What Is the Difference Between an Option Buyer and an Option Seller? Part 1

If you ever wondered how options works, it can be summed up as
follow:A buyer of a call option hopes that the security from where the
option derives, is going to move up.That means that the stock or
commodity that your options derive from - also known as underlying
security - will move up. So, the buyer of this option has the right to
control a bullish directional position of X number shares of the stock
for a pre-determined period of time (since all options have expiration
dates, ones are longer others shorter). Of course that comes with a
price which is referred as "premium" that usually costs less than the
security itself. As for commodities, it pretty much works the same
way, only this time you have the control over a future contract also
for a specified period of time and a specified strike prices. Both the
strike price and the expiration date are known beforehand, you never
buy an option without knowing when it will expire and how much is the
strike price. The buyer has no obligation whatsoever to exercise and
buy the underlying stock/commodity. But the seller, in other hand, has
the OBLIGATION to sell it. So, there is limited loss potential - the
price paid for the option - but it has an uncapped profit potential.It
does look great doesn't? Who wouldn't want a trade that has unlimited
profit potential and limited loss potential? But, as you probably know
it, it is not as easy as 1-2-3. You always have to consider several
other infos to properly conduct your trade. For example, how much
money should you put in this trade alone? Just a quick example of what
could happen if you didn't pay attention to position sizing in your
trade:Say you put 90% of your equity in one trade and the remaining
10% in some other trade. Then, the latter goes up and make a 100%
profit! G R E A T! But, the other trade went bust and you lost 20% of
your initial money on the trade. The end result would have been that
you LOST money even though you had one trade that made you a 100%.So,
just pay attention to position sizing as well when deciding which
trades you are going to make.