...

  2. The Basics Of Covered Calls
    Options & Futures

    The Basics Of Covered Calls

  3. Options Basics Tutorial
    Options & Futures

    Options Basics Tutorial

  4. Should Your Options Go Naked?
    Options & Futures

    Should Your Options Go Naked?

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center