I was thinking over it as in selling Options call and Put investment is also high.
Can you tag the question under the right category, please?
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Everything is Risky in This Market.
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Yes !!! It is more risky as compare to buying a call or put option .
As the option are the contract that give you a right but not the obligation to buy or sell an underlying asset on a fixed future date at specified future ,
This are the contract of 1 month to buy or sell the asset at predecided prices on which buyer of contract (holder ) and writer of contract means who received premium (Seller) both are agreed.
In call and put option only buyer or holder of that option contract have right if he want to exercise the contract he can .
while seller or writer of contract always have obligation to exercise the contract if holder wants.
in option contract premium value is composed of
P = Time value of Money + Intrinsic value
when an individual sell a call or put option then he have highest probability (Not guaranteed ) of getting profit from that contract. as well
Because the as soon as the contract would be nearest to expiry date the time value of money will decrease and hence he can sell at higher level and buy it back at lower level.
buy in case the price of stock move opposite then he may have unlimited loss and when an individual buy call or put option then he may receive a benefit of getting unlimited profit and limited loss because premium in option never goes negative , if i pay inr 5/- share then my maximum loss may be INR 5/- share only
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it depend on how you play. infact you can make more money by selling a option rather than buying
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Yes, selling naked Call/Put has significant risk associated. Options as usually sold in conjunction with other Options/Futures/Stocks so that the risk gets reduced and the benefit of time value erosion of the option premium is also reaped.
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@Suhani_Varma writing / selling any call/put will have UNLIMITED RISK but LIMITED PROFIT…Profit will be premium amount that u get when u sell…so it is anyways really risky unless you go for COVERED strategy where you have shares and then you go and sell call/put etc…so premium that u receive is your net income with no further risk as you are having shares to back any downside risk…
Yes, these selling options is risky… however, 80% of options expire worthless…One wrong move can wipe out a month’s profit in a single day
These are the options strategies which involve options selling:
Bull Call spread = buy ATM call and sell OTM call – in 1:1 ratio of same expiry, same underlying
Bear Call spread = buy OTM call and sell ITM call - in 1:1 ratio of same expiry, same underlying
Bull Put spread = buy OTM put and sell ITM put - in 1:1 ratio of same expiry, same underlying
Bear Put spread = buy ITM put and sell OTM put - in 1:1 ratio of same expiry, same underlying
Call ratio backspread = sell ITM call and buy OTM call - in 1:2 ratio of same expiry, same underlying
Put ratio backspread = sell ITM put and buy OTM put, in 1:2 ratio of same expiry, same underlying
Short straddle = sell ATM Call and sell ATM Put - in 1:1 ratio of same strike, same expiry, same underlying
Short strangle = sell OTM call and sell OTM put - in 1:1 ratio of same expiry, same underlying
Synthetic long = buy ATM call and sell ATM Put - in 1:1 ratio of same expiry, same underlying
Bear Call Ladder = sell ITM call, buy ATM call, buy OTM call - in 1:1:1 ratio of same expiry, same underlying
Read the strategy notes to learn which market scenario suits which option strategy, study the pay-off graphs and learn how to choose the right strikes to effectively execute these strategies. Find it in the options strategies module in Varsity.
Also understand options theory - call and put options, buying and writing options, moneyness of an option contract, key option greeks: Delta, Gamma, Theta, Vega, how they interact, and the greeks calculator. Find it in the options theory for professional trading module in Varsity.
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