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Why is Option selling better than Option Buying?

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Options are a popular choice for traders because they can be volatile and make or lose a lot of money very quickly. Options alert services come in many different forms, from very simple to extremely complex with various payoffs and names that can be confusing.

All options strategies, regardless of how complex they may be, are based on two types of options: the put and the call. Here are some popular strategies and a breakdown of the risk and reward. These strategies can be very simple, but they can also make traders a lot of cash. However, they don’t come without risk.

Optional Selling vs. Buying:

Every transaction has had counterparty since the Barter system’s inception. Every seller had to have a buyer who would consume the supply. In Options, too, every buyer must have a counter-option seller who is willing to give up his rights on the underlying asset.

An option buyer is someone who is willing to pay an upfront premium for the right to purchase/sell (depending upon Call/Put), underlying assets on expiry. Option sellers are those who pay a premium to surrender their right on Asset until expiry.

Optional Buying Benefits

Options allow you to leverage the power of Leveraging. With limited capital, one can ride the larger move. This is a risky investment. Imagine someone buying a Nifty call option for 40. A Nifty lot is 75 units. The premium will equal 40*75 = Rs. 3,000 You can pay a premium of Rs. The full ride is possible by paying a premium of Rs. Option buyers have the possibility of making unlimited profits by only paying a premium. The loss is limited to the premium invested.

Option Selling: Benefits

Option alert services expire In the Money if the Spot price rises above the expiry strike price. Option buyers make money and gain. If the Spot price falls below the strike price at expiry, then the option expires At the Money. As the contract expires, the Option seller receives the premium as income. The option is considered Out of Money if the spot price falls below the strike at expiry. As the contract expires, the buyer loses any income it earns from the Options sellers. From the above scenarios, the Option Buyer is able to make money in one scenario while the option seller can make money in the other two.

Bottom line

Option alert services usually associated with high risks, but traders have many basic strategies that carry low risk. Options can be used to increase overall returns by even the most risk-averse traders. It’s important to be aware of the risks involved in any investment to determine if it is worth it. Option buyers as a whole almost always end up losing money. Since inexperienced option traders are far more focused on the big returns they hope to make on their trades, they would rather make two or three hundred dollars rather than several thousand. Now, on the subject of probability and volatility risk premium, selling options is significantly more beneficial.

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