Differences Between Buying and Selling Options

Buying and selling Options require two different trading strategies. Before you begin trading Options, let's compare the two. The main differences are as follows:

Rights and Obligations:

Options are derivatives contracts that give buyers the right—but not the obligation—to buy or sell an underlying asset at a set price on or before a specific date. To gain this right, buyers pay a premium for a call or put option.

Option sellers, on the other hand, are obligated to fulfill the contract if the buyer exercises the option, which could lead to a loss, but they keep the premium paid by the buyer.

The term "premium" refers to the price paid for the option—the amount the buyer pays for this right and the seller receives for taking on the obligation. 

Profit and Loss

Details of maximum profit and loss for Option Buyers and sellers are as follows:

From the chart above, we can see that the maximum loss for the Option buyer is the price of the premium paid, while the maximum profit for the seller is the premium paid. Thus, the trading strategy of buying Options has the advantages of limited risk and unlimited returns.

P&L Calculation

When the Option expires, the Option profit and loss recorded by the buyer and seller are as follows:

For Buyer: Realized Profit − Premium 

For Seller: Premium − Realized Loss

In Options trading, after deducting the trading fee and delivery fee charged by Pi42, the P&L is the actual profit and loss recorded by the buyer and seller.

Notes: 

• Trading fee and delivery fee for a single contract can never exceed 12.5% of the Option price.

• 0.2% fees will be charged for liquidations.
  
  

 To learn more about how each fee is calculated, please visit here
Maintenance Margin Occupation

Long Option: No Maintenance Margin required. The Option buyer is required  to pay a premium and holds the right to exercise the Option, but not the obligation.

Short Option: Maintenance Margin required. Selling an Option requires a Maintenance Margin to ensure that the seller can meet their obligations if the Option is exercised.