InvestorQ : Can you quickly explain the relationship between option buyers and sellers?
F&O
Arya Nanda made post

Can you quickly explain the relationship between option buyers and sellers?

Answer
user profile image
Swati Naik answered.
2 years ago


Remember that the buyer of the call or put option gets the right without the obligation to buy or sell a stock. The seller of the call or put option gets the obligation to sell or buy a stock and earns the premium in return. Their market view would be as under:

Buyer of a call Option: Expects the stock price to go up sharply

Seller of a call option: Does not expect the stock price to go above a certain level

Buyer of a put option: Expects the stock price to go down sharply

Seller of a put option: Does not expect the stock price to be below a certain level

The relationship between long and short on options can be summed up with this table below:

Product

Position

Translation

Downside

Call

Long

Bought – Owns the option

Premium paid

Call

Short

Sold – Wrote the option

If the option is exercised, the difference between Market price and Strike price

Put

Long

Bought – Owns the option

Premium paid

Put

Short

Sold – Wrote the option

If the option is exercised, the difference between Strike price and Market price