The 2 strategies, Selling Puts and Buying Calls, don't they have the same objective as the trader is bullish about the market and hope the stock price will increase?
Selling a put is the same as selling a covered call, limited gain unlimited loss Buying a call is the same as buying the stock and buying a put, limited loss unlimited gain.
Depends if there In the Money or Out of the Money ?? ( assuming random price movement and no trend after purchase ) In the Money ... Call, 100% downside and maybe 50% upside generally, 50/50 on profitable Put, 100% upside, maybe 50% downside. 50/50 Out of the money, Call, 100% downside, 300% upside, 20% chance of profit Put 300% downside, 100% upside ( MAX ) , 80% chance of profit
You have a "higher probability" to capture gains on the sold put. There will be a huge premium difference with calls being more expensive since we are in a bull market. Puts are cheap until we start dropping so your taking on more risk for a low reward with selling puts but on the upside again calls are more expensive so either you a much further move to get paid if your going for expiration or close to it.
In language that us newbies can understand: You need to have an opinion of what the underlying will do in the time frame of the options to make money. If you think the underlying will go up only slightly you sell a put. If you think it will go up wildly in the time period, you buy a call. You should also think about this: Your counter party is taking the opposite position because he believes you are wrong, not because he likes you and wants to give you money.
The obvious difference is that when you sell a PUT you collect a premium (you are short the Put, meaning you hope the stock goes up so the Put is worth less when you buy it back and you keep the difference, but it can also become more expensive to get out of the position if the stock goes down). When you buy a call you pay a debit, (you are long, so if the stock goes up you make money by selling it for more than what you paid for it). The main difference is the time decay advantage. With a PUT you take in the time decay money as the option gets closer to expiration (if the underlying price stays the same). With a call you lose money if the stock does not go higher, because you lose the time decay premium as it gets closer to expiration.