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Close alert Thanks for following this author! Close alert You've unfollowed this author. You won't receive any more email notifications from this author. When selling an option you want it to expire worthless so that you collect the full price you sold it for.
An option will expire worthless if its strike rate is worse than or equal to the underlying market rate. But there are also other elements of option pricing to consider; time and volatility. An options value declines over time. This is good for an option seller since they collect this as profit for each day that the option position is open. However, overall profit or loss will depend on other market factors as well. Volatility also affects option price; if the market expects volatility in the underlying asset to fall then the option price falls.
This is good for a seller. In summary the three main factors to consider are time, volatility and underlying market direction. Lastly, the profit from selling is limited since an option price can only fall as far as zero.
However, potential loss may be significant since an option price can rise substantially and infinitely for Calls. Selling a Call C Option When you sell an option you receive the price upfront. As a seller you are on the other side of the buyer's trade; if the buyer is making a profit, the seller is losing and vice-versa. In terms of direction, the seller of a Call wants the underlying market rate to expire at or below the option's strike rate.
When this happens the option expires worthless hence the seller has collected the entire option price i. If you sold this option you would receive 0. If the underlying market expires at or below 1. The maximum profit potential is equal to the sell bid price at open Selling a Put P Option In terms of direction, the seller of a Put wants the underlying market rate to expire at or above the option's strike rate.
If the underlying market expires at or above 1. In this case, the maximum profit potential is Trading a Trend As demonstrated, you can buy or sell a Call or Put option to trade a trend in the underlying market. Here is an overview: Options trading is available on MT4 platforms, ask your broker for more details.More...