When Should I Sell A Put Option Vs A Call Option?
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If not for the higher margin requirements of writing options most people might have preferred writing to buying option. Also, adding to what Nik says, you may want to consider writing options when there lesser number of days to expiry as you can take the advantage of an accelarated time decay.
Selling options you will be exposed to unlimited downside risk and fixed upside profit and buying options you will be exposed to unlimited profit and limited risk. One thing as a trader that is important is to do trades which you understand and which matches your trading personality. Some traders see option shorting as high risk trades while some find it very suitable. Before employing any options strategy it is important to understand ins and out of it.
You may read this link where I have explained how options work: Which is better--Selling call option or buying difference between selling call option and buying put option option?
Theoritically both look same for novice like me? You can consider buying options when there are more number of days to expiry. Both premiums would not be same.
Put premium difference between selling call option and buying put option be less than call premium. Buy put option in earlier of the month and sell call options when you are close to the end of the month. This is because volatity Vega of the option is interrelated to time value Thetaboth gets reduced when you are nearing the end of the month. Less volatility is good for selling options. More volatility is good for buying option since more time is there during month start, it gives ample chance for volatility effect to take place In selling option, you incur heavy margins being blocked when compared to buying options, the money which you may be interested in entering some other contracts.
So you need to wait until you find a suitable time to square off your selling and get the margin money released. Shorting naked options selling call option here is accompanied by high risk, you may be thinking that you are right about the market, but the market may deceive you.
So do not enter selling options which do not have good amount of liquidity. You may not find a buyer to square off your short position atleast not at better prices what you are looking for for illiquid contracts. You may incur huge loss if market moves against you. I am sure this will throw some light on your understanding.