Explain How Selling an Option (Receiving Premium) Impacts a Trader’s Leverage and Risk Profile

Selling an option means receiving the premium upfront, which can be used as leverage for other trades or simply kept as profit. However, it exposes the seller to unlimited risk (for naked calls) or significant risk (for naked puts) with a limited potential reward (the premium received).

The risk-reward profile is inverted compared to buying, requiring a much larger margin/collateral to cover the potential losses.