SIE: 4.1.1.2. Short Call

4.1.1.2.  Short Call

Every option has both a buyer and a seller. The seller of the option is called the option writer. Imagine that you now believe that LeanTree stock will not rise, and you are willing to bet on it. You decide to write the following call option:

Short LNTR Jul 25 call @ 3

This is also known as a short call. In writing the call option, you receive the $3 premium that an option buyer has paid. A writer of an option, whether a put or a call, will always receive a premium from the buyer. The premium is your profit if the price of the underlying security goes down or stays the same; the premium helps to compensate you for the risk you are taking by writing the option. If the price of LeanTree drops or stays the same, you get to keep the $300 ($3 x 1