In 50ETF options, option trading is divided into two transactions, option buyers (retail investors) and option sellers (institutions). It is equivalent to the two being rivals. Many investor friends do not know whether retail investors can sell options or become option sellers? And how to operate option sellers. So today I will share this knowledge point with you. This article comes from: Option Sauce
The buyer of an option is a party with the right to buy or sell an asset at a specific price on a specific date in the future.
The buyer obtains this right by paying a certain premium. If the option is exercised in the future, the buyer can obtain the difference between the exercise price and the market price.
The seller of an option is the party with the obligation to buy or sell an asset at a specific price. The seller needs to pay a deposit when selling an option to ensure its ability to perform.
If market conditions are unfavorable in the future, the seller may face exercise pressure or risk losing margin. Whether retail investors can sell options and become the seller of options may vary depending on the trading venue and option type. Generally speaking,
Retail investors can sell options, but retail investors are not recommended to be sellers .
Retail investors can be sellers of 50ETF options, that is, retail investors can sell options, but retail investors are not recommended to be sellers because their risk tolerance and amount of funds are not as good as those of institutions and large investors, and the buyer's risk of 50ETF options is Relatively large.
Can retail investors sell options or be an option seller? Of course, retail investors can be option sellers but they need to meet the following conditions:
1. Have certain financial strength and risk management capabilities. Retail investors need to pay a certain deposit as a guarantee for performance, and they need to bear the financial pressure caused by the exercise of options. Therefore, retail investors need to have certain financial strength and risk management capabilities to succeed in the role of seller of options.
2. Understand the pricing principles and risk characteristics of options. The pricing of options needs to consider a variety of factors, such as the underlying asset price, exercise price, remaining period, volatility, etc. Retail investors need to understand the impact of these factors on option prices and the risk characteristics of options in order to price appropriately and control risks.
3. Have professional investment knowledge and experience. Having certain investment knowledge and experience is a basic requirement to sell options and become an option seller. This includes knowledge of the basic principles of options, trading rules, risk control, etc. Only with this knowledge and experience can retail investors make correct investment decisions and avoid losses caused by unfamiliarity with the rules or lack of risk management capabilities.
How to operate as an option seller? How to sell options
Selling options means being the seller of options. If you want to be a good seller, you must consider three factors: volatility, risk tolerance and liquidity .
First, learn to look at "implied volatility" to find a contract that is obviously overvalued, then choose to sell it and buy a corresponding number of contracts with normal implied volatility to earn income from the volatility difference.
Sellers do not necessarily look at trends, just like an insurance company recommending high-priced insurance and then selling it.
Second, choose a contract with high liquidity. The seller also needs to prevent the risk of the contract being unable to be closed.
Third, pay attention to your own risk tolerance. If you have strong tolerance, you can sell slightly real-valued contracts and earn higher option premiums.
If you have weak tolerance, you can sell contracts that are slightly out of value. The time value of such contracts decays the fastest and the probability of being exercised by the buyer is very low.
As a seller, remember to stop loss first, and the position should not be too heavy!
In general, retail investors need to fully understand the trading rules and risk characteristics of options before deciding to sell options, and carefully assess their risk tolerance and investment purposes. Only if you have the necessary financial strength, risk management capabilities and investment knowledge can you consider becoming an option seller.