The writer is legally obligated to perform according to the terms of the option. On the other hand, the buyer of the option has bought a write to exercise the option and is under no obligation to exercise the option. He can conveniently let the option lapse on the date of expiration of the option.
The significance of this feature of an option is explained through the following example.
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Example
Suppose you buy a 100 ITC 650 Call option contract. During the expiration period, the stock price does not appreciate enough to cover even the premium paid, i.e., you do not gain anything by exercising the option. The options contract confers on you the right to either invoke the contract or let it lapse. Invoking the contract means – calling upon the writer to deliver the stock at the contract price. This would be futile as this stock is available at equal to or even less than the exercise price in the market. By letting the option lapse the buyer gets out of the contract, as he is not obligated to perform. However, the writer or the seller is under the obligation to perform right up to the expiry of the cont6ract whenever called upon buy the buyer of the option to do so.
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