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:
|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.
|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.
|Unlimited profit potential.
|Limited profit potential to the premium received.
|Limited risk to the premium paid for the option.
|Unlimited risk depending on the underlying asset price movement.
|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:
It’s important to note that the above pros and cons are not exhaustive and may vary depending on individual circumstances and market conditions.