Options Buying vs Selling: Which Strategy to Use? |

By Trader Pit

July 7, 2021


I have been asked more than once for advice on how to get started trading options. As a newbie, it is hard to know what to do and where to start. I thought I would share some of my initial thoughts on my blog post.

If you are looking for an option trade strategy, you have plenty of options to choose from. This article will focus on these two strategies and their advantages and disadvantages.

Recently I started looking at options trading for my own portfolio, and a lot of the information that is out there is confusing and quite a bit information is incomplete. This blog post intends to clear things up a bit for you, and help you decide between buying or selling options.. Read more about most successful options strategy and let us know what you think.

Which strategy should be used?

There is no single answer to the question of what is best: Buy or sell. Each has its own advantages and disadvantages:

1. In a purchase, the buyer’s risk is limited to the premium paid, and in return the buyer receives the right to the underlying asset until maturity. But selling has its own advantage: you get the return (premium) in advance and only pay if the cash price is higher than the strike price. Again, the seller is protected by a premium over the strike price. There is thus an actual loss for the seller (in the case of a call option) if: (strike price + premium) < spot price.

2. The buyer of an option still has the opportunity to make money until the option expires, but the likelihood of making money decreases as contracts approach expiration. The option writer is still exposed to unlimited risk, but his risk decreases over time as the individual assets have less time to move significantly in a particular direction.

 

Short note
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3. Both buyers and sellers of options have the ability to terminate their transactions prior to the option’s expiration date. If an option buyer finds that the premium on his position is higher than what he paid and he wants to lock in his profits, he can easily do so through the options market. Similarly, the option writer may exit his position if he sees a significant premium move in his favor or if he sees the position move against him.

Also read : What is the Indian VIX? Meaning, scope, implications and more!

Final thoughts

From the above discussion, we can conclude that there is no one right strategy for buying or selling options. And there are arguments for and against buying and selling options.

The choice of the right strategy depends on the objective, rationality and risk appetite.As a newbie trader, you might be confused about which strategy to choose. When you’re starting out, you might be tempted to try either a buy-and-hold strategy or a short-term trading strategy. But this can be confusing, as there are no clear-cut rules when buying or selling options. In this article, we will take a look at a few options strategies and explain when and why they might be the right choice.. Read more about option strategies with examples and let us know what you think.

Frequently Asked Questions

What is the best strategy for option trading?

A strategy for option trading is to buy a call option and sell a put option with the same expiration date. What is the difference between a call option and a put option? A call option gives the holder the right, but not the obligation, to buy the underlying asset at the strike price. A put option gives the holder the right, but not the obligation, to sell the underlying asset at the strike price.

Is it better to buy options or sell options?

If you’re looking to buy a stock, then buying options is a good idea. If you’re looking to sell a stock, then selling options is a good idea.

Is selling options a good strategy?

Options are a good strategy if you are able to accurately predict the price of the underlying asset. If you are able to accurately predict the price of the underlying asset, then you should be able to profit from the difference between the price you bought the option for and the price you sold it for.

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About the author

Trader Pit

A yogi who like Finance and Technology. I have been in Indian Stock market for over 12 years now as financial analyst, portfolio manager, trader. Now, I focus on Yoga, Financial Education & Long term investing. 

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