Why do option sellers earn profit instead of buying options in the stock market?

 Friend,

looking at the question it seems that you are not aware of the option concept or you have never seen the loss of an option seller.

Because if you were aware of both these things then this question would definitely not have arisen.

Let us try to understand it in simple words.

Suppose the premium of a Nifty strike price is Rs 100. Now let us take the example of a buyer and a seller.

Buyer:

If a person is an option buyer then he will have to invest a total of 70*100= Rs 7500 to buy this strike.

Now two things are possible here.]

1) Price increased as expected:

Now there is no limit to how much it will increase in the order of increasing from 100. That is why it is said that the option buyer in the market always works with unlimited profit option.

2) Price did not increase/decrease. Or it fell:

In both these conditions, a buyer loses the maximum amount of money bought. That is, Rs. 7500

Selling:

If a person sells the option, then he will have to invest around Rs. 80 thousand to Rs. 1.5 lakh to sell this strike.

Now two things are possible here.

1) Price fell as expected:

Now in the process of falling from 100, this maximum will fall to around zero. That is, the maximum profit a seller gets in this trade is Rs. 7500. That is why it is said that the person selling the option in the market always works with limited profit option.

2) Price did not increase/decrease.

In this condition also, a seller will be in profit of the whole premium. Which if we say in maximum, is Rs. 7500.

3) Price increased instead of falling:

Now in this condition, an option seller is in a position of unlimited loss. Because there is no limit for the premium to increase above 100.

If you look at this entire quote, you will find that an option seller always works with the option of unlimited risk and limited profit in the market, while on the other hand an option buyer always works with limited risk and unlimited profit.

The only difference between the two is that an option seller remains in profit in two movements of the market (in its favor and sideways), while an option buyer remains in profit only in the analyzed trend movement.

Hope the post will be useful for you.

Thank you