Comment on Option Strategy - Zerodha Trader

Hanan commented on 07 Oct 2013, 08:36 AM

Short selling and option writing are definitely very different from each other.

Short Selling: This happens when you sell an asset which you don’t own with the hope that you can buy it back at a lower price later since you expect the price of the stock to go lower. In equities, this can be done only on an intraday basis. For Futures, you can sell and hold until expiry by paying the margin amount for holding that short position.

Option Writing: This is totally different from short selling because you’re earning a premium from the buyer of the option which gives him the ‘right’ to buy or sell an asset at a given price on a later date if the strike price is achieved. Option writers may not necessarily own the asset but they still take on the obligation to deliver the asset if the conditions are met for which they receive a small premium from the buyer of the option.

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