The simplest and easiest way to Trade Options is to simply Buy them and thats exactly what Beginner does they try their luck and almost all of them blow up their account. As we all know In Option Buying we have limiteg risk and provide opportunity to make maximum profit but is it so easy, To make money in Option buying you have to meet three criteria otherwise its not going to be possible:-
- Right selection of Stock,
- Exact move in the stock should be predicted,
- Last but not least Time Factor, it should not be within given time period, it should be very fast
Now lets discuss the Concept of Options from the point view of Options Sellers
A) Covered Call # It implies simply selling OTM & ATM Call against the holding of securities,
B) Naked Call writer # It implies entering into Trade without having a position in the stocks, to avoid risk of option selling one can use Option Spreads
Direction (Delta) or Time (Theta) also plays an important role in this Debate of Option Buyer vs Option Sellers
In option buying we can make profit only when DELTA is in our favour (other condition remain constant)
In Option selling you can make profit in two conditions :-
- A) when Direction remains in your favour
- B) When Stock or Index remained range bound
In short in option buying you make money only in one condition when both Trend or momentum is in your favour ( probability of wining is 33 % only), In option selling you can make money in two conditions (probability of wining 66%)
To summarise this topic I will say, Option Buying is the game of RISK REWAD and on the other hand option selling is all about Probability
