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Options Trading Basics for Beginners | How to Buy Call and Put Options Strategies Explained - YouTube
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even though stock options might seem hard to wrap聽
your head around it's in your best interest for聽聽
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you to understand what they are how they work聽
and how to trade them because they can play a聽聽
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significant role in your investment portfolio聽
so stay tuned as i walk you through everything聽聽
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you need to know about stock options hello and聽
welcome to finance for dummies where we talk about聽聽
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everything personal finance and investing if these聽
topics interest you and you want to always keep聽聽
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tabs on them please subscribe to the channel and聽
hit the notifications button as well to get alerts聽聽
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whenever new videos come up now let's learn what聽
stock options are all about first things first聽聽
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exactly what are stock options simply put stock聽
options are contracts that allow you to buy or聽聽
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sell shares of a particular stock and an agreed聽
upon price as long as it's within the duration聽聽
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of the contract and just to note buying or selling聽
is not an obligation here meaning you don't have聽聽
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to buy or sell shares if you don't want to now聽
getting into the terminology the agreed upon or聽聽
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predetermined price is known as the exercise or聽
strike price and the duration of when you can聽聽
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assume actual ownership of the granted options is聽
called the vesting period when stock options vest聽聽
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it means you've earned them note though that you聽
still need to buy them out what are the different聽聽
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types of stock options let's talk about that note聽
that there are two types of options the first one聽聽
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being puts which is essentially a bet that a聽
stock will fall or decline in price and just pay聽聽
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attention to this put options allow you to sell聽
the asset at a stated price within the contract's聽聽
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duration the second type of stock option is聽
calls which is a bet that a stock will rise聽聽
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call options allow you to purchase the asset at聽
a stated price within the contracts duration and聽聽
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before i give you examples to help you understand聽
things better let me take this time to clarify聽聽
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something i should have said earlier stock options聽
have shares of stock or a stock index as their聽聽
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underlying asset making them a form of equity聽
derivative and rightly so because their worth is聽聽
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actually derived from the value of that underlying聽
asset or security moving forward let's take a look聽聽
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at put and call option examples as we go through聽
the examples it's important to have this in聽聽
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mind stock options can work in or out of favor聽
because while they have an original fixed price聽聽
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things can change anywhere during the contract's聽
timeline that said here comes a put option example聽聽
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assume you have a friend jess who bought one put聽
contract for apple at a strike price of a hundred聽聽
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sixty dollars that expires in three months at聽
the moment the price of the stock is 165 dollars聽聽
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in this case if apple goes below 160 to聽
155 anytime until the contract's expiration聽聽
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jess can exercise her right to sell her apple聽
shares at the initial 160 dollars strike price聽聽
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so if jess wishes she can sell her shares when聽
the price is 155 dollars and simultaneously buy聽聽
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100 shares for 155 and sell them for 160 making a聽
profit of five dollars per share keep in mind if a聽聽
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contract reaches expiration and the underlying聽
stock for a put option never falls below the聽聽
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strike price the options contract expires聽
worthless now for the call option example assume聽聽
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the same friend jess bought one contract of nvidia聽
at a strike price of fifty dollars that expires in聽聽
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one year the current price of the stock is 35 in聽
this case if the price of the stock rises to 60聽聽
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on the day of expiration jess can exercise聽
her right to buy 100 shares of nvidia at 50聽聽
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and then sell them at 60 on the day of expiration聽
making a profit of ten dollars per share also聽聽
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keep in mind that if a stock never goes above聽
a strike price for a call option by expiration聽聽
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the contract expires worthless so how can you聽
trade stock options trading stock options is聽聽
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no different from regular stock so if you聽
have a bit of experience with trading stock聽聽
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you'll get the drift pretty quickly if you're聽
new to trading don't worry we'll be going over聽聽
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the simple steps to get started step number one聽
open an options trading account you can do this聽聽
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on a stock brokerage platform or firm options are聽
considered a bit more complex than regular stock聽聽
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so most brokerages do some pre-screening聽
during the registration process to ensure聽聽
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the potential options trader understands the聽
risks involved and is prepared you will answer聽聽
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questions about your investment goals trading聽
experience the options you're interested in聽聽
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and your financial situation step number two聽
choose your options now you already know that a聽聽
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call option gives you the right to buy a stock聽
at a set strike price by a certain deadline聽聽
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and a put option gives you the right to sell聽
a stock at a given price by a particular date聽聽
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so your decision on which contract to buy will聽
solely depend on where you expect an underlying聽聽
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stock to move if you think the price will rise聽
buy a call option similarly buy a put option if聽聽
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you think the prices will go down i'll give an聽
example to illustrate this in the next step step聽聽
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number three predict your options strike price聽
an option becomes profitable only if the stock聽聽
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price is in the money when the contract expires so聽
that is above the strike price for a call option聽聽
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and below the strike price for a put option so聽
you will need to predict the strike price to know聽聽
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which option to buy let's take an example say you聽
see a company x stock currently trading at fifty聽聽
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dollars and you see it exceeding seventy dollars聽
in three months in this case you would want to buy聽聽
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a call option with a strike price of less than聽
70 dollars if the strike price rises above 70聽聽
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you're in the money and can make a handsome聽
profit by selling the strike price and selling聽聽
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at 70 dollars simultaneously conversely you see聽
the company's stock dipping to thirty dollars聽聽
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you want to buy a put option with a strike price聽
about thirty dollars if the price drops below that聽聽
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you're in the money and can buy at the lower price聽
and sell it at the strike price to make it profit聽聽
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remember to account for the cost of the options聽
contract when setting your strike price to ensure聽聽
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you still make you profit so when and how should聽
you use stock options as an investor you can聽聽
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consider stock options when a you want to limit聽
your exposure when speculating on a stock's future聽聽
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b you need to hedge or protect your investments聽
in your portfolio or c you want to add an extra聽聽
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income stream to your investment portfolio now聽
let's briefly talk about stock options in the聽聽
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employment world outside of the investment world聽
stock options are also popular in the corporate聽聽
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circles especially at the top levels in many cases聽
companies use stock options as reward systems聽聽
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for the top level management and executives in聽
place of cash bonuses by rewarding managers with聽聽
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stock options you automatically motivate them聽
to work hard and increase the company's stock聽聽
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value to make money stock options are one of聽
the many financial instruments you can add聽聽
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to your investment portfolio but like any other聽
investment don't put everything in one company's聽聽
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stock as that exposes you to greater risk instead聽
spread out your capital that said always do your聽聽
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research and consult a qualified financial聽
advisor to make informed decisions if you've聽聽
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enjoyed the video like and share it to support聽
the channel we have more content lined up for聽聽
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you so subscribe and hit the notification bell too聽
thanks for watching and catch you on the next one
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