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welcome back to my channel everybody

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thank you for tuning in

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and in this video it's going to be

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basically an options trading 101 for

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beginners

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just how we can day trade options and

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what i look for in options

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to day trade them and how they compare

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in relationship

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to the underlying stocks that we do look

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at i'm also going to go into think or

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swim and break down

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the options chain a little bit show you

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what i look for and how you can read the

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options

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in think or swim and of course it's the

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same with any other platform that you're

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looking at

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and like always i'm going to link my

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instagram in the description below

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definitely click that link and follow it

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worth the follow i post

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options trading tips tricks and i do

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some deadly trade recaps too

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and some good psychological lessons as

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well that every trader should need to

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know

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link is in the description below

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definitely worth the follow so going

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back to the powerpoint slides

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these are the slides that i do have in

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the course and i'm just gonna briefly go

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through them a little bit

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not into too much detail before we go

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into think or swim so what is exactly

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an option contract so an option contract

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grants the right but not the obligation

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to buy or sell an

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underlying asset at a set price on or

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before a certain date

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so what's important here is that you

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understand what the set price means and

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what a certain date means which we're

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going to break down in a second

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and there are two option contracts that

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you could play for both sides

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there's a call option contract or a put

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option contract

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when you're talking about calls these

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calls are going to

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increase in value when the underlying

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asset increases in price

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all options are are derivatives so their

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pricing

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gets influenced by another instrument

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and in this case

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options get influenced by the derivative

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which is the stock

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as the stock is moving up your calls are

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going to move up

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now on the right side we have puts so a

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put is going to increase in value

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when the underlying asset decreases in

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price

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so think of a put as short selling or

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it's a bearish position

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where you want to long a put when you

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want the underlying stock to decrease in

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value

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as the stock is moving down your puts

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are going to go

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up in value okay so going back to that

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definition

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an option contract grants the right but

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not the obligation to buy or sell an

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underlying asset

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at a set price so let's break down set

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price

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when we're talking about a set price

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we're talking about the strike price

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and a strike price is the price at which

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the option contract

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allows the buyer to purchase the

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underlying stock at

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i want you to think of options as a bet

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think of it as a basketball game

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so not only are you betting on something

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that's going to happen in the game such

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as

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how long it's going to take for your

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team to score let's say 80 points

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you also are betting on you know how

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long it's going to take for that outcome

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to occur

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if you think the cavaliers in a

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basketball game are going to score 80

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points

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against the warriors then you're not

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just taking that bet of the points but

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you're also betting on when it's going

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to happen

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it's going to happen in the first

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quarter that's less likely to happen

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therefore you can get option contracts

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for much cheaper it's going to happen

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at the fourth quarter you know that's

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more likely you're going to score 80

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points in the first quarter in the

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fourth quarter

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uh so those contracts are going to be

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more expensive because the bet is going

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to be more in your favor

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so set price is the strike price

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now certain date down here is the

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expiration a certain date

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contracts expire that's when your bet

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has to to

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fulfill that outcome by it is the last

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day the options valid

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and there's three things you could do

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you could choose to exercise you could

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close the position for a profit

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or you could let it expire worthless for

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a profit or a loss

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so with options you not only have to be

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right directionally

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but you have to be right with a time

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frame that you're looking at

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or else your bet is going to go to zero

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and basically you lost the bet and your

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investment is going to be gone but i

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don't want that to trick you with

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options because there are two

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there are multiple ways you can trade it

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like i said you hold into maturity

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and you exercise the contract which is

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the most common way for investors

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not the way i trade the way i trade it

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is point number two i trade before the

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contract expires

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options are derivatives so they move

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like a stock and they follow the stock

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price

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if the stock is going up you know 10

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minutes ago where i bought the contracts

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they could be worth a dollar two dollars

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three dollars more in price

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and i could just sell it just like i

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would with a normal stock

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and that's exactly how we trade so go

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into the options chain and going to

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any platform that you're looking at

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options with you're going to see a bunch

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of different contracts you could play

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now in the middle here we have the

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strike price and the strike price is

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what i was talking about before about

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being its

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set price which is where it allows the

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contracts

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allows the buyer to purchase those

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contracts uh

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for the underlying stock now this is not

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the way we trade but

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knowing the strike prices are important

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because they are

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something we call in the money or out of

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the money we're going to break that down

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as well

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to the left of this we have expirations

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now expirations are that

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certain date or that time frame that

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we're looking for before those contracts

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go to zero

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now in the money is everything that

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is purple out of the money is everything

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that is black

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without the money and in the money means

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is that if you're talking about a call

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side

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and in the money contract means that the

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stock price

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so we're looking at apple right now is

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at 375.68

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a strike price that is in the money

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means the current stock

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is over the strike price so look at all

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these strike prices

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on the left side left side are calls

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right side are puts

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when we're talking about calls that are

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in the money the stock price

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is above the stock strike price so

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apple trading at 375 68 means that

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apple 370 strikes apple 360 strikes are

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in the money they are worth more because

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of the outcome

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of them staying in the money is much

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higher so you have to pay a premium for

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that bet

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when i trade i do not trade in the money

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contracts

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i only trade at the money or a couple

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out of the money that have high

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liquidity

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so out of the money for calls now this

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is for calls only

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out of the money means that the current

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stock price is going to be below

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the strike price so apple's at 375

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the 377 and a half calls or out of the

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money

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three ninety strike calls out of the

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money now

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that doesn't mean this is a major point

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right here for beginners because i know

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this is a common question that does not

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mean that

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the stock price has to be above the

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strike price

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for you to make money that is not the

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case i could buy let's say in this case

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the 400 strike calls

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which is 25 away from what the current

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stock stock price is

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and if the stock goes up a dollar two

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dollars whatever these 400 strike calls

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that are at a dollar eight right now

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might be worth a dollar twenty or a

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dollar thirty

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so they're going to go up in value as

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long as the underlying stock goes up in

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value

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and there are other influences as well

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like the greeks and

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certain things that's a whole different

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topic to talk about

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that's going to influence the options

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price and when we talk about options

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pricing we're talking about the option

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premiums

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now on the put side it's a little

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differently so on the put side you have

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in the monies still in purple

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but what in the money on puts is that

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the current stock price

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375 is below the strike price

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so everything or let's

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say below in this case when the stock is

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below the current strike price

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then those are in the money and out of

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the money is when the stock

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is above the strike prices um so i only

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play

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out of the money contracts i do not play

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in the money really at

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all and then you also have to look for

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liquid contracts so before we get into

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liquid contracts

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an example of contracts that expire

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worthless is

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everything that is out of the money

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let's let's actually go back to the

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example that i

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brought up with the definition of an

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option contract so it grants the right

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but not the obligation to buy or sell an

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underlying asset at a set price

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on or before the certain date those are

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the two important keys

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the set price is the strike price and

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the certain date is your expiration or

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the time for you have for your

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bet to be worth some type of money so

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the expiration in this case like i said

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is july 31st

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2020 and everything

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doesn't matter if you're talking about

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calls or puts everything that is out of

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the money

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by the time the contracts expire are

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going to be worthless they're going to

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be zero

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and everything that is in the money is

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going to have some value

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because you could exercise those

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contracts now that is not the way i

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trade

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the way i trade is very simple if i am

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bullish or bearish on a stock

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i'm going to put apple in this case

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so let's say i am bullish apple just

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random example right and i want to buy

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calls so what i'm going to do here is go

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to the call side and let's

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just in this case i'm going to play one

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out of the money uh i'm going to put the

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option chart here

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and now we're talking about calls so we

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want the price of the stock to go

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up for our option contracts to go up in

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value as well

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so let's say we're bullish apple and we

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want to buy the 374 mark

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and we sell hypothetically speaking at

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the 376 point

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which is about 0.50 of a percent on the

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stock price

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it went up two dollars now instead of

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buying the stock we buy the option

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because we're talking about a bullish

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position we want the stock of apple to

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go up

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so we're going to buy calls in this case

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there's two

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price charts on the left and right on

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the left is the option chart and on the

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right is the stock chart they look

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identical because

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like i said they an option is a

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derivative it follows exactly to the

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pricing of another

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instrument and in this case it's apple

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stock so instead of buying the stock at

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374 we could have bought it at

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six dollars and then we could have sold

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it at

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i don't know whatever this high is at

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665.

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so you don't have to hold these to

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expiration you can buy it

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and you know 20 minutes 30 minutes later

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sell it for a profit

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we could have bought it at six dollars

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and 30 minutes later could have sold it

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at 660.

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so they have the same pricing as

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basically of a penny stock

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and yes one contract lets you control

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100 shares

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um but you do not have to hold these

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into expiration for you to make money

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you know these contracts at that at that

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point are out of the money

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yet they still increased in value

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because of the underlying stock

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also increased in value and also

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the premiums right here you have to

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times it by

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a hundred per contract so if i buy one

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contract

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at six dollars and i don't know 50 cents

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uh then it's gonna cost me six hundred

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dollars six hundred fifty dollars

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because

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one contract lets you control basically

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a hundred shares of the stock

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if they do have value by the time of

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expiration and you do want to exercise

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those contracts so yes they have the

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same pricing of like a penny stock

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so it's basically a penny stock of a

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blue chip stock

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but you also have to take into

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consideration there's much more risk

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with options because your premiums can

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go to zero

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if you trade close to expiration you

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know you let the greeks get into the way

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um and also one contract is basically

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you get to control 100 shares but you

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buy and sell it like a normal stock

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buy it at six dollars sell it at 660. um

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so i hope this video cleared up a couple

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of things

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if i missed anything drop a comment in

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the in the comments

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section below if you want me to make

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another video about maybe greeks

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um about how to make a td ameritrade

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option account

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whatever you guys want me to make i can

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make a video on i'm always looking for

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suggestions

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if i missed something in this video you

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know please feel free to let me know

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i hope you guys enjoyed it subscribe to

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this video if you learned anything

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drop a like comment and definitely

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follow my instagram