What Is the Primary Risk an Option Writer Is Compensated for by the Premium?

The option writer (seller) is primarily compensated for the risk of adverse price movement in the underlying asset. For a call option, the risk is the price rising above the strike price, forcing the writer to sell at a loss.

For a put option, the risk is the price falling below the strike price, forcing the writer to buy at a loss. The premium is the maximum profit the writer can earn and acts as a buffer against these potential losses.