"Options writer has limited profit and unlimited loss whereas options buyer has limited loss and unlimited profits." Discuss this statement with examples.

"Option writer has limited profit and unlimited loss whereas option buyer has limited loss and unlimited profits". The statement is correct. Buyer of an option has limited loss but unlimited Profit with the right but not the obligation to buy or sell the underlying option. Whereas seller of an option has profit limited to premium received, but unlimited loss with obligation to purchase or deliver the underlying assets. Making it simple, suppose X is willing to buy a mobile which is now available at ₹45,000 which is in high demand and price may rise up and suppose, X doesn't have enough funds now. So X goes to a seller and deal with him by giving ₹1000 now that he will buy the same mobile after 1 month at current price and the deal is sealed. After one month, let's say mobile price is ₹48,000; X can go to the dealer pay rest ₹44,000 and exercise the deal. So in this case, seller of the mobile is in loss because he is selling the mobile (48000-45000)=₹3000 below the market price and his loss will continue till the market keeps on increasing since he is obligated to deliver the mobile. Hence, he has unlimited loss. The profit will only be ₹1000 which is received if price goes down and buyer will not exercise the deal. Exchange derivatives are all cash settled. If you short one lot of option 7500 CE at ₹50 = you receive ₹2500 as a premium but If market roses up, the Premium will also go high from 50 to 100-150 which will depend on % increase hence, loss from a writer of the option will be huge. Hence, margin collected from the seller or writer of the option is huge. It is basically combination of (SPAN + EXPOSURE + PREMIUM RECEIVED).