why option short position does not have credit risk?

why option short position does not have credit risk? while long position has the one? (when in the money) If the long put is in the money then the short position also having right to have money ie. the credit risk? Am I wrong in this by understanding the short as ‘long put’? the short means the writer? (for call or put)

The party who has a positive value always bears credit risk. So the owner of an ITM call or put has credit risk.

Option short means you are the seller , collecting the premium . You must offer the buyer the right to collect on the option , which means you will accept delivery of the underlying if it is a put or you will deliver the underlying if it is a call , with the price fixed to the strike. Of course the buyer will excercise only if the option has value i.e. it is in the money. Since you are the one to fulfil the obligation , and you will always lose if you fulfil the obligation at the request of the buyer , you are the only one that causes credit risk on the trade. If the option expires worthless , you escape and keep the premium , if not you lose some amount minus the premium . Either way the buyer loses only the premium and you gain only the premium . In turn the buyer is not a credit risk to you ( you will never colect anything from the buyer except the premium upfront) and you are a potential credit risk to the buyer

Thanks for the explanation. Long the call or put has credit risk while Write the call or put has no credit risk. Understand!

How about a “credit spread option”? Does the owner still have some credit risk while buying the option to hedge the credit risk?

deriv108 Wrote: ------------------------------------------------------- > How about a “credit spread option”? > > Does the owner still have some credit risk while > buying the option to hedge the credit risk? people that are long options always bear credit risk so the answer is ‘yes’.

^ As long as the long option is in-the-money. So: People that are long in-the-money options bear credit risk.

team_alex Wrote: ------------------------------------------------------- > ^ As long as the long option is in-the-money. > > So: People that are long in-the-money options bear > credit risk. true, you bear no credit risk if the option’s value is worthless.

Let’s say the credit spread call option is in the money, then the option buyer could bear a higher credit risk? – ValueOf(call option + the asset to protect).

Someone holding the short end of an option isn’t exposed to credit risk (from the short position) because they’re not depending on the long for additional payment. The short already received payment when they wrote the option. All that’s yet to be determined is whether or not the long exercises the option. If the long exercises (which will only happen in the money), the short loses some $. If the long does not exercise (for whatever reason) nothing happens and the short keeps the premium. Either way they’re not depending on the long to deliver anything else of value, so they’re not exposed to credit risk.