Why should one Write/Short a CE Option if he/she can buy PE?

General
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Why should one Write a CE/PE Option if he/she can buy PE/CE ?

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Think about this practical market situation ...

1) Markets have sharply run up within a short duration, and you now expect a correction, and therefore want to short the markets

2) However, the volatility has also drastically increased, thereby increasing the options premiums

3) Besides the market, you also expect the volatility to cool off

Given this situation, buying a put option may not make sense because..

1) The put options will be expensive because of increased volatility

2) If you anticipate volatility to drop, then it will have a negative effect on option prices

Selling Call Option makes sense because..

1) The markets have run up, therefore the call option premium would be high. Writing these options means higher premium collection 

2) A correction in market leads to quicker premium erosion, good for short call

3) A fall in volatility accelerates the premium erosion, again good for short option.

Hence, selling a call option makes more sense than buying a put option. 

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If u write and hold CE, U make profits from theta of sold call option

but u lose through theta if u buy a put option.

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omg, very difficult to understand…Stock market is a vast subject :frowning:

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karthik : I’ve recently started writing options …can you tell me from where I can know the benefits of option writing and different strategies we can make in option writing …

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We have just started blogging on options - this may be a little advanced if you are starting fresh - but do stayed tuned here for more information - http://zerodha.com/z-connect/queries/stock-and-fo-queries/say-hello-to-the-greeks

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This would not matter for intraday options right? or even if it did it wouldn’t matter a lot.

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It does matter, not by much but Greeks are having effect of Option pricing all the time throughout the day, more so when close to expiry.

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In Intraday options, you have to mostly look at Delta, Gamma. And sometimes Vega if you’re holding for more than 1 hour. In case of overnight options, Theta comes into play as well. There’s Rho which has little impact so is mostly ignored.