The participants – Option Traders
The basic participants in the options market are buyers and sellers of options contracts. Buyers purchase options contracts with the hope of making a profit, while sellers sell options contracts with the aim of making a profit from the premium paid by the buyer. Here is a comparison table between option sellers and option buyers:
| Option Buyer | Option Seller | |
| Definition | A person who purchases an option contract with the hope of making a profit. | A person who sells an option contract with the aim of making a profit from the premium paid by the buyer. |
| Obligation | No obligation to exercise the option. | Obligation to sell/buy the underlying asset at the predetermined price if the buyer decides to exercise the option. |
| Profit potential | Unlimited profit potential. | Limited profit potential to the premium received. |
| Risk | Limited risk to the premium paid for the option. | Unlimited risk depending on the underlying asset price movement. |
| Strategy | Option buying is typically used to speculate on the price movement of an underlying asset. | Option selling is typically used to generate income or hedge against potential losses in a portfolio. |
If we add the Put Options and Call Options into it, We find four types:
- Call Buyers.
- Call Sellers.
- Put Buyers.
- Put Sellers.
It’s important to note that the above pros and cons are not exhaustive and may vary depending on individual circumstances and market conditions.