Buying and writing options for a living

Buying options - limited loss, unlimited profits

Options present a good opportunity to earn decent profits with low investments.

The investments are small so the loss is limited and known in advance. The buyer of the option can thereotically earn unlimited profits.

Option buying is immensely profitable if the market makes fast moves. The losses start if a trade is wrong or markets start trading sideways.

The biggest risk factor is the time decay and drop in volatility which affects option pricing. If markets remain rangebound or near expiry, options decay very fast resulting in negligible profits or even losses.

Writing options - limited profits, unlimited losses

Option writers have a significantly higher chance of making money as compared to option buyers.

Option writing is a profitable and interesting concept. It is interesting because the profits are limited/ known in advance but investments are high. Conversely, the buyer of an option has limited losses but profit is unknown.

So why would anyone write options? The answer is time decay.

Option writers trade the time decay and volatility; the extent the market moves is secondary! On the contrary, the option buyer has a good chance of earning only if the market shows fast moves.

Slow and steady wins the race: While most investors are driven by greed and high profit targets, option writers are satisfied with relatively low returns. They are not interested in 50% gain in a month...in fact they are very happy even if they earn 10% per month.

Option trading strategies

If you are bullish:

If you are bearish:

Next: Option calculator