Top 10 Reasons Why Selling Options is Better Than Buying Options (2024)

Options trading has gained in popularity and interest the past few years due to the insatiable appetite of retail traders for buying options. However, buying options may not be the best strategy for retail traders. Selling (aka "writing") options has been a favorite strategy of professional traders for years because the odds favor a winning trade when selling options versus buying options.

As a retail trader, wouldn't you want to increase your odds of placing winning instead of losing trades? Selling options can be a profitable strategy for retail traders and investors, and here are ten reasons why selling options can be better than buying options.

1. Time decay: Options are a wasting asset since the value of the option erodes as time passes and it approaches its expiration date. Option sellers benefit from time decay. Option buyers do not. As time passes, the option seller can profit from the erosion of the option's value. Time works against the option buyer.
2. Probability of profit: Selling options provides traders with a higher probability of profit as compared to buying options. The odds favor options sellers since the seller receives a premium upfront and retains it if the option expires worthless. The odds are stacked against options buyers. Buyers know that the longer they hold an option, the higher the chance that the value of that option will decay and the more difficult it becomes for that option to increase in price and produce or increase a profit for the buyer.
3. Income generation: Selling options can generate a consistent income for traders, making it a suitable strategy for those looking for a regular stream of income. Buying options does not allow a trader to generate a consistent stream of income since a trader is buying the premium versus selling the premium. While the payout might be smaller in selling options for premium versus buying options and cashing out on a big move, the ability to win high-odd trades more consistently could result in accrued profits being substantial to where it rivals that of an option buyer's profit from their lower-odd trades.
4. Neutral market bias: A hard part of trading stocks or options is trying to decide where the market is going to go next. Option buyers have a tough job - they not only have to get the direction right, but they also have to predict when the move will occur. Option buyers need the market to move in one specific direction in order to profit. They do not have the luxury of profiting if the market remains flat or moves against them. Selling options can be a neutral market strategy, as sellers can profit from the market remaining flat or moving in a specific direction. Option sellers don't necessarily need to pick market direction. They just have to pick a price (strike) where they think the market will not get to at expiration.
5. Lower volatility exposure: Selling options can reduce a trader's exposure to market volatility compared to buying options. Option sellers can profit from time decay and the option expiring worthless rather than being impacted by sudden market swings like option buyers.
6. Range-bound markets: Selling options can be a profitable strategy in range-bound markets, where prices stay within a specific range or channel. Option sellers can profit from selling at predictable support and resistance levels and executing the wheel strategy to maximize premium capture.
7. Less price sensitivity: As an option seller, traders do not need to be as price sensitive as option buyers. This is because the seller can profit from a range of prices and not just a specific price.
8. Flexibility: Selling options can be a flexible strategy, as traders can choose to sell options with various strike prices and expiration dates based on their market outlook.
9. Multiple methods of risk control: To be clear, selling options does carry risks as there always exists the potential for a move against the option seller's position that could cause loss. Risk of loss is always present and must be managed. Risk can be controlled by closing the position if it moves against the trader, which can be done at any time. A trader can also utilize stops or covered spreads to control risk.
10. Hedging: Selling options can be used to hedge other positions, such as long stock positions, to reduce risk and generate income simultaneously.

In conclusion, the option seller has a higher probability of success than the option buyer in placing winning trades. Furthermore, professional traders prefer the strategy of selling options versus buying options because the odds favor that strategy. Retail traders should take a lesson out of the professional traders playbook and look towards incorporating option selling as a bigger part of their options trading strategy.