Final answer:
Buying calls or puts in options trading involves acquiring the right to buy or sell a stock, while selling options involves selling the right to someone else. Buying options has limited risk and potential outcomes, while selling options carries unlimited risk but potential rewards.
Step-by-step explanation:
When it comes to options trading, there are two sides to the transaction: buying options and selling options. Buying calls or puts allows you to acquire the right to buy or sell a stock at a specified price within a specified time period. On the other hand, selling or writing a call or put involves selling the right to someone else.
The main distinction between these strategies lies in the risk and potential outcomes. Buying options carries a limited risk - you can only lose the premium you paid for the option. However, the potential outcomes are also limited, with the possibility of losing the entire premium if the option expires worthless. On the other hand, selling options has unlimited risk, as you may be obligated to buy or sell the underlying stock at an unfavorable price. However, the potential rewards can be higher, as you keep the premium if the option expires worthless.