What Is the Difference Between an Option Buyer and an Option Seller? Part 2

Contrary to a call option buyer, a put option buyer expects that the underlying security will move lower thus making a profit for himself

. So, the put option buyer has control over a bearish position in X numbers of options that he has bought. Bear in mind that put options, like call options, have a pre-determined expiration date and strike price. Also like the call options, the put options buyer has a limited loss potential but an unlimited profit potential. Some people don't really get the sell side of put options - and the sell side of the market as a whole.

Call options are usually easier to understand since it is the most common operation for traders. But if you want to be successful - in any market, bear or bull - you have to be able to operate from both sides. It can be tricky to grasp the whole concept of selling something you don't have it, but believe me, it is far more common than it seems.

On the other side, call and put options sellers have different views and opinions about the market and the trade itself when this one takes place. Usually, the seller of an option call, has a bearish to neutral view of the market: if the market goes nowhere or goes down not by much, he wins. The seller of a put option on the other hand, has a bullish to neutral view of the market: if the market goes nowhere or goes up, he wins.

As you can see, "neutral view" is common for the put and for the call option seller. If the market goes nowhere, which happens quite a lot, both of the sellers wins. As for obligations, both, the call and the put seller, have an obligation to fulfill what was in the terms of the contract if the buyer of the option he sold decides to exercise the option contract. The option seller has an unlimited downside potential and a limited profit upside potential.

What Is the Difference Between an Option Buyer and an Option Seller? Part 2

By: Derek Shetrer

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