Parameters | Option Buyer | Option seller |
Risk | Buyer of an option has limited risk (to the extent premium paid) | An Option writer has unlimited risk |
Reward | An option buyer has unlimited profit potential | Option writer has limited profit potential (to the extent premium received) |
Reward-to-risk ratio | An option buyer has a high reward-to-risk ratio | Option writer has a low reward-to-risk ratio |
Probability | The probability for the option buyer to make money will be 10% | The probability for the option writer to make money will be 90% |
Margin requirement | The option buyer pays a premium to buy options | Option writer has to pay margin money (exposure and span margin), which will be the same as futures (as risk is unlimited like futures) |
Time Decay or theta | Time decay works against an option buyer like an enemy | Time decay works in favor of an option seller like a friend |
Market movement | The market should be a sharp move for better profit or before expiry required sharp movement in our favor | If the market is in our direction good for us or market sideways then also good for us. |
