4.1.2. Short Call
Every option has both a buyer and a seller. The seller of the option is called the option writer, or grantor. The seller is said to short the call. The options writer believes the price of the underlying asset (or futures contract) will not rise and is willing to bet on it. Suppose Sheila writes the following call option:
Short Sep Corn 324’0 Call @ 15
In writing the call option, she receives the $0.15 premium that you as the option buyer have paid. The writer, or option seller, whether of a put or a call, will always receive a premium from the buyer. For a call writer, such as Sheila, this is her profit if the price of the underlying contract goes down or stays the same. If the $3.24 price drops as she expects, she gets to keep the $750 ($0.15 x 5,000 bushels). If the price of the futures contract increases unexpectedly, her breakeven point, like yours, is 339. At $3.39, she takes a $0.15 per bushel loss, which exactly offsets the $0.15 premium she had received.
| ||||