FREE Account Opening + No Clearing Fees

What is shorting/writing/selling in Options trading?


Open an Instant Account with Zerodha

Most traders buy call and put options. They buy call options when they expect the market to rise and they buy put options when they expect the market to fall. However, there is another interesting trade that is risky and only practiced by a few traders. It is the so-called shorting, the writing or selling of options.

Writing an option refers to the sale of an option contract in which the writer receives a fee or premium in exchange for the right to buy or sell shares at a future price and date.

When writing/shorting/selling options, you sell a call or put an option in the hope that the price of the security will fall and you will make a profit. Since the majority of options traders buy options and a significant portion of these trades expire worthless, the likelihood of losses or smaller gains is greater. So if the majority of traders lose, who wins? It is the traders on the other side, i.e. the sellers.

The time value also works in favor of the sellers and against the buyers. Every day that passes without the market moving or falling, the market wins. We all know that premium = intrinsic value + time value. So if the intrinsic value does not move, the seller is at an advantage because with each day that passes, the price of the premium falls.

An option buyer has a limited loss and unlimited risk potential, while a seller has an unlimited loss or greater gain. Let us illustrate this with an example;

Nifty 50 Spot Price


Nifty 50 Short Call Strike Price


Lot Size


Premium Received Per Share

Rs 154

Break Even Point (Strike Price + Premium)


Max Profit

Rs 154 X 75= Rs 11.550

Max Loss


Let us now look at how the payouts vary depending on the closing price of the Nifty 50 on the expiration date.

NIFTY 50 Closing Price (CP)

Net Payoff (BEP-CP)*75, Max Profit= 4500















The table above shows that although you make a higher profit when selling options, you also run a higher risk if the market moves against your trade.

Margin payments are much higher when selling options short than when buying options. Also, the margin is marked to market, which means you have to hold margin each day depending on your loss.



Add a public comment...

List of all questions Ask your question

More Options Trading Basics Questions...

  1. How do options work?
  2. What are the different types of options?
  3. What is the strike price of an option?
  4. What is the Expiration Day of Options?
  5. How do I trade options?
  6. What is the difference between futures and options?
  7. How is Nifty traded?
  8. What happens if an option expires out of the money?
  9. Is there any Margin payable in Options?
  10. How does options settlement work?
  11. What are Covered Options?
  12. What are Naked Options?
  13. What is an American Option?
  14. What is an European Option?
  15. What is In-The-Money (ITM), At-the-money-option (ATM) and Out-of-the-money-option (OTM) in Options?
  16. How to decide on whether should I buy or sell Call or Put options?
  17. Can I trade on options of any stock or Index?
  18. What is the difference between square off and exercise an Option?
  19. What is intrinsic value of the option? How to calculate intrinsic value of an option?
  20. What is time value of an Option?
  21. What are moving averages in options trading?
  22. What is Assignment in Options?
  23. How are options different from futures?
  24. What are the factors that affect the value of the premium of an Option?
  25. What are different pricing models for options?
  26. How the premium paid on options is calculated?
  27. What are Option Greeks and its use in Option trading?
  28. What is shorting/writing/selling in Options trading?
  29. I have bought an option & paid the premium for it, how to settle it?
  30. Do Option buyers have the same rights that as stock buyers?
  31. What is the contract cycle for Options in India?
  32. How does the probability of price movement affects the price of an option?
  33. What is the difference between trading stocks versus options?
  34. What is open interest and volume in options?
  35. What is the options market?
  36. What is nifty futures and options?
  37. What is an option trade?
  38. Is binary options trading legal in India?
  39. What are different types of exotic options?
  40. How to trade nifty Options intraday?
  41. Can I trade in US options from India?
  42. What are options trading hours in India?
  43. What is NSE option expiry time?
  44. Can I buy/sell Options in pre-market trading session?
  45. What is call & put option in bank nifty?
  46. What is the difference between selling a call option and buying a put option?
  47. What is NSE F&O lot size?
  48. What are options trading advantages?
  49. What is options trading after hours?
  50. What are options trading charges?
  51. What are options trading exchanges in India?
  52. What is the difference between options trading and Forex trading?
  53. What is the difference between options trading and stocks trading?
  54. What is the minimum amount required for Options trading?
  55. What are Index Options?
  56. What are weekly Options?
  57. What are Long Dated Options?
  58. How to identify if a particular option contract is American or European style?
  59. What are Option contract adjustments?
  60. Why The Intrinsic Value Of Options Contracts Can Never Be Negative?

List of all questions Ask your question