Every option trade has a buyer and a seller. They look like two sides of one bet, but the money involved and the risk each one carries are very different.
The buyer
- Pays the premium up front; that is also the most they can lose.
- Needs the index to move far enough, soon enough, to cover the premium and the charges.
- Loses a little value every day the index does not move (time decay).
The seller
- Receives the premium, which is the most they can make.
- Can lose many times the premium if the index moves sharply against them; a sold call has no fixed maximum loss.
- Must keep margin with the broker, set by the exchange's risk model (SPAN plus exposure margin). For an index option this is typically lakhs of rupees per lot, far above the premium received.
- Can be asked for more margin when the market moves, at short notice.
High probability is not low risk
Selling far out-of-the-money options wins small amounts often and can lose a large amount on the rare day the index gaps. A few such days can erase months of premium.
Spreads, which combine a bought and a sold option, cap the seller's loss and reduce the margin. They also cap the profit.
Examples use illustrative values, not current market data. This is general education, not investment advice.