Understanding the Market Participants- Call Writer

The Trader who enters into the options market can trade in two products- Calls and Puts. Within these two products, he can choose to either write the instrument or to buy it. We shall delve a bit to understand the analogy of the writer of the call option in this discussion.
The writer of the call option is of the view that the underlying will not rise beyond the strike price, and in a more practical manner, not beyond the strike price by a magnitude greater than the premium he has received. But, what is the reason that he wrote the call instead of buying a put, or shorting the security?
The reason is that the risk profile while writing the call is different from the other cases mentioned. He has, buy writing the call, safely pocketed a guaranteed premium, which he’ll receive regardless of the movement in the underlying. Plus, he has statistically more chances than the seller of the security to gain, that is, when the underlying falls in value and when it remains the same. In both the cases, he’ll be making a profit, the magnitude notwithstanding. However, in both the cases, if the underlying increases in value, both are bound to lose money.
But the fact that inflow of money is ensured is quire pleasing, and one may tend to overlook the unlimited loss part, which can be very dangerous. Here, we have tried to understand the mentality of the writer of call options, just to better understand the happenings of the options market and to enable ourselves better to analyze the pros and cons while operating in the stock market.

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