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What Is the Relationship between the Option Writer’s Risk and the Option Premium?

The premium is the compensation the option writer receives for taking on the risk and potential liability of assignment.
Greeks.Live23.11.25

What Is the Relationship between the Option Writer’s Risk and the Option Premium?

The option writer's risk is directly proportional to the premium they demand. Since the writer assumes the obligation to buy or sell the underlying asset, they face unlimited potential loss (for an unhedged call option) or substantial loss (for a put option).

The premium is the compensation they receive for taking on this risk and the potential liability.

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