Part 1 Ride The Big Moves

Obligations of Option Sellers

Option sellers carry more responsibility:

a) Seller Must Follow Buyer’s Decision

If the buyer decides to exercise, the seller must honor the contract.

b) Unlimited Risk for Naked Sellers

Losses can be unlimited if markets move strongly against the seller.

c) Mandatory Margin Requirement

Sellers need to maintain margin balance to cover potential losses.

d) Mark-to-Market Loss Adjustments

Brokers deduct daily losses from the seller’s trading account.

e) Physical Delivery for Stock Options

For stock options close to expiry, sellers may have to deliver shares physically if the contract expires in-the-money.