For selling calls, you want to make this contract when you think the stock price is going to go down. Again, like selling puts, the only money the seller (of the call) makes is from the premium from the call buyer. When you enter into this contract as a call seller, you agree to allow the call buyer to buy a stock at a certain price (called the strike price). Obviously if the price goes above the strike price, the call buyer will execute (since they will be taking the stocks from you at a lower price than the market). Of course if the stock price remains below the strike price, the call buyer wouldn’t execute the contract since buying the stock from the market makes more sense since the price is cheaper.

Some notes: In some cases you actually don’t own the stock the call buyer has the right to buy from you. This is called a naked call. So if the call buyer executes, you need to actually buy the stock from someone else (which obviously is more risky for the call seller than if this were not a naked call. If the call seller already has the stock, it’s called a covered call).

Some questions:

-does the contract have to start when the stock price is below the strike price?

Resources: https://www.investopedia.com/ask/answers/06/sellingoptions.asp

In terms of selling puts, you would want to enter a contract if you think a give stock price will go up. When you enter a contract as a seller, you agree to buy a stock at a certain price from the put buyer (called the strike price). The buyer ALWAYS has control if the contract will get executed. The put buyer will obviously exercise the contract if the price starts to fall from the strike price (as the seller will be buying the price from the put buyer at a price higher than the market value). The put buyer will obviously not execute if the stock price if higher than the strike price (since they put buyer would rather sell their stock in the market). For the put seller, the only money he/she will make is from the premium the buyer pays (that is it).

NOTE: When selling puts, you should be selling puts of a stock you probably want to own (with makes sense since if you are selling puts, you think the price will go up of that company, so you you probably have confidence in that company)

Resources: https://www.investopedia.com/ask/answers/06/sellingoptions.asp

A couple of questions:

-is there an expiry date for the contract  (which would I guess be in the put seller’s eventual benefit)?

-when the contract is made, does the stock price have to be higher than the strike price (for the reasons the contract gets executed automatically when it falls below the strike price?)?