InvestorQ : Are there any specific risks in selling options; either calls or puts?
Abhi Yadav made post

Are there any specific risks in selling options; either calls or puts?

Answer
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Abhisha Yadav answered.
2 years ago


Buying an option entails limited downside risk in the form of option premium but unlimited upside potential if the price moves in your favour. On the other hand, when you sell options you have limited upside in terms of premium income but unlimited downside risk if the price movement is against you. However, globally over 90% of all options that are purchased expire worthless. That essentially means that option buyers make profits only in 10% of the cases whereas option sellers make profits in the balance 90% of the cases. Remember, option sellers are mainly institutions, HNIs and proprietary desks and they normally tend to be better informed and also use more sophisticated algorithmic methods of trading. While smaller traders also indulge in option selling, you need to manage the risk since it is open on either side. Either keep stop losses or keep a hedge.