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Home » Education » Basic Option Tutorial » Rights Of Fhe Buyer — Obligations Of The Seller

 

• The buyer's rights:
  The buyer pays a premium for the right to buy (or sell) a commodity at a specific price during a specific time period. The money paid is the only risk that the buyer incurs. The buyer can choose to exercise their right to be long or short at any time before expiration (American style option), at which time the seller must oblige. The buyer can also choose not to exercise their right and abandon the option, at no cost.
• The seller's obligations:
  The seller collects a premium from the buyer and in turn is obligated to be long or short the market when the buyer so chooses. The seller has no rights other than the ability to liquidate (buy back) the option in which they are short.