What is shorting/writing/selling in Options trading?

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;