Friends, you must have heard the term call writing many times in the stock market. do you know? What is call writing and how to do it? In today’s article call writing, I am going to give you detailed information about what is a call writing and put writing and Difference between them.
You must have heard many times that traders earn a lot in Nifty and Bank Nifty or by doing call and put writing of any stock.
You can earn good money from share market by doing call writing and put writing. If you are not aware about what is Call and Put, then you can read my article on Trading Options. Now I am going to give you information about call writing as well as put writing.
Difference between buying and selling (writing) calls
Before knowing what is the difference between buying and writing a call, I would like to inform you about some important things.
In the stock market, the person who buys the call is called the call buyer and the person who sells the call is called the call writer.The call buyer buys the call when he feels that the market may rise and the call price may increase.
But the call writer writes (sells) the call when the call writer feels that the market may decline and the price of the call may fall.
This means that it is difficult to buy calls and write calls. The call buyer expects the market to rise. When the call writer expects a fall in the market. Now let me understand you in detail about call writing meaning .
What is a call writing
Call writing means selling the call. In options trading, you can buy or sell calls and puts. But buying an option and writing an option is a difference in them. Let me understand you with an example what happens in the buying and writing of calls and puts.
When there is a rise in the stock market, the trader buys the call of Nifty or Bank Nifty. If the trader thinks that the market will rise further then the call price will increase and they will get profit.
But call writing is quite the opposite method. When the call writer feels that the market will not go up much and the market may fall, then the call writer sells the call, which is called call writing.
Let’s say you are a call writer and you think that Nifty, or Bank Nifty, may decline in the coming days. So you will not buy a call in this situation because if the market falls then the price of your call will fall.
But in this situation you will sell the call as the price of the call option will fall in the market.
When you sell a call option that means by writing a call, you will make a profit when the call price falls. You will get profit as the call price declines.
In short, when you feel that the market will fall and the price of the call option will also fall, then you can sell the call and earn money by writing the call.
example of call writing
Suppose Nifty is currently trading at a price of 17500. A call writer thinks that Nifty will not rise any more. There is a possibility of a slight decline in Nifty now. Meaning that the call writer thinks that Nifty will not go above 17500.
Then the call writer will sell the call for 17500. Selling a call means bearish. Because as the market declines, the call price will start falling which is called premium.
As the call price (premium) of the call of 17500 strike falls, the call writer will make a profit.
Suppose the call writer has sold a call of 17500 strike at a price of Rs 100 and the market starts declining and the call price reaches Rs 50 then the call writer will make a profit of 50 points.
Apart from these, when the call writer feels that Nifty will not go above some strike price, then he sells the call strike above it.
For example, if the call writer feels that Nifty can go up to 17500 but will not go till 17700, then he will sell the option strike of 17700. If Nifty does not reach that strike then the premium of the call option will drop by 0.05 paise and he will get all the premium.
Advantages of Call writing:
- You can earn good profit by doing call writing when the market is going down.
- The call writer gets the most benefit of time decay.
- You can write a very distant option strike where the Nifty, Bank Nifty or share price is less likely to reach
- When the expiry of the option nears, the premium of the option falls sharply, which benefits the call writer a lot.
disadvantages of Call writing:
- In call writing, more funds are required to write the call.
- If the market trades against you after the call writing, there is a risk of huge losses.
- In call writing, your profit is limited to the option premium.
What is a put writing
Selling a put option is called put writing. When the put writer feels that the market may turn bullish in the coming days, the put writer earns profit by selling the put.
In call writing a call is sold whereas in a put writing a put is sold. In call writing, the call writer sells the call when he feels that the market may decline.
Whereas the put writer sells the put when the put writer feels that the market may rise. All other things being equal.
WHAT DID YOU LEARN TODAY
I hope you have liked my article on what is a call writing and put writing. It has always been my endeavor to provide complete information about the future of stock market to the readers, so that they do not have to search any other sites or internet in the context of that article.
This will also save their time and they will also get all the information in one place. If you have any doubts about this article or you want that there should be some improvement in it, then you can write comments below for this. this is only for educational purpose.