If selling options is the best thing to do, all options buyers idiots?

Not really. There is a huge reason why a lot of people buy options despite knowing that it is not profitable in the long run. And that is to sell options you need to post huge margins. This often forces people to buy.

Let me explain this with an example here:

If you buy a nifty 10600 call for 180 Rs, you will need 180 * 75 Lot Size = 13,500 rupees to buy this. If nifty goes above 10800 you will make 20 rs profit or little bit on higher side than that. If nifty goes 11,000 you money might just double!

option selling

To sell a Nifty 10600 CE option, you will need around 80,000 rupees as margin. If nifty goes to 10500 you make around 10,000 rupees as you could see in the below chart which is nearly 12% return on your investment. If nifty closes at same level still you will make nearly 100 rupee because premium is the max you make.

So,

  1. buying option gets a higher ROI – means rich quickly.
  2. Buying options has unlimited profit, so people get greedy.
  3. Buying options require less margin, so people with less money and powerful trading strategies make lot of money buying options.

Here is an interesting video on options trading:

Watch Video on Options Buying vs Selling

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