{"id":19298,"date":"2020-08-26T17:09:31","date_gmt":"2020-08-26T11:39:31","guid":{"rendered":"https:\/\/www.fundsindia.com\/blog\/?p=19298"},"modified":"2020-08-28T12:31:17","modified_gmt":"2020-08-28T07:01:17","slug":"options-buying-vs-selling","status":"publish","type":"post","link":"https:\/\/www.fundsindia.com\/blog\/equity-markets\/options-buying-vs-selling\/19298","title":{"rendered":"Options &#8211; Buying vs Selling"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">In this article, we will guide you on when one should be buying options or selling options.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">What are the factors that affect the option price? Well, there are 3 key factors which affect the option price\u00a0<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">1. Volatility (Vega)<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">2. Time value (Theta).<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">3. Change in option premium with respect to change in the underlying asset (Delta)<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">\u00a0<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><b>The main difference between Buying Options vs Selling Options<\/b><span style=\"font-weight: 400;\">.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">When Buying Call or Put options, we have either the right to buy or sell the underlying asset on expiry. Buying options is considered a \u2018debit\u2019 because we are paying the premium upfront for the contract.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">The option buyer has the opportunity to earn unlimited profit by just paying a premium and the loss is limited to premium invested.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">When selling Call or Put options, we have either the obligation to buy or sell the underlying security at a specified price (the strike price). Selling options is considered a \u2018credit\u2019 as we receive the premium for the contract we sold.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">In Selling an option the profit is limited to the option premium received but the potential for loss can be unlimited.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><b>When To Buy and When To Sell Options?<\/b><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">Option buyers prefer to buy an option at a cheaper price and sell it at a higher price. One has to buy options when implied volatility is relatively low. For option buyers, delta is the friend and time value is the enemy. So, we should buy slightly in-the-money options. ITM options have less time value compared to ATM and OTM options which have 100 percent time value and delta is relatively high in ITM options when compared to ATM and OTM options. So, slightly buy\u00a0 ITM options when implied volatility is relatively low.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">Option sellers prefer to sell when an option price is higher and buy it back later when the price is cheaper. We have to sell options when implied volatility is relatively high. For option sellers, time value is the friend and delta is the enemy. So, we should sell slightly or deep out of-the-money (OTM) options. OTM and ATM options have a higher time value compared to ITM options. So, Sell OTM options when implied volatility is relatively high.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><b>Conclusion:<\/b><\/p>\n<p><b>Buying option<\/b><span style=\"font-weight: 400;\"> is to be done when implied volatility is relatively low and when we expect the underlying asset to make a big move.\u00a0\u00a0<\/span><\/p>\n<p><b>Selling option<\/b><span style=\"font-weight: 400;\"> is to be done when implied volatility is relatively high and when we expect the underlying asset to remain sideways or directionless.\u00a0<\/span><\/p>\n<p><b>Risk<\/b><span style=\"font-weight: 400;\"> can be handled with a better understanding of the option Greeks.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article, we will guide you on when one should be buying options or selling options. What are the factors that affect the option price? Well, there are 3 key factors which affect the option price\u00a0 1. Volatility (Vega) 2. Time value (Theta). 3. Change in option premium with respect to change in the [&hellip;]<\/p>\n","protected":false},"author":46,"featured_media":19301,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[411,59,636],"tags":[515,200,108,634,517,633,518,635,614,151,263],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v17.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Options - Buying vs Selling<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.fundsindia.com\/blog\/equity-markets\/options-buying-vs-selling\/19298\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Options - Buying vs Selling\" \/>\n<meta property=\"og:description\" content=\"In this article, we will guide you on when one should be buying options or selling options. What are the factors that affect the option price? Well, there are 3 key factors which affect the option price\u00a0 1. Volatility (Vega) 2. Time value (Theta). 3. Change in option premium with respect to change in the [&hellip;]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.fundsindia.com\/blog\/equity-markets\/options-buying-vs-selling\/19298\" \/>\n<meta property=\"og:site_name\" content=\"Insights\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/fundsindia\" \/>\n<meta property=\"article:published_time\" content=\"2020-08-26T11:39:31+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-08-28T07:01:17+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/fundsindia.com\/blog\/wp-content\/uploads\/2020\/08\/2020-08-26.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"2500\" \/>\n\t<meta property=\"og:image:height\" content=\"1250\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Perumal Raja\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Organization\",\"@id\":\"https:\/\/www.fundsindia.com\/blog\/#organization\",\"name\":\"Wealth India Financial Services\",\"url\":\"https:\/\/www.fundsindia.com\/blog\/\",\"sameAs\":[\"https:\/\/www.facebook.com\/fundsindia\"],\"logo\":{\"@type\":\"ImageObject\",\"@id\":\"https:\/\/www.fundsindia.com\/blog\/#logo\",\"inLanguage\":\"en-US\",\"url\":\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2018\/07\/download.jpeg\",\"contentUrl\":\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2018\/07\/download.jpeg\",\"width\":189,\"height\":200,\"caption\":\"Wealth India Financial Services\"},\"image\":{\"@id\":\"https:\/\/www.fundsindia.com\/blog\/#logo\"}},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.fundsindia.com\/blog\/#website\",\"url\":\"https:\/\/www.fundsindia.com\/blog\/\",\"name\":\"Insights\",\"description\":\"Official blog of FundsIndia.com\",\"publisher\":{\"@id\":\"https:\/\/www.fundsindia.com\/blog\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.fundsindia.com\/blog\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"ImageObject\",\"@id\":\"https:\/\/www.fundsindia.com\/blog\/equity-markets\/options-buying-vs-selling\/19298#primaryimage\",\"inLanguage\":\"en-US\",\"url\":\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2020\/08\/2020-08-26.jpg\",\"contentUrl\":\"https:\/\/www.fundsindia.com\/blog\/wp-content\/uploads\/2020\/08\/2020-08-26.jpg\",\"width\":2500,\"height\":1250},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.fundsindia.com\/blog\/equity-markets\/options-buying-vs-selling\/19298#webpage\",\"url\":\"https:\/\/www.fundsindia.com\/blog\/equity-markets\/options-buying-vs-selling\/19298\",\"name\":\"Options - Buying vs Selling\",\"isPartOf\":{\"@id\":\"https:\/\/www.fundsindia.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.fundsindia.com\/blog\/equity-markets\/options-buying-vs-selling\/19298#primaryimage\"},\"datePublished\":\"2020-08-26T11:39:31+00:00\",\"dateModified\":\"2020-08-28T07:01:17+00:00\",\"breadcrumb\":{\"@id\":\"https:\/\/www.fundsindia.com\/blog\/equity-markets\/options-buying-vs-selling\/19298#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.fundsindia.com\/blog\/equity-markets\/options-buying-vs-selling\/19298\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.fundsindia.com\/blog\/equity-markets\/options-buying-vs-selling\/19298#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.fundsindia.com\/blog\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Options &#8211; 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