Options Trading for Beginners Guide - Saxo Bank - YouTube

i'll be going through how to trade options in the  uk to maximize your profits this is a beginner's  

guide to options trading in the uk hi this is  moshe i'm an amateur trader and investor anything  

i learn i teach you guys i have recently started  options trade-in to up my trading game by the end  

of this video you will understand everything that  is going on on this page and as you can see my  

first options contract i managed to make 157 from  385 that's roughly a return on investment of 40  

so options are a really great way of making money  but the problem we have in the uk is there's not  

many providers for it so let's start off with what  an option actually is an option is a contract that  

gives the buyer the right but not the obligation  to buy or sell 100 shares worth of stock at an  

agreed price and time you might have had people  say in the money out the money call options put  

options i'm going to explain everything that you  need to know about options today options can be  

very confusing so the best way is with lots of  examples i'm gonna use the apple stock options to  

explain everything that i'm doing break down every  key part that you need to know on this screen that  

you see the first thing that you need to know as  you can see there's two types of options there's  

calls and there's also puts you can also see  the bid price the ask price for calls and bid  

price and ask the price for puts bit price means  the highest price the buyer is willing to pay  

ask price is the lowest price a seller will accept  the last traded price will be somewhere in between  

those two values and the difference between them  is called the spread so if we just stick to the  

ask price we can say that these are your option  prices call option prices increase when the stock  

price increases the next key thing if we look  along here is the expiry date all options have  

an expiry date this particular option expires  22nd october 2021 at 8 pm gmt so in the 40 days  

if you go further down you can see the dates  increase so this expired 29th october 2021 8  

pm gmt so that is that is expiry date now the  line that's going in between the dashed line  

is the stock's current price and the stocks  current price is also up here it's 148.90

and this is for the apple stock the values  that you see here where it goes 146 140 748 149  

50 and 155 this is what you call the strike price  now with call options the option price increases  

as the stock price increases so if you're bullish  on apple you'd buy an apple call option on the  

other side where we have the puts what it shows  here are the put option prices and they increase  

as the stock price decreases if you're bullish on  apple you would buy put options call options give  

the buyer the right but not the obligation to  buy 100 shares worth for that stock put options  

give the buyer the right to sell 100 shares worth  of the stock as this is a beginner's guide i'm not  

going to talk about shorting cool options and  options because that is very high risk it does  

get fairly complicated i'll do another video on  shorting options sometime in the future before we  

start really analyzing all this information and  options there's a couple of key terminologies  

that you guys need to understand the first one is  something we call intrinsic value let's say about  

i bought a call option for a house remember call  option is just a contract let's say this option  

strike price was a hundred thousand dollars and  expiring in one year's time so what that means is  

that contract allows me to buy that house  from today's day up to one year's time  

for a hundred thousand dollars now let's say after  six months that house price goes to hundred and  

fifty thousand dollars that means my contract  has a value of fifty thousand dollars because  

that contract gives me the right to buy the house  a hundred thousand dollars from any point from now  

to a year's time his six months time is hundred  and fifty thousand dollars the value of the  

house increased fifty thousand dollars that is  what we call intrinsic value i'm going to break  

down intrinsic value and how we work it out in  terms of the apple options so if we stick to the  

22nd october contract and i go to this strike  price of 146 the current stock price is 148.97  

to find the intrinsic value on call options it's  always the stock price minus the strike price so  

what this 146 dollars means is that i have the  right but not the obligation to buy a hundred  

shares worth of stock 146 dollars with expiry date  of 22nd of october and it's also a term we call  

in the money that i'll talk about and explain  later on so make sure you keep watching to the end  

apple's stock price is worth 148.97 my strike  price is 146 so that gives me an intrinsic value  

of 2.97 because it's the stock price minus  a strike price that is for one contract now  

remember one contract is worth 100 shares so that  intrinsic value that uh 2.97 we have to times  

by a hundred so that gives me a total intrinsic  value of 297 dollars now you're probably sitting  

there thinking surely that's too easy you just  made 297 dollars by clicking a button however  

options have a premium that premium is the price  of the option so if we go on the ask we can see  

it's 7.25 that is the option premium now if i  click this you can see a bit more detail comes up  

now remember option one option is  worth 100 shares that premium of 7.25  

we have to times by 100 so it gives us a  total premium as you can see here as 725  

so we had intrinsic value of 297 but we had to pay  725 as a premium so that leads us in a loss of 428  

now to work out put options intrinsic value it's a  strike price minus the stock price so for example  

if i go to the strike price of 150 we know that  apple stock is 148.90 so the strike price is 150  

minus the stock price 148.97 that gives us an  intrinsic value of 1.3 cents now remember an  

option is for 100 shares so what we have  to do is times that by 100 to give us 103  

and as you can see the ask price of this option  is 5.95 now we have to times that by a hundred  

that gives us a premium of 595 dollars so  intrinsic value of 103 and a premium of 595  

dollars so that would give us a loss of minus  492. now you might be thinking well you're just  

losing money however there is more to options  we're going to get onto that but before we do  

we need to understand what extrinsic value means  extrinsic value means a potential for the option  

to become more valuable before its expiration date  extrinsic value is really what we call time value  

the longer time the expiration the more chance  of the price going either up or down and options  

with more time trade with more extrinsic value  and i'm going to show you example exactly what i  

mean so we have option contracts that expire 22nd  october in 40 days and we also have options that  

expire 29th august in 47 days if we look at the  22nd october with a strike price of 149 and you  

can see the option price is 5.50 now if we look at  the contract that has more extrinsic value or more  

time value because later on in time it's an extra  seven days later for the same strike price at 149  

the option price is 6.80 also be aware an option  can have extrinsic value with no intrinsic value  

so for example if we go back to the 149 strike  price and our stock price is 148.97 so the stock  

price is strike price of 149 that difference  there gives us 0.03 dollars of intrinsic value  

basically zero dollars but the value comes  from the expiration because expiring 40 days  

so in 40 days time is highly unlikely apple stock  price will remain on 148.97 now the key benefit  

of options is the maximum you could ever lose  is the premium so if i so buy this option for  

so if i was to buy the option with a strike  price of 149 expiring on the 22nd of october 2021  

and i click on the details you can see the  premium is 550. it's not like leverage trading  

or cfd trading where you get a margin call and  you can completely block your account that is  

your maximum loss you can't lose any more than  550 this is why many many people use options to  

manage the risk to hedge remember what we said at  the start an option gives the buyer the right to  

buy or sell 100 shares worth of stock but not the  obligation so what if you want to exercise your  

option what if you want those hundred shares worth  of stock so for example if the stock price at  

apple is 148.97 i can buy this option that sits at  146 dollars if i exercise it that means i'm buying  

a hundred shares of apple at 146 but options  are very rarely exercised because the profit  

is already baked into the option price so if the  stock moves up your option becomes more valuable  

if you bought a call option if the stock moves  down you bought option your option becomes more  

valuable and the profit is already embedded  into the option price so you'll never need to  

exercise your option unless you really want to  buy a hundred shares worth that stock at that  

current price but sometimes it's not worth it and  i'll show you an example let's say i bought this  

option with a strike price of 148 expiring 22nd of  october the option price is 6.10 so that means the  

premium is gonna be six hundred and ten dollars  because we always times it by a hundred now if  

i want to exercise this option before the expiry  date what that means is to buy a hundred shares  

i would need 148 times 100 shares gives us 14  800 in my account not only that i've paid 610  

as a premium so that gives my total to fifteen  thousand four hundred and ten dollars now as it's  

getting closer to expiry it's losing its extrinsic  value as well so to work out how much we paid per  

share with the premium included all we have to do  is take our fifteen thousand four hundred and ten  

so that's the hundred shares at 148 dollars plus  the premium of six hundred and ten dollars divided  

by a hundred shares that gives 154 per share  so you can see why people don't excise options  

now if you're not interested in options  and this has gone way above your head  

don't forget you can get free shares worth up to  100 pounds if you open up account with trading 202  

or free trade use my link below deposit one pound  and you'll get your free share the next thing we  

need to talk about is the greeks when it comes  to options trading i'm only gonna talk about one  

and the one i'm going to talk about is the one  that's represented on my screen called delta  

delta estimates how much a stock price will change  for every one dollar movement in the stock price  

call options have positive deltas so what that  means is the options price increases as the stock  

price increases and the option price falls as the  stock price decreases and you can see all these  

values are positive for put options the delta is  negative so what that means is the options price  

increase as the stock price decreases and as the  stock price increases the options price decreases  

so let's do an example so i'm going to choose  the strike price of 147 the stock price is 148.97  

the call option price is 6.65 and the options  delta we have as 0.58 so let's say the apple  

stock price increased by one dollar so the stock  price now will be 149.97 what that means is the  

new option price will be 7.23 because what we've  done is this 6.65 we've added 0.5 a because the  

stock has moved by one dollar now if the stock  decreases by one dollar to 147.97 so stock price  

is decreased by a dollar then that option price  will now be six dollars seven cents because we've  

minus the delta from the options price one thing  to be aware the delta always changes because the  

market's always changing options can be very very  confusing but just be aware as long as you're  

shorting the maximum you can lose is your premium  so it's a good way to manage a risk and good way  

to make steady profits i will do another video  on the rest of the greeks that you need to know  

about but i said today's just a beginner's guide  i'm gonna open up my initial first ever trade of  

options which was a near call option one thing  to be aware of is if you're in the uk and you're  

dealing dollars there's an exchange fee that you  should take into account and the commission saxo  

bank takes is relatively small it's usually  around three dollars per contract that you buy  

so as you can see i've lost due to the fees  and everything else 10 pounds in that trade  

and i find it a lot cheaper than cfd trading i'll  appreciate a like and a sub on this video as well