# Why do banks offer options? [closed]

I have only taken one introduction class in finance. However we came along opinions, their pricing, etc. We only contemplated being the buyer of a option. If everything works for you apparently you can earn a high yield. Thus I'm wondering why a bank (or another institution) would offer options. Say there's a stock which costs \$100. The bank offers a (European) call with a striking price of \$95, so you'll pay \$5 for the option (I know there're other factors which determine the price but want to neglect them here to keep it simple). After a certain amount of time the option matures while the stock is at \$110. The bank owes you \$15 (in case of cash settlement which should be the default case in the real world). They sold it for only$5 though and lost money.

So, why would a bank issue the option at all? One may argue because they expect the stock to fall but often they do offer both put and call options and on the put option they would only earn what they can sell it for in this case.

## closed as off-topic by vonjd, Bob Jansen♦Dec 10 '15 at 17:01

This question appears to be off-topic. The users who voted to close gave this specific reason:

• "Basic financial questions are off-topic as they are assumed to be common knowledge for those studying or working in the field of quantitative finance." – vonjd, Bob Jansen
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• Hi jp_, welcome to Quant.SE! The answer you received is very nice but the question is off-topic here. – Bob Jansen Dec 10 '15 at 17:01