<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->
  1. Introduction to Stock Trader Types
  2. Stock Traders’ vs. Stock Investors' Roles in the Marketplace
  3. Decision-Making Methods: Informed, Uninformed, Intuitive
  4. Informed Traders: Fundamental Traders, Technical Traders
  5. Swing Traders
  6. Buy and Hold Traders
  7. Value Traders
  8. Trend Traders
  9. KISS Traders
  10. Momentum Traders
  11. Range-bound Traders - Break-out Traders - Channel Traders
  12. Options Traders
  13. Options Seller Traders
  14. Day Traders
  15. Pattern Day Traders
  16. Intra-Day Traders
  17. Intra-Day Scalp Traders
  18. Contrarian Traders
  19. Active and Passive Traders
  20. Futures Traders
  21. Forex Traders
  22. Online Stock Traders
  23. Pivot Traders
  24. News Traders
  25. Noise Traders
  26. Sentiment-Oriented Technical Traders
  27. Intuitive Traders
  28. Price Action Traders
  29. Price Traders
  30. Detrimental Traders
  31. Unsuccessful Types of Stock Traders
  32. Conclusion

Options seller traders are in the business of selling stock options. When they do, they take on an obligation to sell the underlying equity to a buyer, should that buyer decide to exercise the option. “Selling” options in this way is often referred to as “writing” options.

An options seller who sells a call is selling a different buyer the right to purchase stock from them for a specified price and over a specific period of time. This is taken independently of how high the market price of the stock may be during that period.

There are two general methods of writing options:

Covered calls

In the case of a covered call, the option seller owns the underlying stock in question. Thus, they are selling the right to buy an equity that they already own. There are restrictions as to how much of the stock the caller must already own, and when a buyer decides to exercise his or her option, the trader must then sell them the stock at the strike price. On occasion, an investor may buy an equity and also sell a call on the equity at the same time. This is known as a “buy-write.”

After the options seller sells the covered call, three things can happen:

1) The option will expire as worthless (meaning that the buyer never exercised the right to buy the stock).

2) The options seller is “called out,” meaning that the buyer exercises the right to buy the stock and completes the transaction.

3) The price of the stock drops dramatically, and the options seller can’t do anything with the shares so long as the covered call is still an open trade. Sometimes the seller will buy the option back in this case.

Naked (or uncovered) Calls

In this case, the option seller does not own the underlying stock linked to the option. As you might expect, there is significant risk to this practice. Options sellers using the naked option often utilize a strategy called “options greeks.” Although this process is risky, it can also be the most profitable, and these sellers attempt to not get involved in buying stock.

Here’s an example:

An options seller trader writes a call on a stock for a premium of $2 when the current market price is $20 and the strike price is $25. They take in $200 in premium.

Two things can happen:

1) If the stock price stays under $25, then the buyer’s option expires worthless, and the seller gains the premium.

2) If the stock price increases—say, to $30—and the option is exercised, they are required to buy 100 shares of the stock at the market price, and then to sell it for $25. They would then lose $300 in total, constituting the difference between their total $3,000 purchase cost for the stock and the proceeds of $2,500 for the sale of exercised options and the $200 premium.

Selling put options

Options seller traders often sell puts as well. In this case, they sell put options hoping that they will expire so that they can process the premiums. Covered and naked puts work in much the same way as covered and naked calls, in that they refer to situations in which the put option seller is short the obligated quantity of the underlying security or not.

Options sellers tend to work best when implied volatilities are high. In these cases, they are able to bring in more premium income. Still, there is considerable risk associated with selling options.

Day Traders
Related Articles
  1. Investing

    What are Options Contracts?

    An explanation of options contracts, call options and put options.
  2. Trading

    When Should I Sell A Put Option Vs A Call Option?

    Beginning traders often ask not when they should buy options, but rather, when they should sell them.
  3. Trading

    The Ins and Outs of Selling Options

    Selling options can seem intimidating, but with these tips you can enter the market with confidence.
  4. Trading

    The Basics Of Option Price

    Learn how options are priced, what causes changes in the price, and pitfalls to avoid when trading options.
  5. Trading

    Trading Options on Futures Contracts

    Futures contracts are available for all sorts of financial products, from equity indexes to precious metals. Trading options based on futures means buying call or put options based on the direction ...
Trading Center