Can someone please explain which one is better when we are bearish about the market? Selling a call or buying a put. I have seen many people selling a Call instead of Buying a Put. Wanted to understand the reason for the same.
Does seeling a Call give more profit than Buying a Put? Same question for loss.
Selling Call doesn’t give you more profit, when you sell an option profit is limited to premium received and losses are unlimited, while when you buy a Put losses are limited to premium paid and profit potential is unlimited.
But traders prefer selling an Option because movement of Options price is complex, Generally it does follow underlying but there are other things at play behind the scenes known as Greeks which have more effect on price as expiry approaches.
Give this module on Varsity a read, you will understand everything.
Right. But which option is more beneficial for Option selling? Sell a call or buy a Put?
Depends on market movement after you get in trade. Short Call will make you profit as long as the market stays below the strike price you sold at, while for Long Put to make a profit market needs to move beyond your strike price, if the market stays rangebound you make a loss on Long Put as theta starts eating premium as the expiry date approaches.
Suppose you are Bearish on Nifty and Sell 10750 Call, this is how pay-off looks.
While this is the pay-off for if you Buy 10650 Put.
Definitely selling the call is more profitable because buying a put needs a huge movement for you to make money - possible, but not very likely.
However, keep in mind that you need a large capital to sell the call (or put). The new margin framework for hedged positions has reduced this burden.