Question about options writers?

Question

Hi I was just curious about who option writers usually are? Are they usually retail investors or big financial institutions, market makers?

Answer 1

There are actually mutual funds that own a portfolio of stocks and sell options against them. JPG is such a fund. That is an excellent way to generate income. Those type of funds normally generate about 10% annual returns. Individual investors might also sell options against their holdings, but it would certainly be a more sophisticated individual and not your normal investor. I imagine that most options are sold by institutions against their stock holdings to generate income. It would not surprise me in the least if Berkshire Hathaway were to sell a lot of options against their holdings.

Answer 2

Obviously there are as many writers as those who give money for options! There are dedicated option exchanges like Chicago Board Options Exchange (the world's largest Option Exchange). Come on options are HUGE business!!! Option market is driven by orders (people put orders into the systme and those orders make the price). If there were no orders input there would be no prices. An option writer is just a sell to open rather than a buy to open. Again as I always say why question something that DOES HAPPEN? Appreciate that it DOES HAPPEN THIS WAY and work backwards. How do you think the share market works.? Do you think some clerk sits somewhere all day marking up the share prices? Do you know what a STOCK EXCHANGE does???

Answer 3

In general, the biggest writers of options would usually be market makers. (Market makers would also usually be the biggest options holders.) Market makers must maintain a bid and ask quote for each option so they will be involved in the most trades.

Big financial institutions would usually be the next biggest option writers.

(It is worth noting that many market makers are empoyees of big financial institutions.)

Retail investors would usually be the smallest, at least in terms of the total number of contracts. However in terms of number of traders, they may be a majority. A lot of retail investors can write 5 or 10 contracts and still not make up the volume of a single institution writing 1,000 to 10,000 contracts at a time.

By the way, the answer that said "if you are buying an option contract for XYZ stock, you are then the buyer and the Brokerage is the Writer" and "if you are taking a short position on a option contract for XYZ, than you are the writer and the brokerage is the buyer." is wrong. The brokerage almost never trades options.

Answer 4

An option writer is ANYONE who is selling an option.
So, if you are buying an option contract for XYZ stock, you are then the buyer and the Brokerage is the Writer.

Conversely, if you are taking a short position on a option contract for XYZ, than you are the writer and the brokerage is the buyer.

Whoever is the party that has to deliver the contract is the writer. Whoever holds the contract is the buyer.

Its pretty confusing, which is how it was designed. Its awesome you are inquiring, cause it shows you wanna break into a world largely designed to keep you out.

Continue to kick @$$ and take names!!! I hope I helped somewhere along the way.

Answer 5

In the case for covered calls, the writer (seller) of the call owns a stock and simply sells a call option against the stock to produce income. For example, you bought 100 shares of GS for $214, then sold a January call option for $1800, you have reduced the price you have paid for the stock but now you have a contract to sell the stock at $200. If GS stays above $200, you will have your shares called away and you will net $400 or about 2% for the month. If GS goes below $200, you still own the stock and can write another call option for the next month. Anyone can have this set up in their brokerage account and it is considered to be conservative.

Answer 6

I was almost ready to leave and i caught your question as i saw alot of questions that shouldn't be asked here.
So you want to know about options???
Well to start with you can be a options writer as it's probably a better bet than a buyer but if your new to options i'd practice a bit first.Hope i answered your question and if your still unsure check out ken trester on options or go to barnes and noble or the library.
Have a good day :)

Answer 7

Retail investors, financial institutions and market makers all use option writing for various purposes.

Retail investors often use option writing against long stock or LEAPS or in spread strategies to generate income.

Market makers will typically try to stay "market neutral" and will sell options as part of a neutral hedging strategy.