Question

Why there are many option writers willing to sell options although knowing that option sellers have limited gain and unlimited loss,

Answer 1

Writing option has limited gain and unlimited loss. But, they have a higher probability of success.

An option buyer has limited loss and unlimited profit but they have a lower probability of success.

Example: The current stock price = $1,000

The price of the $1,100 call option expiring in one month is $10

The buyer of the call option has a limited loss of $10, which is the limited gain to the call option writer. However, for the buyer of the call option to make profit, the stock has to expire above (1,000 + 10) = $1,100. That is an increase of 11% in just one month. This is unlikely to happen frequently.

On the other hand, for the call option writer to make profit, the stock may go down, or stay there, or increase in value up to $1,000. The possibility of this happening is very high.

For the same reason many option writers are willing to sell option for limited, but more frequent gain.