So far we’ve mostly bought options. But for every buyer there’s a seller on the other side — and selling flips the risk and reward completely.
The buyer (long)
When you buy (go long) a call or put:
- You pay the premium up front.
- You have a right, never an obligation.
- Your loss is capped at the premium; your upside can be large.
- Time decay works against you — the clock eats your extrinsic value.
The seller (short)
When you sell (or write) an option:
- You receive the premium up front — that’s your maximum profit.
- You take on an obligation: if the buyer exercises, you must deliver.
- Time decay works for you — every day the option loses value, that’s good for the seller.
Selling a call you don’t own (“naked”) has theoretically unlimited risk — the stock can keep climbing. This is why brokers require margin and approval for it.
A simple way to remember it
| Pays / receives | Wants the option to… | Risk | |
|---|---|---|---|
| Buyer | pays premium | move (gain value) | limited |
| Seller | receives premium | expire worthless | larger |
Why sell at all?
Because most options are never exercised — the majority are closed out or expire out of the money. Sellers are effectively the “insurance company” — collecting premiums and profiting when nothing dramatic happens. Strategies like the covered call and cash-secured put are friendly, defined-risk ways to be a seller, which you’ll meet in the strategy library.