Part 4 Learn Institutional Trading

Parties Involved in an Options Contract

There are two sides to every options contract:

Option Buyer

Pays the premium.

Has limited risk (only the premium paid).

Has unlimited profit potential in call options and significant potential in puts.

Option Seller (Writer)

Receives the premium.

Has limited profit (only the premium collected).

Faces potentially unlimited risk in calls and large risk in puts.

Option sellers generally need higher margin because they take the greater risk.