An option is a contract where the writer of the option grants the buyer of the option the right to purchase from (call option) or sell to (put option) him a specific asset at a specific price within a specified period. In return the buyer of the option (also called the option holder) pays a price called an option premium to the writer for this right. In common market parlance, the writer of the option is also called the ‘seller’ of the option. 

The option seller has the obligation to honour the contract, whether he is required to sell or buy the asset, if the buyer chooses to exercise his option to buy or sell. The potential downside or risk for the option seller is unlimited, while his upside or profit is limited to the premium that he receives. On the other hand, the maximum loss that the buyer could face is the option premium that he pays, but his potential profit is unlimited.