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Buying premium VS Selling premium

Discussion in 'Business' started by diegot122, Sep 7, 2020.

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Are you an options seller or buyer

  1. Buyer

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  2. Seller

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  1. diegot122

    diegot122 New Member

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    To answer this question we must first know the definition of premium. Premium is the capital (money) that you gain or loose from trading options. When you buy premium you are basically buying an option, whether it is a call or a put if you are long on an option it means you are buying premium, when you are short on an option, you are selling premium. In this thread we are going to discuss the difference and risks of buying and selling premium.
    Go long = Go debt-free, what does this mean? When you are buying premium you have limited risk, therefore you cannot go in debt. The risk of buying premium is equal to the capital invested; this means if you paid 75$ for a long call you are risking 75$ with a chance of unlimited gains.
    Short = More trouble, when you sell premium you have unlimited risk, when you sell premium if the trade goes wrong then you must provide the option buyer 100 shares of stock (in the case of a call) or buy 100 shares of stocks from him (in case of a put).
    Now you are probably asking yourself "why would anyone sell premium if you have so much risk?" The answer is that when you sell premium you have more chance of your trade succeeding. When buying premium you must be 100% directionally correct, meaning if the price goes in the other direction you loose, when selling you can profit from no change in the price, if you are directionally correct or if the price slightly fluctuates against you. Another variable to keep in mind is the time decay, the time decay is in favor of the option seller, as the extrinsic value (time value) decays. The option seller wants to buy the option at a lower price, for as the option buyer wants to sell the option at a higher price.
     
  2. AYSHAJ

    AYSHAJ New Member

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    Before comparing Buying premium and selling premium firstly we should have the basic knowledge of these two terms. Buying premium and Selling Premium are exercised in Options trading. An options trading is the financial contract which gives the holder the right (not obligation) to buy or sell the underlying asset at a pre-stated price on a specific date. To buy options contracts we pay a specific amount called premium for the call option (buying premium) or put option (selling premium).

    We prefer to sell premium to give ourselves the best opportunity for success. From a price direction perspective, when selling premium we can win in three scenarios: if the stock price stays the same, moves against us slightly, or moves in our favor. When buying premiums however, we can only win in one scenario, and that is its stock price moves in our favor fast enough.
     
  3. AYSHAJ

    AYSHAJ New Member

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    Before comparing Buying premium and selling premium firstly we should have the basic knowledge of these two terms. Buying premium and Selling Premium are exercised in Options trading. An options trading is the financial contract which gives the holder the right (not obligation) to buy or sell the underlying asset at a pre-stated price on a specific date. To buy options contracts we pay a specific amount called premium for the call option (buying premium) or put option (selling premium).
    We prefer to sell premium to give ourselves the best opportunity for success. From a price direction perspective, when selling premium we can win in three scenarios: if the stock price stays the same, moves against us slightly, or moves in our favor. When buying premiums however, we can only win in one scenario, and that is its stock price moves in our favor fast enough.
     
  4. AYSHAJ

    AYSHAJ New Member

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    Before comparing Buying premium and selling premium firstly we should have the basic knowledge of these two terms. Buying premium and Selling Premium are exercised in Options trading. An options trading is the financial contract which gives the holder the right (not obligation) to buy or sell the underlying asset at a pre-stated price on a specific date. To buy options contracts we pay a specific amount called premium for the call option (buying premium) or put option (selling premium).

    We prefer to sell premium to give ourselves the best opportunity for success. From a price direction perspective, when selling premium we can win in three scenarios: if the stock price stays the same, moves against us slightly, or moves in our favor. When buying premiums however, we can only win in one scenario, and that is its stock price moves in our favor fast enough.
     
  5. AYSHAJ

    AYSHAJ New Member

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    Before comparing Buying premium and selling premium firstly we should have the basic knowledge of these two terms. Buying premium and Selling Premium are exercised in Options trading. An options trading is the financial contract which gives the holder the right (not obligation) to buy or sell the underlying asset at a pre-stated price on a specific date. To buy options contracts we pay a specific amount called premium for the call option (buying premium) or put option (selling premium).

    We prefer to sell premium to give ourselves the best opportunity for success. From a price direction perspective, when selling premium we can win in three scenarios: if the stock price stays the same, moves against us slightly, or moves in our favor. When buying premiums however, we can only win in one scenario, and that is its stock price moves in our favor fast enough.
     

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