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: 

  1. Call Buyers.
  2. Call Sellers.
  3. Put Buyers.
  4. 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.