Option holder – what is it?

  Any deal, whether it's an options, forward, or futures agreement, implies a bilateral arrangement. The option holder and the seller of the security are the main participants in the options market. By entering into an agreement, each assumes mutual obligations and gains certain rights.

Who Is the Option Holder?

  An option holder is a buyer of a security who has the right, but not the obligation, to buy or sell the underlying asset at a fixed (strike) price. Throughout the option's term, the strike price remains unaffected.
  Buyers can include traders, professional investors, major producers, banks, financial companies, and insurance funds.
  Brokers also buy options, but they are not considered holders of securities, as they are merely intermediaries and transfer their rights to clients after purchase. However, brokers rarely participate in options deals. An option premium is quite high, and by paying it, the option holder loses a significant part of potential profit, making broker fees unaffordable.
  Traders are the main participants in the options market. They act on their own behalf, using their own capital. Their main goal is to profit from trading itself. They are often called speculators, but that's not entirely accurate, as traders operate under a more complex scheme. For example, options are used when asset prices fluctuate. If a call option is bought during a price dip and then held until the price stabilizes, a decent profit can be made from the difference between the market and strike prices.
  Investors act with less risk. They prefer thoughtful capital placement, and in case of risk, they hedge their investments. Hedging is investment insurance through additional transactions. Options are often used for this purpose. Using a security during an unfavorable market situation allows an unprofitable asset to be sold at its purchase price.
  Insurance funds engage in similar activity but on a different level. They offer hedging services to their clients and charge a small fee, while all the risks from the option deal are assumed by the fund.
  A bank is not a frequent option holder in Russia, unlike in Europe or the U.S. Russian financial institutions prefer to invest funds in their own turnover or large projects. In foreign practice, bank participation in options trading on their own behalf is commonplace.

Rights of the Option Holder

  After purchasing a security, the market participant may:
  1) Buy the underlying asset at a fixed price by purchasing a call option.
  2) Sell the underlying asset at a fixed price by purchasing a put option.
  3) Request early expiration when concluding an American-style contract.
  4) Choose not to exercise the right and let the option expire worthless.
  5) Use the acquired asset at their own discretion.
  6) Transfer the option to another person.
  7) Allow another person to participate in options trading on their behalf.

Obligations of the Option Holder

  1) Pay the premium to the seller at the time of the deal.
  2) When concluding a margined option, have sufficient funds in the account for margin coverage.
  In essence, the holder has only one obligation — to pay the option price to the seller. In margined deals, this operation may be extended until the contract is closed. In a favorable outcome for the buyer, the premium may not be withdrawn at all but simply deducted from the profit.