Option selling (writing) involves collecting premium by taking on the obligation to buy or sell if the option is exercised. This educational guide covers key concepts and risk characteristics.
When you sell an option, you collect a premium upfront. You take on the obligation to fulfill the contract if exercised. Sellers profit when options expire worthless — which happens to most options.
Selling OTM call and put — profits from range-bound moves and time decay.
Defined-risk version — selling a strangle with bought wings to limit maximum loss.
Option selling requires significant margin and can result in large losses in case of sharp moves. This is extremely high-risk and requires deep understanding. Not suitable for beginners without proper education and capital.
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