Skip to main content

How Does High Volatility Impact the Risk of the Option Writer (Seller)?

High volatility significantly increases the risk for the option writer, particularly for uncovered or naked positions. High volatility means a greater chance of large price swings, which can push the option deep in-the-money, leading to substantial losses for the seller.

This increased risk is why high volatility leads to higher option premiums, compensating the writer for the greater exposure.

How Does the Volatility of the Underlying Asset Increase the Frequency of Margin Calls?
What Mechanism Is Used to Penalize a Seller Who Fails to Deliver the Asset in a Physical Settlement?
Can High IV Be a Warning Sign for a Naked Option Seller?
What Is the Maximum Loss for an Option Buyer versus an Option Seller?