InvestorQ : Who is in a better position; buyer or the seller of the option?
F&O
Nisha Chandani made post

Who is in a better position; buyer or the seller of the option?

Answer
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2 years ago


That is a hard question to answer and, in fact, it has no clear answer. It would largely depend on how you are positioned in the market. Just as an option has a buyer, it also has a seller. Is that not what any market is all about? Unlike the option buyer who has unlimited profit potential and limited risk, the option seller has limited income potential limited to the premium received and unlimited downside risk. An option seller has unlimited loss potential but his profits are limited to the premium earned on the option. When you sell an option, you must ensure that the stock is not too volatile as the volatility normally works against you. On the other hand, the time works in the favour of the option seller as with each passing day, the time value of the option keeps gradually gravitating towards the zero mark.