11.19Who is an option buyer?
1What is it?
The option buyer (holder, "long") pays the premium and gets the right.
2Why does it exist?
Loss is limited to the premium; profit can be large. But most options that expire worthless lose the buyer’s entire premium.
3Quick revision
- Pays premium.
- Limited loss, large potential gain.
- Time works against the buyer.
4Knowledge check
Q1. Max loss of an option buyer?Show answer
The premium.
Q2. What works against buyers?Show answer
Time decay (theta).
Q3. Is buying options "safe" because loss is limited?Show answer
No. Losing 100% of premium repeatedly is common.