❓ Option Buying or Selling ❓
Option buying has limited risk but unlimited profits, but the chances of winning the trade are less.
If let’s say someone buys an out-of-the-money call option, in order to win this trade, the underlying asset needs to be bullish, but the underlying asset can be slightly bullish, consolidating, slightly bearish, or bearish, in all these situations buyer losses the premium.
Option selling has a high risk with limited profits, but the chances of winning the trade are high.
If in case someone sells an out-of-the-money call option, the individual will win the trade when the underlying asset is slightly bullish, consolidating, slightly bearish, or bearish and he will only lose the trade whenever the underlying asset is bullish. So, the chances of winning are high for an option seller.
Do you know that most of the options are sold by institutional investors or HNI’s. Because they are aware that option selling rewards more than option buying.
But option selling has unlimited risk if the underlying asset doesn’t move in your favor. So, hedging is always a must for option selling.