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  • Selling Short Calls
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  • Why sell Options

Selling vs. Buying Options

Selling Options		Buying Options
Sold short put options can provide an extra income in a flat to rising market.		Buying put options is profitable only in a falling market.
Sold short call options can provide an extra income in a flat to falling market.		Buying call options are profitable only in a rising market.
Time erosion plays on the hand of an options seller.		Time erosion works against an option buyer.
Maximum gain is equivalent to the 100% of the premiums received from selling short options.		The maximum gain is theoretically unlimited.
The maximum loss is theoretically unlimited; (in practice it is limited by a broker via margin requirements to the 100% of the invested funds).		The maximum loss is 100% of the invested funds.

By comparing the benefits of selling and of buying long options, it becomes clear that option sellers have more opportunities to profit, yet potential profit is lmited. Option sellers only lose money if the underlying security moves substantially against their position. In flat markets, or when the underlying moves modestly against one's position - it is still possible to make money.