Complete Stock Options Trading Guide for Beginners | David Eaves | Skillshare

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Complete Stock Options Trading Guide for Beginners

teacher avatar David Eaves, YouTube, Trading/ Investing, etc.

Watch this class and thousands more

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

8 Lessons (49m)
    • 1. Intro

      1:04
    • 2. How Are Options Priced

      4:17
    • 3. The Greeks

      5:32
    • 4. Option Movements

      5:59
    • 5. Movements

      6:22
    • 6. Options Strategies

      10:04
    • 7. Dangers of Trading Options

      8:14
    • 8. Real Examples

      7:45
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About This Class

The goals of this course are for the students to learn all aspects of how stock options work for the purpose of trading them on the open stock market. We do not go too much into actually trading options as that will be an entire another course, however, I want to use this as the stepping stone to that course for in the future.

My YouTube channel as mentioned in the course is http://www.youtube.com/davideavesofficial

If anyone needs to get in contact with me you can do so on Instagram @davideavesofficial or my stock trading discord group https://discord.gg/8TVQ8b6 

Meet Your Teacher

Teacher Profile Image

David Eaves

YouTube, Trading/ Investing, etc.

Teacher

I've been creating content on YouTube for around 5 years now as well as actively investing and trading in the stock market. I've been creating content here on Skillshare for a little over a year as I think it's a great platform for my audience on YouTube to get more in-depth content as well as anyone else who is interested. Unfortunately, you do need a Skillshare Premium account in order to view them. 

 

Do you have Skillshare Premium? 

If you use my link you can get 2 months for FREE after which it's just $8 a month with a yearly subscription. 

 https://www.skillshare.com/r/profile/David-Eaves/3840917

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Transcripts

1. Intro: what's going on, everyone. So today I wanted to make this skill share video to go over stock options, how they work, how you guys can trade them. However, we will not be going into too many details on how the trade options just because that's a whole another ball park. I will definitely release a course soon on how to do that. That being said, you know, that does take a ton of experience. You know, if you are considering doing that after watching this course, I would certainly recommend paper trading. But I'll also warn you about paper trading towards the end of this course, just because there is some glitches on most of paper trading platforms in regards to options. So you know, I'll just keep you guys in mind of all those things by the end of the course. But you know, I hope you guys learn everything there is to know about stock options as well as how to trade them on a basic sense. However, if you want to trade stock options, you really need to master them before you even attempt to trade them on the live market because they are very risky Ah, and that's something I also get into later in the course. So, yeah, I hope you guys do enjoy and let's get on into it. 2. How Are Options Priced: So what? Our stock options stock options are a contract to buy or sell stock at a certain price honor before a certain date. So that's really the definition that I really like to give people when I asked me, because I feel like it really explains them very well and very short. That being said, there is a lot more to go into them, but that's basically what it is. So each contract represents 100 shares, so the price that you see is per share, and it goes in lots of 100. So when you see ah stock option that costs $1 it really costs $100 because it's representative of 100 shares out of the money options expire worthless. So keep that in mind. You know, if you have ah, 250 strike price and the stock is at 2 45 on a call, for example, Um, call means you go long. You are looking to buy stock at that price. Then nobody would buy that stock at 2 45 when nobody would buy that stock to 50 when they could just buy on the open market to 45 therefore anything paid for that option is worthless, and you've lost all of that money some next. How our options priced said. There's a lot of things that go into this. I would say the biggest one is obviously the underlying stock price, but in terms of trading, that's kind of irrelevant. You know, it doesn't make a big difference, because I mean, that's just gonna be what it is. But you do need to keep in mind the time value, so contracts that are 45 months out are gonna have a lot of time left, and they cost far more money. And they cost far more money because there's a very long amount of time for them. There's a very long amount of time for the stock to reach that strike price. So if you know stocks at $200 right now and you have a 250 strike price, they're six months for to reach 2 50 The likelihood of that happening is much higher compared to if there was only one week left on the contract, then you know the likelihood of a stock going from 200 to 2 50 in one week is pretty small . So that contract is gonna cost far less. That only has one week than a contract that has six months left. The next one that we're going to be looking at is implied volatility. Now, this is something that you know you need toe, understand and learn, and in a way, but this has already calculated in pretty much every option price. So, you know, it's not something you're gonna be thinking about too much when actually trading. But it is something that is very important to learn and keep him on wind buying or selling stocks. Options. It's up. The Greeks are basically a measurement of most of these things, especially time value in implied volatilities. So implied volatility has effect on the price because something like Tesla has a very large amount of implied volatility, and therefore it's gonna cost more, because the likelihood of Tesla going from 200 to 2 50 in one month per se is much higher than, say, the S and P 500. The S and P 500 is not gonna make a 25% move our 33% move in one week. That's not gonna happen. Tesla's you know, it's It's rare that that happens with Pestle, but that has happened before. It's definitely not unheard off. And overall, the implied volatility within that stock is much higher. So the likelihood of it hitting that strike price is higher, and therefore the option contract is gonna fetch even more of a premium. So one thing to keep in mind with this is every stock is gonna have a implied volatility. But earnings is gonna push implied volatilities way up. So that's just because people don't know what's gonna happen over earnings. And they're, you know, usually there's an implied move. People know that Tesla's probably gonna make an 8% move, whether it be up or down. People don't know, but over earnings people know that you know, they're expecting it to make an 8 to 10% move one way or the other. So options are gonna cost more because there's a you know, 50% chance that you know something that's 5% away from being in the money. There's a pretty solid chance it could end up in the money, and therefore people are gonna want mawr of a premium for that contract 3. The Greeks: So the Greeks, The Greeks are basically these ah names, just like the Greek gods you know, Delta Gamma Vega, tha the's air things that we use Teoh name the measurements of certain moves and certain things within an option contract. So if you read here, Delta is the amount an option price will increase based on a $1 moves in the underlying stock. So something like Tesla, because it trades at $300 a share nearly, you know, $1 move is a small move, and the other thing is, it's kind of expected through implied volatility because, you know, Tesla might swing $10 in one day piece of volatilities higher. So the dealt that kind of keeps that in mind. So, honestly, you know, you don't really need to specifically keep belt in mind. But you know, Delta is related to implied volatility in a way, you know, it's all calculated in another slide in the future. I have this the this bullet point that says there's no free lunch on Wall Street and that's exactly true. You know, everything that I've talked about thus far is already taken into account, mostly through the Greeks So if we look here, let me grab my pointer. Um, Delta, like I said, is the amount that a contract would increase in a $1 move. So the S and P 500 for example, if we took the spy E T f, which is tracked by the S and P 500 for example, $1 move on that is pretty big. So you might have a 30 40% move on your option contract if it were to make a $1 move. But Tesla, you might only have, like, 12% move on the underlying contract if it were to make a $1 move because it's kind of expected from Tesla. And you know the implied volatilities so much higher. So gamma is the change in Delta when the stock increases $1. So if Tesla is that to 50 right now, Delta might say that, Hey, you know the contract should move around 12%. If Tesla goes 2 to 51. Gamma is the measurement that says Delta will go up, you know, to more percent when Delta is fulfilled by $1. Gamma is not very important when trading, but you know it is something I just like to throw in here to keep in mind. I don't have something you'll see. So you know I don't want you have any confusion about it. That is what gamma is. But honestly, it's really not that important. Um, yeah, Vega is the change in option price per 1% increase in implied volatility. You know, I'll tell you right now, I don't personally use this, but, you know, if you were selling options a lot, then you know that could be useful. But I rarely use Vega. It's not very useful, in my opinion, especially day trading, you know, maybe long term swing trading. If you were shorting or potentially even buying a contractor than you know, Vega could be, ah, useful. But, you know, intraday moves. Vega's kind of useless. You don't really need to know it. Um, but, you know, I do like to keep it in. And then there's data, so I have theta and Delta highlighted here. If you can't tell, it's hard to tell. But these two are highlighted. They're the most important. Fada is the loss of value in an option contract. As time decreases so this happens exponentially as it gets closer to the expiration date. Um, so you know, if you keep him on, usually what happens is data will stay about the same actual base rates. So you know, it might be that this contract loses eight cents per day. But if this contract is trading at $600 or if it's trading at $6 that means they're $600 worth. You lose $9 per day. $9 per day on a $600 contract is, um what is that? Ah, around 1 to 2%. I believe I could be wrong. I think it's about 1.5%. Ah, that could be entirely off on that for being honest. But you know, it's 1.5% per day. Whereas as you get lower and lower and lower, that is going to stay the same or potentially even increased to, you know, maybe $10 per day, $11 per day. I can keep in mind. This goes in sense. So that's going a little hard to wrap your head around is that you know that is gonna be displayed in sense. But when you multiply that by 111 cents is $11. You're losing $11 per day if that data is negative 11 cents. So you know, if it's negative 11 cents on $600 option than you know, that's a negative $11 per day on a $600 option. But as you get lower and lower and lower, you know, maybe by four days before expiration that contract, instead of being worth 600 is only worth 50 Now it's still losing $11 per day, and it's only worth 50 now. You're losing 20% nearly per day, so just keep that in mind. This is very important, you know, very recommend that you guys screenshot this right here. Um, that being said, I will also probably veteran chest to this and a few other graphics that I have in this slide show in the description below for you guys to download and study cause, you know, the Greeks are somewhat important, especially Delta and Theta Delta. You know, it's very good to know, but honestly, when you're actually trading, I don't tend to keep it in mind too much. You know, I will look at it here and there. You know, it is useful, but data is crucial. You need to know theta. You know, just I would read this 15 times. Right now. I'll wait. Just go and read 15 times. Okay, I'm series, but yeah, let's move on. That's pretty much the Greeks South catch you guys in the next lesson where we're gonna be going over movements and how the putting call contracts work versus buying and selling. And yeah, you guys in the next lesson. 4. Option Movements: welcome back to the next lesson. So this lesson really should answer a lot of questions that you're having right now. I imagine you're asking a lot about you know, what's a call and what to put what I keep saying that on things like that. So here's what it is. A call is a contract to buy shares at a certain price. Ah, put is a contract to sell shares at a certain price, but you can buy and sell calls and puts. So there's four ways on Ah contracts. Teoh, play the move. That being said, some of them are kind of duplicates. Um, so, you know, if you buy a call, you're expecting the price to rise. So if you buy the 2 50 call for, ah, $4 a contract than at expiration, let me go back and just clicked on accident. But at expiration, you're expecting it to be above to 54 because that would roughly be your intrinsic, um, values. You need to exceed that strike price in order to become profitable. You know, even even if it's just ah to 51 you might be in the money. But if you paid $4 for that contract and you paid $404 per share. You're still $3 per share in the whole. So you actually need to exceed that, um, strike price in order to make money at expiration. Now, keep in mind, these contracts rise and fall throughout the day, and you can sell these positions before exercising them on the expiration date, which is what most people do. So you know, you don't necessarily have to, um, you know, hit the 1 to 54 in this scenario. Because if there's three weeks left on this contract and you hit 2 51 right now, there's $1 of intrinsic value right now, and you've got three more weeks for it to potentially get higher. That contracting if you bought it yesterday has probably increased more than you paid for it. You know, maybe instead of being $4 per share, which would be a $400 you know, maybe it's worth 600 now, so you could just sell that $600 contract for $200 profit right now. So you know, you don't necessarily need this, but, you know, if you are holding till expiration. Then you know you're expecting it to make mawr. You're expecting it to go above the strike price by at least the amount that you paid for the contract just to break even. Um, and then you honestly, what? Mawr if you want to make any kind of profit, which is what we're all here to do, So you know, if you buy a call, you're expecting it to rise. If you buy a put your expecting it. The fall. So in the thing with the puts is you're looking to buy a contract to sell stock at $250. And if the stock goes down toe to 54 to 40 then you can now buy those shares at 2 40 you have the right to sell 100 shares at 2 50 so were able to buy these shares for 2 40 sell them at 2 50 That gives you a $10 profit per contract, plus tire times 100 contracts. That's $1000 profit minus the premium you paid. So if you paid $4 a share premium than your $1000 is now $600 profit. But that's really what you're going for now. On the short side, it gets interesting. So on the short side, the odds are in your favor. So I'm gonna go over this in another slide in the future. But the odds are in your favor because options tend to go down in value over time. And you also have time in general working on your side because, you know, if you by ah, contract. Right now, You know, if you sell a call right now, as long as the price stays the same or falls, you know, if you wait a week in the contract just stays the exact same price or more. So the underlying stock stays the exact same price. There's a week less worth of value on that. Contracts you might have taken in a $400 credit. $4 times 100. Keep that in mind. I'm to keep giving these little, ah, small snippets. Just so you remember that, um, if you pay or if you sell 400 you now took in a credit of 400 now weeks gone by. If the stock stays the exact same price, your contract is probably worth a little less now. So and I say your contract, the contract that you sold now you can buy that same contract back to close a position that's a 350 netting you 50 to $100 profit. These were all hypotheticals, but that's the whole thing. You know. Time went by. The contract decreased in value will go over some real world examples towards the end of the course that will show you guys a little bit more. But you know, as long as time goes by and it does nothing or goes down, you make money. So you have two ways that you can make money when ah, selling That being said, I think we all if you guys anywhere related to the stock market, you know, the dangerous of shorting. You know, the biggest thing here is if you buy contract and you pay a $400 premium for the contract, well, 400 is your absolute max Los. You can't lose more than 400 if you sell a contract. That contract could theoretically go to anywhere, you know. That contract could go to $5 million of share Ah, you know, hypothetically. Now that's not gonna happen, But it could do that. And at which point, you know, you could be millions in the hole on a small position. Eso there is unlimited risk when shorting, so keep that in mind. But the odds are in your favor when shorting over the long haul. Ah, and then finally, let's go here. If you sell a put your expecting the price to rise or state same because you are short time going by makes you money. So you know, if it does, absolutely nothing will still make money. If it goes down, you'll make even more. But it doesn't have to go as long as it doesn't go up, you're gonna be green over the short haul. So that's Ah, that's how contracts work. In the next video, we're gonna be going over some ah, diagrams of how the movements would affect your contract. Ah, hypothetically and things like that. So I'll catch you guys in the next video 5. Movements: welcome back to the next video in the stock options course. So if you guys take a look on the screen, I have a diagram here that's kind of gonna break down your profit on certain types of positions. So in this scenario, we have bought a call option sub. And if you look here are strike prices the $30 strike price. But you don't go green at 30 you know, if at expiration and keep him on this is all expiration based. So, you know, if you were to buy contract today that has three weeks left on it and sell it tomorrow, then this is gonna be back. This is gonna be a little different because instead of this being a flat line and then straight up like this, the actual movement is more like this. OK, it's curved. But as it gets more and more closer to that expiration date, instead of being a curve, it slowly starts to turn straight like this. And this is the model that you would expect at expiration. I can probably show you some actual examples towards the end. I'm not sure if I can pull those up on the computer or not. I know you can do it on your phone, but we'll do that later. But at an expiration, If he bought the $30 call, then you're expecting you. If you pay a $2 premium for it, then at expiration, you would like it to be in this scenario. I put this right here. You know, this might not be the exact number, but, you know, you might want it to be $32. Just a break. Even. So, 32 is right here with this. Red is, um And then you would need to be No, if you went to 40 then all of a sudden you're profit goes up, so you may be right here. You're at, uh, 32. If it went up, if we went up to 34 you be positive. 200? Um, she'd be up $200 at expiration if the stock price was $34. But if it's just 32 then you break. Even if it's 31 you lose $100. If it's just at 30 itself, you lose your entire premium. But if it's anywhere below 30 you just lose your entire premium to so 30 and under is where you take your max Los right here. Ah, and then, you know, anywhere above that, you start to break even here at 32 years, where you do break even, you can go unlimited. You know, this Aero keeps on going, Um, so just keep that in mind, You know, if it's at up 100 then you would make what, um, $68 ah share times when you make $6800. If this went to 100 just on one contract that you spent $200 on, so you know, that's pretty good. That's I would say the big thing about options. But once we get into later things, you'll see how everything works and see how dangerous this can be. So, next one, we're gonna be looking at a short call option. It's pretty much the exact same thing, but it's the opposite. So this is, if you were to sell an option, you take in a $200 credit. If it does, nothing stays the exact price or stays below $30. You get to keep that whole premium. The contract expired, worthless. Nobody's expecting that contract backer, You know, anything like that? So you could keep your whole $200 that you took in as a credit. Now, if it goes, um, you know, down to 32 here, this is where you break even you don't make any money. Oh, actually, this is where you lose our start to lose your maximum amount. Um, so this is where you start to lose money. This is where you have basically made no money and anywhere below this point right here is where you start to go. Negative. And here's the kicker this line keeps on going to this could go to a $1,000,000,000 hypothetically. Now, that's not gonna happen. But, you know, it could go to a $1,000,000,000 you could lose, you know, a ton of money pretty easily. So, um, you know, just keep that in mind. You know, this long keeps on going. You know, if we look at this other one this long keeps uncle on your Mac's losses 200. Here. Your max profit is 200. This line keeps on going, but the odds are in your favor, considering the fact that time is gonna just decay And you could you could take part of this profit just from Tom going by. And there's a lot of factors working against you if you're buying options and all those factors are working for people who are selling options, so just keep that in mind. So this is a long put option. This is if you buy a put your expecting the price to fall. So if you buy the 30 put ah, you know, you take your you pay $200 for this premium. If it goes to $28 you now break even. And then if it goes above that, if he goes to 20 year now up $800. So right here, Europe 800. You know, if it keeps on going and going, um, this line does not actually go all the way. This way. This stops a deceiver. So zero you could you would make. Ah, I guess you pay zero. You make $3000 minus your 200. You make $2800 if this stock completely crashed and went to zero. But when you buy or when you buy a put option, your profit is capped. Your losses air also capped at 200. Your profit is capped at whatever the number would be when you get to this zero mark down here on the stock price line. So keep that in mind as well. Ah, a lot of things you got to keep in mind in this course. This is a short put option. So this is if you're selling a put option. I believe your losses, Air Captain, this one as well. But they are much higher than your potential profit. Your potential profit here is 200. Ah, that's what you took in as a credit to sell that option to someone else. And, you know, if this goes all the way down, you'd be on the butt end of that. Um, you could lose the C 30. You could lose $3800 on one contract, um, so that your top loss on put options So that's the biggest thing is if you short put options or buy put options Your captain on both ends. If you are buying call options, you kept on one end unlimited profit. If you are shorting call options, you are capped on your profit and you are not capped on your losses. So shorting call options are probably worst case scenario, but yeah, so that's it. Next, we're gonna be going into options strategies. So I will catch you guys in that video and Ah, yeah, Thank you guys for checking out the course. 6. Options Strategies: Welcome back to the next video in the options basics Course. So if you guys look here where today we're talking about options strategies. So in this you can profit from a rise in stock. Ah, fallen stock, time passing or specific move, regardless of direction. So I'm gonna explain some of these ways next, But, you know, with options you can just about profit from anything. If you can call, what's gonna happen? I'm now doing that is very hard. But, you know, you can call from just about anything. So here, we're gonna be looking at a bull call. Spread. So with this, what you're gonna do is sell the 20 um, put, I believe, and then you're going to sell the Maybe Uh huh said you're thinking, um, yeah, you're gonna sell the 20 call and your going to sell the 40 call as well. So if you end up in either of these scenarios, then you could make 200 here if it's below 20. If it's a below 40 you may 200 again. And keep in mind when I say, ah, what you're gonna be doing some of these I'm not even positive because I have actually never traded some of these. In fact, I don't I don't really use spreads that often. You know, a lot of people think they're the gold in terms of options. I personally don't use spreads. Um, here and there I will use one of these spreads. I'll call that one out when I get to it, but, um, this isn't it. Um, bull call spreads. You can basically make money from the if it's below 20 or couple of 40. Your maximum loss is right here. 30 on That's 100. But the other thing is, you know, if the stock is trading right now at 30 the likelihood of it moving below 20 or above 40 is kind of low. So your likelihood of profiting on this is kind of small, but that is why you only lose 100. Worst case. And you know, you could make 200. Best case. The odds are in your favor. In terms of next. We're looking at the bull put spread. You're gonna sell the 20 put, and actually, what am I talking about? Okay, you're gonna by the 20 put I believe you know, I really don't know what I'm talking about. Honestly, um, I like I said, I don't use these that often on the other. Thing is, you don't particularly need to know this just because in most pretty much all software, all of this is already pre done for you. And I'll explain and show that later on, and they'll actually even bring up a, uh, diagram like this to show you what you're looking at. But with this, I'm pretty confident you're buying the or your, uh, yet you're selling the 20 put and you are selling the 40 put taking in a $200 credit, Um, on both. Yeah. I'm not entirely sure. Honestly, this doesn't look right. Um, this is definitely the correct diagram. The, um Yeah. So you know, in this scenario, the opposite happens. If it goes down, you make 200. If it goes up, you make 200. Either. Weighs about the same. Doesn't make a big difference. Um, as I said before, both ways, you make 200. It's really just the opposite. So if you think it's gonna go ah, blow 20 then you might want to use this one. If you think it's gonna go below 40. You want to go with that one, But they're pretty much about the same one of them. You're just taking in credits. The other one, you are capping losses. So long call Butterfly. This is one that I do use sometimes. Um, you know, it's it's a love hate relationship here. Not very profitable with this one, But I do like it sometimes on what this is is you're basically going to buy here as well as here are gonna be your strike prices. And you're expecting it to fall here. If it falls right here on 30 even then, you are able to pull the most profit of, say, 400. But here you lose both your premiums. Here, you still lose 100. Ah, and here's where your profit is. The likelihood of hitting this little triangle right here. Which is where the prophetess is. Pretty love. But if you do, you know, have some kind of reason. Um, you know, this could work very well. In fact, actually, long call I used to put call. Um, Butterfly, that's next. That's the one I use more often, especially around earnings. Um, so explain that one in a second. That one's probably my favorite spread. And one of the only ones that I use just cause the odds are in your favor in quite a few ways, but we'll get into that in a second. But like I said, the odds of hitting this right here pretty small. So, you know, I don't like this one per se, but this one, this is the short call. So you're gonna be call or put your going to be selling the 400 here and selling or 400. You be selling the, uh, we'll call this 25. I don't know exactly what the number is, you know, it's made up, but and then this is 35. You gonna be selling both of these taking in a $200 credit on both and, um well, ah, 400 credit on both. And, um, if you know, it goes way over here, then you lose this 400. Um, or I guess you're taken in an 800. I'm not I'm not exactly sure. The numbers are you taking in a larger credit on one side, Are you taking in an equal credit on one side. One side. Um, actually, you're taking in a $200 credit on each side. And as long as it doesn't fall within here or within here, your credits, you're gonna make both because both of them are now out of the money. And since you're shorting, you're taking in both credit. See if you if it falls over here or over here, you're making money on both credits because both of them are worth us at this point. That being said, if it goes inside of here Ah, here you are, Red. Um, you know, here you met you lose to 100. Here's your maximum loss right here at 200. And keep in mind. Unless you were holding these till expiration, which you will probably not instead of this looking so, like, perfect like this, this is really gonna look more like a you. So it's gonna be a you here. Ah, and slowly gets more and more closer to this. Um, the shape as time gets closer to that expiration. So the Iron Condor. A lot of people use these. I don't personally use them that much. Let me go back. Um, here there's there's four contracts here. I'm not entirely sure which ones are which. Um, but your goal is really It's very similar to here, but instead of taking yours Max loss here, I know this says 200 but in reality, this would be 200. This might be 400 right here is, Actually, if this is 400 this is probably 800 actually, Um, So instead of taking a huge loss, like on this one, if you were to get caught right in that center, there's a longer center, but your loss is much smaller. Um, so your loss of smaller here and, um yeah, but the odds are less likely in your favorite cause. There's more space here for the contract to fall within. Well, condors, I never set those up on my own. They're very easy to just click in the program. You could just say Condor and it'll pull up all the contracts for you will even give you a graph of how the condors are trading. So I'll go over that towards the end of the course. But, you know, a lot of this is already pretty done. You don't really need to know the specifics. But in fact, I personally have to Google just about every time. Which one's which. Cause there's a lot of these and the very hard toe, remember? So a long straddle Didn't I just do them? Okay, so this one, this is what I like to use around earnings. But not a long mawr of, ah, short straddle just because you're actually okay, Yes. Oh, a long straddle is something that would be good around earnings. But your implied volatilities so high that instead of you know, this looking like this, you're gonna pay such a high premium that you might pay 800 it takes to get the low below 20 or about 40 in order to get above this negative 100 mark. So long straddle. You know, it looks like a great play for earnings. If you're expecting a move in either direction, which is usually expected, but ah, you know, the increased price in the premiums causes it to just about never work during earnings. So I would I would never buy ah long straddle during earnings. In fact, that was one of the first mistakes I made when trading options was that right there. I lost 200 some dollars by the open, and part of it was even even came true. But the contracts just cost so much more during earnings. Um, so you really wanna be short during earnings, in my opinion, But a short straddle same thing here, taking a $400 credit on your losses are unlimited to either side. Well, there on the minutes of this side of their theoretically unlimited. But if the company were to go bankrupt, and you know this and this line does stop somewhere on this line. But it is quite a bit of loss, probably in the thousands For you know, something that might have only cost you, um, you know, 400 to start. So keep that in mind here we have a long straddle, very similar to an iron condor, but there is a very wide point in which you lose money s so you know, it has to make a big move for you to walk out. Profitable. Ah, I just about never use these. But, you know, if you're ever thinking about something ah, you'll see the list that has all of these on, um within the software. You know, you can always just Google. You know, it's a long straddle real quick, you know, and stuff like that. So just keep these in mind. Ah, I don't Yeah, I don't use these short straddle. It's pretty much the same thing, but the opposite. I feel like you guys are getting the point by now. So I'm gonna breeze through these and Ah, yeah. So the next video is gonna be the dangers of trading options. If you take anything from this course, I want you to watch that video. It is very important, so we will get into that in the next video. 7. Dangers of Trading Options: welcome back to arguably the most important video in this course, if you like. I highly encourage all of you to watch this all the way through. So the dangers of trading options volatility you guys will see towards the end when I throw a few examples of actually being in the software just how big these contracts can move. Um, you know, there it's insane. I'm gonna be honest. Ah, About one month ago, I lost $120. I kid you not in 15 seconds on a $400 position like I lost 25% in 15 seconds. Now it was a rare occurrence that something like that happens that bad to lose 25% that quick, especially on not a Friday so Friday's or when options expire. I guess I should have put that at the beginning of the course. Let's let's give a little quick mention to that. Uh, standard contracts expire on the third Friday of the month. There are weekly contracts for some bigger companies will go into more of that in the actual trading course because that deals with Paul human things like that. But, um, standard contracts expired the third Friday of the month. Regular weekly contracts expire on Friday. So when you're on those Fridays, the contracts time value decays really quickly. You know, Friday, as you can see, the big, big, big, big swings in volatility. Um, me put my pointer again. You can see huge springs and volatility on Fridays. I try not to trade on Fridays. Honestly, And if I do, I usually pick the next week out because you know that weeks contracts are just flying up and down. You know, very small move could cause Delta. If you guys can recall Delta, you should be able to call recall Delta. It's very important. From the beginning of the course, Delta is hugely affected during that time. You know, Delta might be four times what it normally is or what it was. You know, we could go on that same contracts. You know, I wouldn't trade these on the same day of expiration, but you know, that day that I lost 120 in 15 seconds. Um, you know, the actual contract itself wasn't even that weeks expiration. The underlying stock had just very small, implied volatility. And I caught the falling knife on and I mean, she just she was she was chugging along like this. And then it was just like some like that, you know, like when I say I lost 100 and 20 I was like, sitting there frantically putting orders in on my phone, trying to get filled, and I just couldn't get filled. I finally got filled and, ah, you know, I took $120 loss. So keep that in mind. You know, these are very volatile, especially if something happens that is unexpected. That's when they know they could move a huge. You know, you could lose 25% like that. So, you know, I think it's very important to only trade with money that you're comfortable with money that you're not gonna panic out of. Ah, position with money that, you know, if you pull up your screen and that says all you know you're down Negative X amount, that doesn't make you go, man, You know, like it doesn't It doesn't throw your whole world into a ah tailspin. So, you know, that's very important. We'll go into more stuff like that in the next course, when I'm gonna be actually going over how to trade and things like that. But, um, you know, volatility very have very, very high. You can lose a lot of money if you don't know what you're doing. And, um, you know, So I would just say be very sure about your decisions when you're doing this. And, um, you know, I would highly recommend that you paper trade for months before because options, in my opinion, are the hardest niche in the market of trading to trade their, you know, their it takes a talent to trade options for being honest. I'm I'm not that good at trading options. Um, because I mean, it's just it's just so hard, especially with the emotions that, you know, 25% move can call Sheena. If I'm trading a $5000 position and I lose 1% that's 50 bucks, whatever you know. But if I'm trading a $500 position and I lose 50 bucks in five seconds, I'm gonna be like what the heck they like? What? Ah, and you know, like I said, you know, um, you know, I lost 25% and 15 seconds, so keep that in mind. It's It's very important. Do not trade with money that you cannot afford to lose and be very confident when trading options. And, um, you know, just just practice for a long time before you do, because it can cost you a pile of money, especially if you're shorting. I'm gonna be honest right here. I just wouldn't short options. The odds might be in your favor, but when the odds do go out of your favor, you can lose so much money, your whole net worth could be wiped out in in literally 30 minutes like it's it's definitely possible. So, you know, I I just be very aware of those things. Uh huh. And keeping money. No. 70. If you're buying options, 75% of options expire. Worthless. Ah, and there's no free lunch. Okay, this is what I said earlier in the course. There's no free lunch. Everything is already accounted for in priced in. When trading now sometimes are people irrational? Definitely. That is how we make money trading people being irrational, that is, that is the best way to make money. And one of the few almost guaranteed ways If you know how to take advantage of that. But there's no free lunch, everything. Everybody knows everything and everybody's accounted for everything. Ah, and everything has been accounted for. There's no there's no free lunch. You're not gonna make free money on Wall Street. So just keep that in mind. Next, How to get statistics on your side Implied volatility on a short position. That's like I said, you know, like I said, I wouldn't short positions. I don't short positions, but And if you are taking short positions, the dots are on your side. Um, technicals in conjunction with short positions. Um, you know, if you if you think this stock is gonna go down, maybe it's better to go. Short is that puts even more things on your side. But like I said, you know, the statistics are on your side if you're going short. But, man, is it risky? So, you know, uh, this is by no means a recommendation to go short, like I will tell you not to, but do want you to realize that the statistics are on your side. If you are going short in running the clock out. Ah, that's just like I said earlier, where you could sell a contract for five months out and then three months in by the position back, and you will have just let time go by. And you could make 2030% just by letting time go by. So, you know, just depends. But, you know, if you're shorting statistics all on your side, you are more likely to win. But when you do lose, you could lose big. So keep that in mind. You know, the statistics are on your side when shorting, but shorting is very dangerous. And I'm telling you right now, even knowing that statistics are on your side, we're doing that. I don't do it. Um, so, you know, and I have been trading for nearly four years now, so, you know, just keep all of that in mind when trading. I hope you guys did enjoy this course. If you did, be sure to give it a thumb's up. I'm not. Ah, this is my first kill. Short course. I don't know what ah, what they do. Maybe review. Um, if you guys want more videos and things like that, I'll post more videos on skill share in the future. But, um, overall speaking, my YouTube channel is probably best place. I upload 2 to 3 times a week. They're usually not specifically options based or things like that, but they are financial videos designed to help people get to a pretty stable financial place. So if you guys did enjoy thank you for checking out the course, give it a thumbs up or a review or whatever. And if you have any questions, you guys can reach me in my free discord chat that's linked on my YouTube channel in most of my descriptions. Ah, I might Lincoln on here somewhere. I'm not really sure. Um and then you can also find me on instagram it. David, he's official. You guys can DME there. I think you can message no skill share, not 100% sure, But ah, you have semester. Maybe they're You know, if you guys want to get in contact with me or you have any questions at all Ah, that Google can't answer or you think I might be able to answer better? Um, feel free to reach out. I'm always available for you guys. Is so yeah. Thank you for checking out the course 8. Real Examples: are. So I figured I'd give you guys a little bonus content here. So this is TD Ameritrade. I'm just load into my PayPal account. I usually trade just actual shares. I don't trade options that often. Um, so you know, when I do, I log in and out of the account. But I Honestly, I really try to stay away from trading options, and I feel like being logged into a paper trading account when doing my technical analysis , Uh, keeps me from doing that just because I have to go and log in in do all of that work to get to that account. And ah, you know, So I tend to keep my paper trading account up so I don't mess with options unless I am very confident. You know, it's one of my ways of keeping my emotions into control, um, or or I guess, in tact. But, um, usually I also trade on Robin Hood. So, you know, I just use this. I have real time data on this account. Um, yeah, it doesn't really matter, but this is a TD Ameritrade Thinker swim platform. I would highly recommend that this is the one that I use, Um, So I'm gonna show you guys just how you can, um, basically find those spreads that I was talking about. So we're looking at Disney right now. If we click trade, these are the options. So we've got ah, this week, we have four days. I'm recording this on a Monday with four days left on these contracts. Um, if we go click here, will copy that, and we copy and paste it in here. This is a contract of the or a graph of the option itself. If we look here, that's 10% right there, you know? And that was two or three minutes. 10% or 8%. Um, you know, if we bought this at the open today would be up eyes that 45. I can't read it. 45% give or take. Um, you know, in one day, whereas Disney itself is only up, um, Disney's up half a percent, but that contract was up 45%. So that's that's how options swing so much. So, uh, keep that in mind here. I'm going to show you a example of time decay. So this is the chart. Let's pull up the year. Um hey, this isn't the best example, but, you know, um, pull this simple off Disney here. Um, well, pull up a 20 day chart. Yeah. So, Tesla, our Disney, uh, pushed up, pulled back down when this contractor was wrote. Ah, what is this? Two Wednesdays ago, They wrote it for a dollar in something. Two Wednesdays ago. Tesla waas. They're below, So I can't see the date on here, But they were somewhere around 1 30 Mark, this is the 1 90 call. So this was not really a way. This is not the 1 90 call. What is This is the 1 36 call. So this was not specifically ah, expected, I would say, but it pushed up. It had $7 an intrinsic value. Um, right here at the top, that was an extra dollar than what the r It had $7 in value. That's what dollar extra than the intrinsic value here. Um, but we're getting closer and closer to be easy to show you this when we're closer to a Friday. But all the older older contracts are expired and off the platform. Um, but point being the price for Tessa was around 1 30 at the time, and it was written for a dollar and 50. Price of Tessler is now on Lee. $1 off that strike price, and it's on Lee at 2 57 So, over all this, you know, this might not be the best example. I could probably pull up better examples if we pull this spy. Ah, and I'm going to go look for a Let's see, this was poll. Let's go for a longer strikeout. Um, yeah. This is probably a good example. This is the S and P 500 e t f. Okay, maybe not. There's no volume on that. Pulled this one up. Sorry, this is taking so long, but, um yeah, so yeah. So when this was written, I I'm imagining these contracts are equal to the same date. It could not be the same price, but it looks like it is, um, point being here. We were at this price here. We hit about the same price, but if we look here, we were at almost 50 cents on the contract. Currently, we're sitting at 40 cents on the contract. Even though we were at about same price. So, you know, the contract is here is lower. The contract is lower when the stock was at the exact same price because time has gone past . Like I said, this would be easy to show when you get really close to expiration. Because, uh, the time value on a stock is a long arrhythmic. So our exponential So, you know, it's slowly decreases over time, and then it, like, goes all the way down flat. So, you know, over time, you know, it might be going down just a little bit, and then it goes, goes, goes, goes in curves. And, um, you know, it goes very quickly towards the end. That's why you know, the last day or two on a contract, he might see time value intraday. You could notice it. Ah, whereas, um, you know, long out you're not gonna notice it as easy, but some. Yeah. And then, like I said before, I would show you guys the, um, spreads that I was talking about seeing. Click right here. Spread. I could get a vertical back ratio calendar. Ah, diagonal straddle, strangle covered. Call Butterfly, Condor. Iron Condor. There's a bunch of them Ah, you can get literally everything. Honestly. And these were already made out. So, you know, I have mine on the single normally. But if I click strangle is gonna give me this, I can buy this one. It will show me a chart of that strangle. I believe I just pulled a strangle up. That not Yeah. Strangle it will show me the strangle. Um, yeah, Here's Here's the price of the actual strangle itself. Um, and that's basically these two contracts put together right here. So the to 91 half into 91 strikes. Um, So, like I said, you know, you can just google each time We're thinking about using one of these, you can just google, you know what? The strangle. Really? Quick, Get a look at it. Um, you know, that's probably easiest way cause there's just so many you're not gonna remember all of them. But, you know, if we look in an iron condor, there's wanted There's four strike prices on an iron condor. Um, anyway, I hope you guys didn't do this If you guys got any value out of it, Like I said, BCG me review figured I'd throw in just a little bonus content and show you guys a little bit of this, but ah, in the next course will be going very in depth into things like this for the ah, actual trading and things like that. But, you know, I figured I would give you guys a little bit of this right now. In case you wanted to see any of that. And as well as give, my recommendation of the TD Ameritrade platform is very good. You guys were looking into technical analysis or anything like that. I would highly recommend. I think it's the best. And yeah, thank you for checking out. The course is always You guys can check out my YouTube channel. Youtube dot com slash david Eves official. A swell is on Instagram If you need to get in contact with me at David, he's official and, uh, see you later. Peace