Easy options learning- Learn the basics to become a pro trader. | Dan Gorbatch | Skillshare

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Easy options learning- Learn the basics to become a pro trader.

teacher avatar Dan Gorbatch, financial expert

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

14 Lessons (4h 39m)
    • 1. Intro course

      6:28
    • 2. Naked buying of a call option basic lesson and example

      15:18
    • 3. Buying long put option

      20:27
    • 4. Shot call sell strategy

      23:06
    • 5. How to use tos platform

      15:55
    • 6. Straddle strategy in options trading long and short

      36:52
    • 7. Strangle strategy basic explanation using options

      35:16
    • 8. Covered call the basics

      24:02
    • 9. Long and short Butterfly basics in options

      25:47
    • 10. Spread legs strategy using options bears vs bulls

      27:43
    • 11. Delta

      14:50
    • 12. Gama

      9:02
    • 13. Theta

      9:49
    • 14. Vega

      14:23
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About This Class

In this course you will learn all basics in the option world you need to know.
You will understand how options are traded. learn how to calculate your position and graphically see your strategy.
See some interesting ideas for going Long on the market, or go Short market and even how to make money if the market is not not moving at all!

All is explain simply on demonstrated graph.

This course will make you ready for the next level as a trader. You will see how many new trading ideas exist when you combine options with underlines like: stocks or bonds.

Learn what are these words commonly used in the option world mean: Straddle, Vega, Theta, Butterfly, Naked, Option Writing, Skew, Spreads, Implied Volatility, Delta, Gamma, Put, Margin request and many more. 
The most important thing at the investments world is how not to lose your money! and in this course you'll learn how to hedge yourself, meaning how to protect yourself from loosing money.

By using options you can make it easily!
we will see the risk in every strategy so you will decide if are willing to take it.

options can be also very very rewarding!   

This course will teach the main and common option strategies used in stock exchanges around the world. It will make you ready for the advanced course where we will go deeper with options. 

Meet Your Teacher

Teacher Profile Image

Dan Gorbatch

financial expert

Teacher

Hello, I'm Dan

I'm an expert trader in stock exchange markets for over 20 years.
My expertise is in the option markets. I have traded in several markets around the world and gained a lot of knowledge  and experience. I have seen it all in the markets.
I worked for international trading companies and hedge funds and now I'm managing my own clients.

I have studied Economics specializing in finance and Data Science


I have written a book for professional traders on the subject of how to trade the right way in Variable standard deviations

I am also working (part time) as a partner in a algorithm company who develops and analyzes automatic trading at the derivative markets. Quant Trading and Hft trading.

I'm here to help you know and unde... See full profile

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Transcripts

1. Intro course: Hi everybody and welcome to my class. My class is all about option trading. Common learn with me the basics of options. It could be really easy and I made a long and hard work for you to learn options. Shown the beginning, all the basics you need to know just to become a good trader. Now let me tell you a little bit about me. My name is Don goal, but I am an expert trader and stock exchange markets for over 20 years now. My expertise in mean the option markets. I have traded in several markets around the world and gain a lot of knowledge and experience. Trust me, I've seen it all in all the markets, all the scenarios. I've been there and I know a lot of things about opsins. I also worked for international trading companies and hedge funds and now I'm managing my own clients. You have studied Bachelor Degree in Economics, specializing in finance and data science. I've written a book for professional traders on the object of how to trade the right way and the variable standard deviations. I'm also working as bar time also as a partner in an algorithm company who develops and allies is automatic trading derivatives market using quantum straining and high-frequency trading. And basically I'm here to help you know and understand how to trade, ride and avoid losing money in his field because I have lost millions, trust me, and also bank earning millions. And I think this is a very exciting, very interesting place that maybe even the best place to be in the stock market with the options. And trust me, it could be fun and enjoying. Then you can make a lot of good trades. But you have to learn, first of all, how to use options. I definitely do not promise you any profits or income or revenue or anything like that. But I'll give you all know that you need to know that you will make mistakes and lose money. Then I think this is way much more important for you to understand when you're entering the option world. But I can promise you that if you'll be patient and study well, then you will have a better chance. Now, why should I study options? Well, we'll see that you can reduce your risks a lot. You can help yourself. I'll show you all the basics of hedging in this course. You'll see that you can get a much higher potential returns for your investments. And it comes also with lower risks. You'll see how you can leverage herself in very small amount of money and potentially earn a lot of money. And we'll see that in the course. Of course, you'll see that very much coast efficiency. And because options can be, can be cheap and can be a very expensive. And you'll see how you can manage everything here with very good efficiency and not spending a lot of money, and not risking a lot of money. And furthermore, and the most important thing, interesting thing is then you have a lot more strategic alternatives. And doing trade with options. You'll see things you haven't dreamt of. Probabilities. And we can build and structure a lot of interesting things with very low risk. And if you want to go, she want to go operator want to go down and you want to stay, you're going to see everything. The how it's possible to be done. What options do remind that options are the most dangerous placing the market, but trust me, it can be the most safest place for you to trade. And I'll show you everything about it and what we'll learn here. Well, first of all, we're going to cover all the basics of options. You're going to see and learn all about those letters, Greek letters, and what is called and what is put. And we will cover all the basic options, strategies that maybe you've heard straddles, triangle, butterflies and all those kind of names that are running around this market. And I'll show you if you think the market is gonna go up, which is the best strategy. If you think the market is gonna go down. We'll see how we can build a smart strategy for earning shorts. And also the most maybe interesting thing is how to make money if the market is boring, like owning same, staying in place and then moving at all. How can you make money from this kind of situation? Well, you'll see, and most important, really most things again, I'm going to emphasize things not to do. When you're trading options. You'll see the risks and you'll see how to hedge and you're going to see also your potential. All of this is screened on a demo account. But you're going to practice everything that you see here with real prices and you can, you can do everything that you want to think of. But doing it on a demo account so you won't lose real money. And I'll show you exactly how to run these demo accounts for real. And I'm using the thinkorswim paper trading platform, which is the best, in my opinion, platform for option trading world. You'll see how it, it's, it's an amazing platform for you to see everything you need to see and know and calculate. Everything is going to be on this platform. And you see all of these, you're going to learn. You're going to know everything. What is covered was butterfly whereas treadle, strangle, condo or long, short, everything here in my course. So options just to have you come and join me, hope to see you. 2. Naked buying of a call option basic lesson and example: Hello everybody and welcome to our course. Today we're going to talk about basics of option, buying, a naked call option. Let's see what it is, how it works, what are chances? It goes pretty simple. We call option is a bind option. Man means that the call options are a financial contract that gives you the option, buyer and the right to buy the asset, but not the obligation to buy a stock or bond or commodity or any other asset or instrument is specific price with a specific time period, the stock bond, whatever it's called an underlying assets, a cobol, higher profits when the underlying asset increases in price, right? So if you buy a call option and the underlying goes up your amazing how one on Monday. So let's give an example and see how it works. Let's say we're fencing some certain stock, but we're not pretty sure where it's gonna go up. We're still go up. But if it will go up in the future, we would love to buy it in the previous price. Like, let's, let's, let's take a very small risk. And if it goes up, I would buy it for a very cheap price. For the cheaper price I was previously. You see, that's who you are. Riskless people. Alright? So let's give it a short example. Let's say there is a stock price, then I 100, and there is a 11 option, 101 option, which is solving market for just $1, right? The option lifelines is for 30 days. The multiplier is 1, and we're going to talk about multipliers later on, but we'll do our basically is how many, what's the calculation for every one in one movement of the undermining of the underline. So in this example, the multiplier is 1 and we're just gonna earn more than $1 if normal line goes up by $1, right? And let's say also there is no buying commission fees or anything, right? So where are we buying a stock basically, the graph looks like that. You see, right now in the 100's. If the stock price goes up, goes up to 110, we're going to earn $10. That's not bad profit. But if the price goes down by 10 percent in stock price is now 90, are going to lose $10. And if it goes down to $80, lose $20 if you just buy the underlying or the stock, right? So this is a standard underlying star graph. Now let's see what's going to happen. It's going to behave when you're going to buy 101 call option. Let's see the money flow from the right. So as you can see here, we have the stock price and we're going to build, we're going to build two scenarios. First one, price goes up, second one price goes down with the cost of $1 mine coal option. In this paragraph, we have the cost which is $1 for the entire period. And let's see. Remember this guy who sold us his co-option and we bought it this long call option for 30 days. So after 30 days, let's see, what's going to happen is what's going to happen in exploration. That's pretty important to understand that expression day. After 30 days there is a stock-out exploration of the airlines and whatever the number and whatever the price value of the stock. This means that this is the exploration for this month theories of options. So let's give an example that stock price fell, fell down all the way to 80. Means that we still got paid $1 for the option. Expiration value is 0 and our money flow, we just lost $1. Why did we lose only $1? And there was no exercise because the stock price right now and market is 80. There may it makes no sense buying and exercising the option where you can buy a marketer AT. In our stock option is for 101. So you see, we're not going to exercise something we can buy cheaper. So it goes all the way for 904100 stock price and expiration. And very stupid animals, just $1. We've sent online this long call. But let's see what's going to happen now. And 110 minutes still have to pay $1 stock option, but the updates for the stock. And he raised up 10 percent in main, it's 110. So when we're going to have here, because we bought the 101 option and we spend $1 for this, for this option, where you'll make profit of a dollar is, as you can see from this declaration, you see the profit is the current stock price minus the strike price and the premium, right? This also has go multiplied by how many shares we bought. And this is basically our net profit. We made a $110 by other, in other words, the buyer of the options can go now to the seller of the option. Tell them memory this contract between us. Now you have to give me physically the delivery is physical into my bank account. This one stock that I bought, and it's going to be put in the price as if I bought it for $101. So what you're gonna do is you're going to need the money and take the, take the profit. You have to sell it right away in the market and the stock price market right now, which is 110. And so you made $9 and the expiration in pay $1 and you got net value of a dollar, that profit, if there were happier days, stock market rise to 120 is triggered by the same calculation, but you get $18 more now. Alright? So basically you can see if you lose in this kind of strategy going on as this $1. If you're going to make a profit, then the stock will rise up and going to earn more and more money. Right? So as you can see, this is a corporation's. You see the blue or light blue. This is the stack and the red is the call option. See there's a small mining difference between the stock option and the Color option. And that's because we bought the 101 option, not the 100 adoption and because we already spend $1 more for this option. So basically you can see this is the most important part of the story here. It's a great investment because if you're referencing this talk in A1 down, it's going to go down by 100 and deltas minus of course. And as it goes down 20 percent, you're gonna lose 20 percent of your money. And that's going to be like $20 out of 100%. That's a lot of money by any other hand, combine the call option and that's the maximum you're going to lose, just $1. So let's see some more realistic examples of real stocks. This is something from April 2021. Star called Lemonade has four days to exploration. Right now on the market. For this talk is 97.5. And you can see that call, 97.5. He sees in this deciders calls and decide is that puts so 97.5 when explorations of four days, customer around $3 still has some premium value. And this is for four days. Now, look more closely. You're going to see that Y $3, if there's only four days or maybe the answer is because every option has price, which includes interest to a value and time value. So for example, during a look at coal 98 goes around $8.5. Let's say just for the example, we can see that if the expression was today, the 90 call option would pay you just sell them and a $0.5 instead, it's still been trained eight over 7.5. And you can see it's radiate around $8.5. That means 77.5 interesting value plus $1 of time value. On the other hand, again. Recall 97.5 costs $3 and has no interest in value at all in just n plus, we have to add some $3 just to turn value. And all the other options also out of the money. And it has very low probably right now, chances of getting into the main pain or anything. All right. So this is for four days until expiration. Let's see, The same option. 97.5 goes up for 31 day one month from now. And you can see the price is $3.975. It goes over 7.5, almost $9. If you have 31 days till exploration. And also it goes down to the 90 calls. Remember it was a dollar and this one is between almost $13. And we're going to go further 416 days. The expression itself, it's like when you're and two months from now, call modified is no longer $3 or $8. This is already $28. Right? So this is how it goes. The longer the time the skull option has to live, the more you have to pay for it. That means it has more chances of getting into the money. And the seller. Sorption makes his own calculations. And one of the basic operations that it takes in mind though, is if there's going to be more time for this option 2 is not expired and more options that you're going to have a core minor chord in the margins or Roman world, whatever. And I'm taking bigger risks that why I'm asking for a big your premiums. All right? So the longer the time the scholar and has more expenses than a B. So you see, basically summing up these few more Introduction and you see that if the younger line rises, the profit is going to be unlimited and the loss is limited only to the buying price. Remember, is, is a zero-sum game, one side profit is always the others side draw. Right? And keep in mind that naked bind of option is considered very low live, pretty much low risk investment and is absolutely undoubtedly the most profitable if succeeded in gaining the right direction of the price of the stock. So low risk, clearly pretty not bad chances that they're going to iron lot of money and lose just a tiny bit of it. And realized I got to say that a 1% movements the underline is equal to a 30 or 20 percent moving options. That means that if the call option was frustrated, 11 and let's say after a few days, the other line going up to 101, the skull option that we have both $1 is going to be sold right now, please, 1.31.2. And it goes on and on. So the options are our derivatives. We could the idea derived from the underlying. And they are closely, very, very closely merge with the movements on the younger one, right? And one last thing, there is difference between European style on American style options. Here, print style options can be exercised long and exploration. American style options can be exercised any period of time, any time purge, expiration, the majority of the Sunni group or options futures or European style of exercise on in exploration. If you're trading the American Stock Exchange, you're going to see a lot of American style options and the liver is physical. That means that they will have to give you the stock on or whatever unwinding. But it's going to enter your portfolio at the same price that was written in this option. All right, so that's it for now. Hope you enjoyed it. This is our first introduction for coal options buying. Hope you enjoyed it, and best of luck, see you in the next course. 3. Buying long put option: Hello everybody and welcome to our class. Today we're going to talk about buying a put option on what is called buying a long put option. Let's see what it is, how it can be benefit friend shoulds was, and how much it should be costing us and what things we should be avoided of which will, which we don't want to lose a lot of money. And let's see what he told about buying a put option. So as you may have even heard before, when you buying a naked put option, you're going to have a limited loss, endless brush. And no one would ask you for a margin call. So this is a general definition of buying a long quote, unquote refers to buying a put option typically and anticipation of a decline in the younger one. I said, that means we want to make money when market builds down. The term long here has nothing to do with the length of time before expiration, but the web refers to the traders action of having bought the option with the help of selling at a higher price at a later point in time. All right, Still we want to make money when the market goes down, it red or she could buy a put source code. Two reasons, betting that the underlying asset will fall, which increases the value of the put option. Oh, yeah. A long could could also be used to hedge long positions in the underlying asset. In general, assets falls the put option and prisons invented helping to offset the loss of down your line art awards by 7 example. But before that, I'm focused on four important things that you should look at when you're buying a naked put option. First of all, you should buy it historically low price again or line. Okay? So when the underlying goes down, starts to slide when lengths in time for you to buy the put options. But also keeping in mind that sometimes it's better to buy the put option when the stock is skyrocketing are making new heights. That's could be also a very good time to start buying a naked put options on it. Second thing, try to buy a low IV, IV. Implied volatility of the underlying the option. It has significant influence on the price of the option. And you shouldn't be considering it when you're looking at the low IV, when you buying a put option. And third of all, you should be looking to buy. And with a lot of days until expiration, we're going to see the differences between buying a put option, which we're going to be cheap but for just a few days or maybe paying a little bit more and having more days to do this option and it expires. Then also when you try and buy put option, they're trying to get some technical analysis and instruments. Having you better focus on better decision, that this is a good time to buying a put option. All right, so we're going to have an example now, let's say there is a stock price at 100. Waypoint I put 100 option is solving the market for, let's say just $1. All right, The option lifelines for 30 days, the multiplier is 1 and there is no buying commission. So let's see how it behaves at the expiration. Then we're going to check it out with this cashflow of a naked goodbye. As you can see here, that we have diagram. The light blue line is the stock. And you can see that if we're buying the underlying or the stock, if it, if it's right now at 100 and it goes up to 110, we're going to make $10 under hand. If it goes down to 90, we're going to lose $10. Alright, and so on and so on. But those same and boast way. But in this class we're going to talk about buying a naked production. That means that we're going to have to pay a cost which is $1. And let's have two major scenarios. First one, when the market goes down and we're going to make some profit, and unfortunately extra margin goes up. How much we're going to lose. All right, so let's start with the best scenario for us. Let's say we bought this put option and the seller gave us the rights to sell the younger line at the higher price. From now, and he is committed to buy it from us. The strike of 100, that means you don't pay us 100 whatever the price of the essence is going to be at the end of the period. Right? So let's give an example. Let's say the stock price fell down to 80, lost 20 percent of its value in 30 days. So we paid $1. Of course, the expectation value of the option is going to be 20 of this because we're going to take 100 minus a and the underlying price right now, we're going to get 20. But remember we still have to pay $1. We pay $1 for this option. That means our net cash flow is going to be 19. That means that in exploration 30 days now, if, if the underlying or the stock is gonna go down to 80, we're going to make $19 versus we had bogged down or lines, we would have lost 20. Major significant difference between those two. And see another example, Let's say fell down just 10% down to 90. The cost of the option was exported $1. In our exploration. Bad news 10. That means 100 minus 90 gives us 10 expired air at 90. For the options, that means that we're made a net profit of $9. Right? Now let's see what happens is 100. Let's say the market was boring, nothing happened. Stock remaining 100, we lost $1. That means when branch we went Bro, We went pretty much 0. But we lost this $1 that process. And if underlying went up and I made some profit, one hundred and twenty one and twenty, who still lost money because we're not going to exercise the option for 100. If the stock market is at 110, it makes no sense for us. Something. And 100. When we can get into market, the prices in the market for a 110 or 120, we can get more money if you're going to short the ongoing, Alright, so this is how we calculate and we saw the cashflow. That basically means that, you know, our loss is limited just to the stock option by limits it falls down. Our profits can be really big depending on how far they are. I don't want to wind down. Alright, so now that's CNA also on a real life example, this is a stockholder, lemonade, LM, and D stock has four days to exploration. And right now it has been traded at 97.5, right? So there are four days, so exploration, and you can see that foot 100 cost around $4.5. That means that the market now was a 97.5. So the option has herbs gives me a, it has an interesting value of 2.5. Intrinsic value. Don't, don't mind this 3.5 $2 time value right? From here to here, it's 2.5. That's good. One 100 true value and exploration. If the, if the expression was today, 1970, 25, we would have gotten back to $2.5. Again, forget about the space by mistake. And we still had to pay $2 extra for time value and the risk that the seller is taking on am I on the other hand, you can see that foot 97.5 costs around $3. It has 0 interest in value. If expression was today, then you would pay us nothing, 0, just like 100 and doctors. So that means that the entire $3, our time value, right? So you're going to summarize it a little bit. So you see the yellow line again goes down inside the profit is unlimited. Losses is limited only to the buying price. And remember this is a zero-sum game, that means that one side profit is the outermost. Either side. Loss. Naked Buying is always consider it as a low-risk investment and be most profitable if succeeded. Really, trust me, you're just paying It's a little sum of money. Even sometimes not even 1% of the stock value. And you can get a great opportunity to make a lot of money if it goes down. In real life. One person movement in the underline is equal to 30 or 30 percent move in option value? Yeah, I don't know. I'm just goes 1%, then the options still has some time to live until expiration. Then the value of the option is going to rise and 30 or 20 percent at least. Then further serving the last example I gave. So. Let's say actually we bought $1, put option and cost us $1. And let's say the underlying asset went down to 99, then the put option would be costing now $1.3. Okay? Now let's have a look at real life examples. I don't want to show you two interesting stocks. Right now, lemonade, lemonade as being traded around $74 and it's been See, this is the called sinuses, the sides. And you can see that the implied volatility of down the line in the option pretty high as was around above 70 percent of that. And you can see that we have here 30 days until expiration. If they want to buy this puts, we're going to have to pay something like $7, right? So this is only $7. But most of it is time value and risks. That disorder is asking for y because the implied volatility is very high here. It should take another example. Should I compare it to stock which has a very low implied volatility as Toronto bank. So you can see that they also have 30 days of exploration. Franks is pretty much the same, $73 or $4. And you can see that the implied volatility of the stock is around 15, 16, 17 percent way lower than the put option in the lemonade. That had a greater implied volatility. And you can see that the put option is going to be sold around 260 and not $70. So this is a major, major difference. And let's see how big difference in lives. Let's simulate a buying a, of a put option. And Toronto bank. So you can see that the other line right now has been traded around $73 and then we're going to pay $2.7030 days. Then that means that we need the underlying stock to go down $2.70. And then we're going to enter our breakeven point. Then from this point and down, we're going to make some profit. We're gonna make $100 for every point that the underlying going to go down. Right? So we're paying a premium of just $2.70. Now, if let's say that compared to the lemonade stock, and let's say, let's pretend that we're trying to buy the put option. And we're going to analyze like we're going to buy a single put option. And you can see here that we, we bought it for $7 Fortinet say just with just seven, right? And the stock is being traded now I'm around 7470, five's that we paid $7 for it. That means that we have take down $7 for every five. It's going to bring us to 68. And that means we lost $7 until is going to make a profit as downloading goes down. So that's a big, kinda, kinda big difference, 7.3. Then you can see that the high implied volatility in the stock options is makes, makes a significant difference in your profit. Profitability when you're buying a put options. So that's the key. That's the most important thing I wanted to show you today, is to always look at the implied volatility of the underlying and try to buy it in as low as possible. The implied volatility is we can find that means you're gonna pay way less for this put option. And that's it. I think generally again, I think it's a great strategy. But you have to be pretty sure I'm pretty confident that I'm underlining is gonna go down. I personally also think that you should not buy put options when the underlying already went down. Significantly, significantly. Seeing this example, you should have, but the put option on lemonade here when it was around $100, of course, I'm very smart. And after days, but when you bought it here, then you could have made a lot of good profit. Now in this position here, I would not be seriously considering by any put options again, because You can say the stock is starting to rise a little bit and we should wait until it reaches 100. And then we should be considering maybe buying the put option again. Okay, so let's see now in the example how this put option can hedge us. Let's say that we wanted to buy a TV. The Toronto bank stock is costing us right now around $73, and we bought the underlying asset. Let's say it was $74.73. So you can see here on the graph that this is our breakeven point. If the, the bank and the star goes, rises up, we're going to make money. Saved is going to reach above, will be above the $8,384. We were going to make around $1000 profit. But this is only the honor line. You see, if the stock falls down, we're going to lose. We're going to lose. And depending how much is going down, where we're going to lose money. If we don't want to lose it all his money, then we can should consider buying a put option on this asset. And we're going to analyze and see how it works. So let's go now to trade. We want to hedge the boundary line for 30 days. They're going to buy one foot option. And see what happens. We see, we see here, we buy the put option at 2017. Remember, keep in mind that whenever you buy one option is equal to 100 options and that equals to 100 shares when you buy a stock. So as you can see, we bought this for $2.70 and we got fully heads. We paid $270. And that means that if the underline asset goes down, the maximum we're going to lose is around a $150 and not way more. We see if it's comparative 0.70. You see that if we're gone by just the unwind without the put option, then at 70, we would have lost around $400. But if we're adding a put option on it, then that means that we have hedged and cut our losses to around $150. Only. That means that you can see that the put option is getting into the money from, from this point, from 73 points, three. And this point and from this point on is trying to make you some money and revenue. And that will ease or calculate little bit less your losses from the other line, which is already significantly losing. See that? It goes one by one. So if we bought it at 7470 year olds and foreign dollar, but thanks to the put option that we've bought, it helped us to read a little bit the losses. And it can stay pretty much safe. And losing only $150 from the entire spectrum. By the way, if it crashes all the way down, you still going to lose around $170 tops. Okay, So this is, this was the short example of how put options can help you from losing a lot of money. When you bind just a naked buying, just take it as talk. Right? So that's it. 4. Shot call sell strategy: Hello everybody and welcome to our class. Today we're going to talk about writing a short call strategy. We're going to learn what is does this strategy is all about? What does this thing called writing options. And some may refer it as selling options. Selling call options. And we're going to talk about called selling calls strategy and see how we can benefit from it and what things we should be avoided. And generally, this tragedy works. So let's see. First thing, what is a short call? Well, the official explanation for this is a short coal is an option trading strategy in which the trader is betting that the price of the asset on which they are placing the option is going to drop. Calls gives the holder the option the right to buy an underlying security is at a specific specified to price. If the price of the underlying security falls, short, call Strategic Profits, the price rises. There's unlimited exposure during the lens of the time. The option is available, which is known as a naked short call out awards. We are going to be now at the other side of the trading platform and where you're going to sell something to someone who's going to buy it. So we're talking, remember this guy and our previous lesson when we studied about buying coal option. And now we're going to look and see and understand the other side of the sellers who sell this obligation. Remember that writing an option is a new creation of obligation in the market that makes a new interests position in which the seller is obliged to sell the underlying at the giving and a given price at anytime. Then means when we are selling an obligation to deliver, physically deliver the underlying, which could be stock or ETF to the buyers who bought this call option. So we are much more serious case now because we are here now talking about obligations. And this could be serious stuff and works. We're going to explain it pretty shortly. Now, thanking mind that any naked writing of an option demand securities in the form of margin calls. That means that whenever you're putting a new position in the market and you're selling any option. You're also obliged to give some securities in the form of margin calls. That means that the banker, your broker, is gonna take some certain amount of money on under your account and put it as a security for you and for them that you will be able to deliver the underlying according to the options. Seem. Now the cash premium is given straight to the seller and he cannot make any more profit from the trades. That means that whatever amount of money that you were given when you wrote down this option, that's it. You won't be able to get any more money, and you won't be able to make any more profit out of this. So thank in mind, and I did a good thing that can happen to you is the time affecting the theta. Value is always on the seller side is part of his risk violations. If you remember that we talked in our previous lesson, that every option has also a time value which the buyer pays for it. And he's not benefiting in who is who does benefit for men is the seller of the option. And if the underlying stays pretty much in place every day, the option is going to lose some value out of his or her price. And the seller, he's the one who's benefiting from it. Right? So now, really, really be serious and take in mind that your loss potential is endless. If the underlying skyrockets goes up, period is significantly, you're going to make a hole. Lot of loss. And this is very dangerous strategy. If you're doing it naked, you should be aware of the consequences that you could lose a lot of money. And I'm talking from experience, right? So the seller of this option is taking the downside, shortening the market. Of course, this is the most thing that the one most in your life now is that the only ones going to crash and then I'm gonna fly down, that a burn. It's gone, go down. No way it's gonna go up. You have to be 31, 19 percent and take the chances that the underlying is gonna go down. But good news, that's good news for you. Sellers. Short position can always be closed and any trading time then mean that you can close this position and even after a minute after you wrote it. Or I'm going after an hour, month, depending on how much time is left on this option to exercise. All right, so let's give an example. Let's say there is a stock which is priced now when around $100, call 100 costs $2. The multiplier is one just for this example. And we have 30 days until expiration. And let's say there is no additional commission fees. So let's see our cashflow and how can we benefit and how are we going to benefit from it? So here I've built a short scheme for you. We can see the short-course cashflow. And we're going to take two scenarios. The first scenario that the market is going to go down and the other scenario is going to stay pretty much in place. And the other one, the underlying went up. And this is something we don't want. So let's start with a better with our betters scenario. And let's say like after a month, the stock price went down from 100 back to AD and last 20 percent of its value. And when I'll well for you, because remember you got $2 revenue income and expiration day. This option is worthless. That means 0. No one will exercise something can buy in the market for AB and pay for it at 100 and it makes no sense. So that means you want to Jack bought $2, that's your cashflow. It also goes the same way if the expiration was it the mark of 90, that means that you still got your $2 revenue income. No one's going to exercise 90. Someone will exercise 19 where they won't exercise is 100, so it makes no sense for him to losing $10. So you still got your $2. What happens if the market then move it all ended at 100, then you still got your $2 income. It won't exercise and 40 and 100, and you've got your $2. What happens is 102. This is an interesting point now that 102 you earn nothing. That means the exploration. See the cashflow here, 100 minus 102, which was the new exploration point. And you lost $2, but you got $2 from the writing and the premium you that you've got equals to nothing 0. That means that 10 to 102 is going to be your breakeven point in this strategy. But from this moment on, down the line continues to rise, you're going to suffer significant loss. Let's say if expression was it's 120, and then you still got your $2 by an exploration value. This, this option, when worth $20, you got back just $2 and you lost $18. Now, I don't even want to think about if the exploration and up to 200 and these scenarios happened in the past before, then 200, you probably would have lost $98. So watch out. This is an extremely dangerous strategy. And you should keep in mind that this is strategy alone is very dangerous, but it can be helpful if you're holding the underlying itself, it's your portfolio, or you're trying to trade the covert coping strategies. And we're going to talk about these in later classes. But for now, let's keep in mind that the option price is made from pre major elements. The first element is the number of days until the expiration. Longer time there is for this option to live, then means that the price of the option is going to be greater. That means that you can get more money and maybe less risk when you're selling it for longer terms of exploration. Second of all, interested value plus time value, that's what makes the option price. So keep in mind that if you're selling an option and there is always an interesting value plus the time value. And the most, the third one, the most significant and most important, that really truly changes the prices of options is the IV. The implied volatility of the underlying make some tremendous effect also, an implied volatility of the options in themselves. And if the underlying is vaults, stock is voltage goes up, goes down the time, then it affects surely the price of options. Okay, So let's see now some examples from real trading. And I want to show you, let's start with the with the with women with a stock which has said it's a big other line, which has dominion, Let's see, Toronto Dominion bank.com. This is a stock which has pretty low implied volatility themselves. You can see here you plug motility is around 20 percent, 11 percent considered pretty low in historical values. And let's say we're looking at a 28 days exploration. And let's see how much they sell. You see, you can see now that the stock is traded at around $73.70 to 72.8. So let's see, the implied volatility of the line is around. As you can see, 18% for this series of options for 28 days. The Call, this is the side of the calls, this is the side of the puts. Remember? So let's say coal 72.5 is sold right now. And buck a buck 70, something between here and here, Let's say buck AD. That's all, that's all the premium I'm going to get if you're going to sell this 72.5 call option. So let's see how it works on a graph. So let's symbolize that we have sold single option. Remember that the underline is traded now it's around 73 in writing that says, let's settle it for pregnancy three almost. And we see that we were given a $1.70. That's all. We got, basically a $170. Remember every option that is traded here is being multiplied by 100. So we got a total of $170 to our bank account. So what it does on this graph, you can see that we have this break-even point here. And 74.2. That's that means that if the online we're going to rise, if this stock is going to rise above 74.2, we're going to start losing. And I start losing money. And from each dollar that the underlying asset is going to rise, we're gonna lose a $100. So you see, we got a very pretty small premium. And that's why we're pretty tight here. But on the other hand, remember that the stock as an overall very long implied volatility itself. Now let's take, let's take, let's see an example. Another example, pretty much the same. We have here a stock which is traded at $77 and it's called lemonade. And this tag is more, much more versatile. As you can see. We're also looking at 20 I did till exploration from this option, but the implied volatility of this asset is 65.4. And that means that if we're going to sell a call option on the strike at 75, we're going to get around $7.7 dollars is not 180, 170, this is $7. Then means that if we're going to sell. For you're going to sell the single option. It's been traded at 77 and we're setting the call 75 we got I'd say exactly $7. Okay, so we're going to be protected until 82. In our previous example I gave you and just gave on the TD bang we going $1.8 then gave us space from losing or until losing. Just $1.80 for the young. I'm going to move this example because this is a much greater voltage stock. And you can see that we got $7 for 30 days and start pretty much the same price, 70 something dollars. But implied volatility on this talk is greater. So now you can see that we got $7 where protected. We're going to make money in 30 days from now if the undermine won't rise above $82. So this is better there for selling. Why the other hand, we have to look also at the underline and young align. As you can see this talk, previously visited the heights of all nearly $200. And then it crashed down all the way to 80, and then went up to 100 again, been, went back to as low as 55. And now it's been on rising backwards. So you can see here all these fluctuations that made that MAY the implied volatility in the stock and in the options greater and higher. And that's why the sellers are asking for bigger premium. Because they are, they're saying listen now it's stock is at 77 miles. Remember that it was also a 170. And I, and on the other hand to put sellers are saying, Listen, I remember this toggles who are in below 50. So boring, I'm going to take chances. So we're asking for a greater premium. And the market exam. And also the buyers agree with that. Because days they're saying, Oh, look, there's there versus such significant losses of the recently than that. Maybe this is time for us to buy the asset and earn, earn when the stock is going to skyrocket again. Because now it's a good buying point technically. And that makes sense. But the put buyers also say, Wow, it's going down all the time. So maybe now it's time to buy put options. And you can see the put options outside out of the money and even greater implied volatility inside them. So this is an example on two of those. And this is the 65 percent implied volatility. On the other hand, if you are going to look at the twister stock and I had to be the third and the last example. The startup costs a little bit more 97.7, but it has a greater implied volatility insider. Also you can see this is a 20 days expiration Siri and this one has already 20.383, maybe four to 6% implied volatility inside them. And that means that for this kind of volatility, the sellers are asking for a grade or premium. And this one is Mm-hm. Sold for 1011, $12 premium. Even greater. Then. Then the other two that we saw before, let's see, just the wood behaves when we're just going to sell twister for, let's say a $11, then you can see that you're going to get $11. From this point on. From 95 plus 11 makes it 10, six. We see you're going to get 11 points until you're gonna start losing money. That's, that's significantly higher premium. Remember that if the stock goes down and then wallah, you 1 $1100, and it doesn't matter how far in deep it's going to drop down. But if it rises up and you're still going to lose is $100. For every $1 that the stock has risen. Okay? So that's it pretty much. This is a strategy that I strongly advise you not to do. But if you're taking your chances, then good luck is, it could be extremely dangerous. Stocks skyrocket and also fall down and crash. And I don't advise you do it without any protection or we call hedging. And in our next lesson, we're going to see how this strategy can be helpful for us. But just for the example for today, I wanted to show you this strategy and try to avoid it. If you don't want to lose money, it might work several times, but once it's in the market, there's his goal running or away from you. You're going to lose significant amount of money. So, hope you enjoyed this class today. I hope to see you next time. And good luck for everyone. 5. How to use tos platform: Hi everybody and welcome to this sector in the course where I'm going to show you now how to open in a trading a account. This is going to be a paper money account. That means it goes on demo account. And the platform I'm using is the thinkorswim platform, which again, I'm thinking this is the best platform for you to practice and trade. Then demonstrate your tradings and learnings and everything you can do in this FAQ forum. So you can downloaded first, you can Google it. Thinkers when paper trading and into press here register for paper money. Don't worry, this paper money platform is free for two months, which I think is pretty long time for you to practice and learn how to work with this platform. And if not, then you don't have to use this platform. If you have other platforms, It's okay. Personally, I like it because it very simple and it gives you so much functionality when you trade and when you want to practice and we want to see strategies or test them, not for real. So you can have this demo I'll construct two months according to their policies and their current policy. So once you entered register paper money I counted, you need to fill in those forums. Press here. No, you don't have a trading account. Fill in all those blanks. Here, would your phone number and your personal details and your address. Now when you're narrower and they're asking you for your experience, then fill those columns here. And I suggested you fill all those ranks. She wanted all the all the options and this platform to work and maybe address here yes or no and depends on you. And then when once you've submitted your IT also have here your need to choose a password and you're doing isn't a given username. And you need to download it. And once you've downloaded, you're going to be opened here. And you're going to see that this is going to be your entering. This is going to be you're entering point. Once you've downloaded the platform and what you want to start trading or doing something with this platform. So then you need to go here, press here, trade. And can't feel here the blanks like and you can write any given stock that you're wishing to see are trade on. Now, if you want to analyze, then you press Analyze and you don't need to add. Similarly trade here. Once you fill the name of the stock, let's say we're going to be now Facebook. Then see the optimum channel is going to be open. And this way, you can see the entire often chain. You can select anyone he wants. And make sure here you press all the strikes. That's important because we'll gonna see all the, all the options running here in this chain. Now, if you want, let's say you want to try it, it's going to try and buy a option. Then you stand here. This is the call side, this is the put side. You stand here and I add the option that you're want. You right click with your mouse and then you're going to have this grain opened and ask you if you want to analyze a bitrate or sell trade just, just like I demonstrated to you in the course. So you need to choose here which I wanna go single vertical straddle. Everything is possible here, so let's go for a single year. Then you left-click on your mouse and voila, you have this on the bottom. More again, everything here is demo and it's free. And it's good for you to practice. And we're here. So that should goes by minus the amount or quantity. Then you can say minus one, then it means that we are selling now one, August 2021, the call option 345 with this price and I7 65. And if you want to see the charts than the risk profile will give you this. This is the graph. Now. Below the graphs you have here, those price slices, you can play with it. You can press here plus, that will give you additional rows. You can automatically set those rows. If you want to go 15 minus base or plus to minus, then it's going to show you 15% in the underlying change. Or you can go even by yourself and write any underlying price in the slides. So you can show here any ultimate blanks that you want and everything is going to change automatically. Now programmer with that, sorry, 350 and let's say this one goes for a 100. And now you can see the entire Greek here. Then it all goes automatically. You can switch it around by then automatically. It will understand that if you go from minus one to plus one is going to change it to buy. You also can change the symbol, decide by ourselves. We can also choose different Exploration series. And also the knee, which one of the calls or triplets it can play with. The price can go up and down if you're any other number that they have in your mind. When you add similarly trade. You can also one, you can stand here right in the middle. Right-click on the mouse and you can analyze a bi is also 10. Generate you an automatic options strategies like straddle, let's say. And you can see that it has generated you this treadle here in which you bought also on 33, 45. Make sure that the V in these empty blanks, we'll calculate h v blank here. So a show on I just see straddle that you buds gonna be looking like that. If you want to add, just want to add this call option. The allegedly we bought for 15. Then it's going to be shown on here also. You want to go just for the for the call option that we've bought each single one of them. And you can see here I'll just demo. And now you can also trade like if this was for real in this blank here on trade. And then you can see that you can also analyze like if you're buying it for real. You can see this is by and kinda all three options that you've made or trade or belt. It's going to be demoing on the damn old scores. And I'll show you like if you're sending it for real confirm and sand. And you see all those are confirmation dialogs. Screen here. Okay. This is the simulations and the worry. And everything after you allegedly bother sold is going to be shown here in the monitored. And if you go to activity and position, we're going to see all your positions, demo positions, all your equity. You're getting here a $100 thousand virtual money, so you can play, you can also add more money here to this account. Well, Wonderful Life. You can add that virtual money can virtually edited in any amount of money didn't want to like go here and add add liquidity. Account statement will show you exactly while your positions and how much RNA are. Losing margin request everything is performed here. Charts. Once you're done, click on Charts and see you gotta have your three columns. I use this one to see the charge of the younger line are started on looking to trade on. So you can see this is the chart I've added here studies. That means you can add any study for technical. Analysts, make sure you know how to do it. So we can just go to Add study, all studies and you'd see all the, all the alphabetical parameters you can add here on this chart. Whatever Yong, whatever you wish. I'm personally using the Balkans or brands. Of course you have to get the volume. I really like the on balance volume and the our psi indicator shows me pretty well, not always true, but chose pretty well. Now I actually want to see more that depth options then you can see here that we're looking will need to choose again, the stock that you're looking at. Let's go to Apple. And this is way too much, even though it's pretty, but we don't need all those series. So right-click here and choose the Siri want to look at and you're going to seal their productive stuff inside. Now I'm on the upper here you can choose to see whatever you want, see volume, or implied volatility. Under lower you can choose again, intrinsic value. Alton interests to the desktop, any parameter you wish to know, local learn practice, press here, strikes. You can choose all of them. Of course, this is the series again. And this is showing 0 exactly the depth of the options. And this is in our risk profile will be performed here. And you can press on the graph itself would with your mouse, with this finger on the screen and move it to right or left. You'll see the graph. Again. It can play with the numbers here and choose whatever you want to do or practice. See how everything changes here that got the government the teta Vega. You can customize it. Any slices. Here. You can change the volume adjustments and that means implied volatility can increase them volatility. You can decrease the volatility by just making it. I'm going to reduce theoretically the implied volatility of this tragedy. The basic things you need to know about this platform and have to use and practice all our classes. So again, back to monitor activity and positions will show you everything. Go to Analyze, add simulated trades. And you'll get, see here now so you can customize these, these forms when you press here, the layout, okay, and go to Customize. Then you can choose what to see here, these columns. And you can add whatever position or whatever you want. You can add it to this layout. You, you check what you're interested in and just add the item C probability in the money out of the money, everything you want to, and then you press Okay. And it will and bring it here. And you're going to see it in everything and long-term are interested to know. Man, and that's it pretty much. Again, do practice a lot, do practice everything before you even start thinking of real trading in this world. Practice here, press, build them in demos, tragedies. There's a lot of functionality in this fine and the platform. But you really, I suggest you take it for two months for free anyway, it's for free. Practice for two months. Simulated strategies in this drops warm and see how they change and how much you're earning or are losing. And you can monitor here everything that you do and analyze and that's traits, whatever you want. So I strongly recommend you downloading this platform. Okay, so that's it for now. Download it. 6. Straddle strategy in options trading long and short: Hello everybody and welcome to our class. Today we're going to talk about straddle, straddle strategy. Why does, What are the, what is this strategy? How it works? We're going to see short straddle and error, long straddle. What's the difference between those two? And how they can be beneficial to us. So let's study and learn. Why does this straddle is all about? All right. When we first talk about straddle, long stretto is considered as one of the most popular strategies in the stock market and alongside among a lot of portfolio managers really liking this strategy because it has sometimes too great options of trading for two different scenarios in the market, especially when you don't know where to market might go. And if you're pretty certain word in marketing, there's going to be. So we're going to talk about is treadle long stretto row, where it basically buying a straddle. And it's a generally neutral option strategy that involves simultaneously buying both a put option and a call option for the underlying security with the same strike price and the same axes expiration date. I trade 0 will profit from a long struggle when the price of the security rises or falls from the strike price by an amount more than total cost of the premium paid. Profit potential is virtually unlimited. So long as goes uprising was a gritties moves very sharply. And that means that if I'm not, you are to Margaret will move. It will move for certainly. And you want a 100 percent it's going to move it or it's going to go up or down. But you're certainly won't stay at this level. But he doesn't know where this is the strategy for you. So let's see how it works. We're going to talk about the, the lungs for a, the short surgery right away. But let's see an example of the long straddle. Let's say we have a stock price which is 100 And right now, and call 100 costs $5 and put 100 costs $5. So in this graph, you can see are basically our options and what are our options to win or to lose. All right, so we'll take an example. Let's say we bought these options for 30 days and the multiplier is 1. And after 30 days, Let's see what happened in exploration. Let's say the exploration came out at 80. The younger line as we expected, moved, but moved to the downside and we weren't yours is gonna go down or up, but still we buy the put option so we don't care if it goes up or down, but in this case it's going down and expired at 80. So let's see here, the Profit and Loss of the call option. Unfortunately, we lost all of it. We lost all the $5 that we paid for the coal, a long call option. But at our profit and loss and the put option was pretty good because it expired at 80. We bought it in 100. That means that it's significantly, we made $20 profit, but still we had to pay $5 for the option itself. So that means we weren't, we got a net profit of 15. Now, since we made $15 from it and we lost also $5 and the colon lung call option. So our net profit is ten. You see 15 minus 5 is 10. That means that when I went into expired at 80, we're making $10 net profit. Alright, now let's see what happens if the, the stock expired at 90 and none NAT and went down but not enough to just 10 percent below the market, move below the market. That was 30 days ago. And in spite of 90, so again, our coal option has expired worthless and we lost all our $5 investment. But the put option did pay us and we went out earning $10. For this explanation, you see 100 minus 90. Makes it a $10 profit, but we still had to pay $5 for the put options. And that means that we want only $5. Well, in all our total net cash flow is 0. That means we lost $5 on the long call and we earn $5 and outputs. And that's why the 90 exploration point gave us nothing. So we didn't, we didn't lose even though the market moves 10%. What happens at the worst point? And then I'd say we tremendously failed in our guessing of the market and the stock. Hey, that plays for the whole month, they move a lot and expire it 100 precisely than we lost all of our investment. We lost $5 and the call option, and we lost also $5 and put option and went broke and we lost $10. That's the worst. You see this point is the worst case for us. We lost all our investment because market wasn't voltage at all, or it's expired at worst point for us. So 100 is not good. And as you can see, it can go so break-even. If we had an expression that 110 and we're going to make money. If the expression was at 120. If, if it, if it went up 20% by the end of the month. And so we $20 from the long call option, we paid $5 for the call option. So that means that we got net profit of 15. We lost $5 for the long put option which expired worthless. And all in all 15 minus 5 gives us a net profit of 10. Now, keep in mind that every point above a 110, Here's our breakpoint. And that means that if, if it goes above 110, Eyring to 115, we're still going to make money. If the exploration was at 115, we will have made $5 profit and so on and so on. But as long as it goes above a 110 and below 90, It's also means that if it was to expire at 85, we wouldn't need $5 and so on and so on. So you see, we're buying this strategy will have to break-even points with huge belly between those two points of break-even, Break-even points. And we should be hoping that Margaret will move greater than those two break-even points. So you see this is a pretty interesting strategy. You never know what's going to happen. If the markets go up, drop down. And never to certain way. You can ever be to certain about anything in life. But you want to stay, but you want to say, yeah, I think that something's going to happen big for each direction, but you don't know, I'm not sure. This is a good tragedy for you. That means that you can go safe and lose just the maximum, but you know exactly how much money you're going to lose. That worst-case scenario. And let's say you're just hoping the party starts, whatever happens happens with just make it big. And that's all you need. A good grade movement in the market. So that's the long straddle example. Now, let's see. Oh, that's the L. So the pros and cons for the strategy. So again, it's very good if the market is voltage, you need no securities margin request at all. The Vega effect, the volatility of fact can come in favor for you in this kind of strategy. Strategy when you buy options call inputs. Sometimes volatility can arise during the, during the time of the lifetime of d option. And that means that if markets tend to be more volatile, the option gain more Prize for them. That means that if it goes significantly and the volatility rises above some, some stock options can get greater price to them I over them because of the volatility during the time of the option life and the Vega effect. We're going to talk also about Vegas reckoning RNN in the next lessons. But it can come in favor for you. That means that even though you bought. The option and still has time to exercise. And to the end of her option life, the option can gain more value, more than its intrinsic value because of the volatility effect. And we'll see that later on in our next lessons. And also remember that you have an endless profit potential. As we say, the party begin and we don't care where it goes, but make it hard. The cones for this tragedy is that you still need a large movement, which is required to make it above the break point even. Now, sometimes it doesn't work. Sometimes most of the time in market stay calm. Then it doesn't get too volatile. X2 wanted to be because you've just purchased this long struggle. And most of the time, it doesn't happen. It's a meme can move like 234, maybe 5% in a month. And it might not even make it to the break-even point. And most of the time you might lose money when you sell, when you buy this kind of options. So take in mind that it doesn't work all the time. Yeah, and also the Vega effect can harm you in case of volatility slow down. Exactly the same as explained before. If the volatility goes down and the market stays calm, the stocks doesn't move too much. Then the price of the option, the theoretical price also can drop and you might lose money during the life of the option, so we have to take care. And again, the implied volatility plays a major role here when you try and calculate our positioning options. Okay? This is the long. Let's talk about the short straddle. Short strategy is exactly the opposite. That means that a short spread those options readily comprised of selling both call option and put option with the same strike price and expiration date. Alright, this is used when the tray there believed the underlying asset will not move significantly higher or lower or over the lies of the option contract. The maximum profit is the amount of premium collected by the writing of the options. Potential loss can be unlimited, Of course. So it's typically is tragedy for more advanced traders will talk about it. Right? So basically we're summing those two options. And you significantly can increase your income you would have achieved from selling pooled or just one call alone. But that comes at the cost. You have an unlimited risk on the upside and substance substantial downside risk. So that's seen this example here. Again, stock price is at 100 call option. Now we can get it for $5 and we put option on 100 is also $5. And in this case, as we think the trader, my thing that Mark is not gonna go anywhere. Sometimes there's seasoning L. So in the stock market, you know, sometimes in the regular when you don't have coronavirus or any other crisis in the world's during summertime, sometimes you have completely dead months. When the stock market doesn't move at all or makes tiny little movements, everything is calm, always good and nothing happens. And then in these kind of cases, you can, this strategy can not my work real well for you. Because if it moves slightly, you're gonna make a lot of money. Maybe. Let's see. Let's have an example. Now we're shortening the straddle. Then we're selling both one call and one put at the same strike price 100. And we are giving premium of $10 all in all. Now, let's have a scenario and said, well, let's start with our worst scenario. Let's say that after 30 days, marketers significantly move against our first initial thinking, are betting that the market will not move. It did move and it may need to, 80, went down, 20%, expired at 80. And now our losses are really, really bad, real good, Britney, big and bad. So we got $5 from the call option on. We also got $5 from the put option. Now even went down. Then that means that we got the whole premium from the call option and that was $5. But the put option that we've sold expired at 80. That means that we are deducing 80 from 100. That means that we lost $20 from this position, but we still got $5 when we saw this put option. So then that means that we have lost $15 net on the split position. You can see here in the middle. And all in all, we lost $10.15 plus, minus 15 plus 5 is minus 10. So that's means that this is our worst-case scenario. Even worse search, if the underlying expire at lower prices than it started the month. Okay, so now let's see, just to 90. What happens there? If the stock expired in 90, then that means that we want all the jackpot from the call option that we've sold and got all the $5 into our count. But the put option had to pay to pay $10, a 100 minus 90. Had we had to pay $10, but we still got $5. You know, initially when we solve the put option. So then that means that we only lost $5. And so the entire net cashflow in this strategy is minus 5 plus 5, those equal to 0. That means 90 is our breakeven point. Okay? We didn't win, we didn't lose nothing in 90 breakeven. Now let's see what happens with one hundred. One hundred is the best place for you. After 30 days, stock has moved at all. You want $5 from the skull option. You don't pay nothing. You want $5 from the put option that you've solved because he didn't have to pay nothing. You get a premium of 10 in by the end of the month, your total net cash flow is 10 because you haven't you didn't need to pay anyone. Nothing. So we're stayed at 10. Net profit, and that's our best point to expire. 100 even went down, went up to 120. It goes again by the same scenario as it expanded 80. That means that we went above the break-even point, which could be at 110. Figure out, take it for your homework and find out the numbers YOU. 110 is also our break-even point. But at 120, we lost $10. Again. Now the call option had to pay $20.100120 is minus 20. We still got $5 premium for this long, for this short call. That means for this call option we lost $15 total. Put option, expire worthless. And we got all the $5 into our accounts. Now know we lost $10. So this is the short straddle example. We see the graph here and the pros and cons, the pros. Again. So as you didn't understand, it's a very good strategy of the market is come, it's going nowhere. That's the best point for you to be there. The teta effect is in our favor for the seller, for our side. And if the stock stays pretty much the same place for the whole month's data. The time premium is given to us and every day goes that goes by. We're making more money. And so always remember that the effect is coming favorite for the seller from the one writes down the option that works best for him. And I don't think that can be beneficial for us when you're selling a struggle, that means that your son in long you're selling put and clone the same strike. And now the bank or your broker can take security is just, just one side. It cannot take securities were both sides. I mean, Norway, when you're selling a call option and takes this to, let's say two thousand and ten hundred dollars securities. But if you're selling also the same strike puts. It cannot take another additional two thousand and ten hundred dollars securities. You can take it just one side. So that's why the securities margin requests here can be more efficient because you're selling double now and they're taking the same securities. So this might be a efficiently to us, to you. And that's why it's so popular among a lot of portfolio managers. Now the counts of it. Is that first of all, the amount of premium given its final, we cannot have any more money. I want to make any more profit. You just need to pray that the analyzer will not move anywhere. And you're going to make the whole premium securities that you were given and not pay a single dollar the expiration time. But the amount that you got, that's it. You cannot have anymore money. The risk is endless lost potential. And that might be very harmful and very dangerous. Because the markets can go down pretty hard and fly up to the sky. Like not thin. And if you don't have any hedging strategy, then your risk potential and loss potential is endless. So be careful about it. And you must have security is to write down those options. No free meals. And so sometimes my work, sometimes not, might not work. My personal opinion is that it's a good strategy when you're getting a good premium. When the implied volatility is high, then you can get higher and greater securities. And that might work pretty much efficiently. So how, let's see, Let's have an example on real-life training. We're going to see that in a low implied volatility stock and on a very high volatility stock. And then we'll take the TD Bank, which has significantly historically low implied volatility inside over. You can see that the current library percentage of 16 percent, that means very low volatility. We can see that the, let's say I want to look at the air for the end of the month. We have 26 days to exploration. Stock is traded at seventy-three dollars, let's say 72.5. And as you can see, very low volatility. And Bach something on the puts and buck 70 bucks AD on the calls. So let's pretend that we are buying. Both of them were buying one call than one input. Then all along it cost us $2.95. Okay? So this is the graph. Now, you can see that we bought both of them. Both of them we have two wings. One goes up, one goes down. It's 72.5 and we paid a premium, pretty low premium of less than $300. So that means then we need the stack to move $3 to the right, three dots to the left, goes down. We needed to make it below 69.5 and above 75 and a half. Okay? Now, the edge DE here, the teta effect will harm us and you're going to lose every day, $5 from 5.4. For every day that the stock does not move. Instead, place our options that we bought and lost. But on the other hand, had soon pretty enough for the stack just to move 2% from the current strike price. So that we will make psalm, well, start getting very close to the break-even point, just a 22 to something percent movement in the market and we can start making money. Now remember, here, you need to, if you want to see how much you earn at each point. So again, because you bought the option and every dollar that the stock moves, when the owner line numbers of value equals $100 by remembered that the always have to deduce the price of the other options that you bought. That means that if the, if the goes down, so you're earning on the put and you're losing on the call. So you see the combination of both of them is $295. When it starts to go down is still an average point. You're not going to make a $100, you're going to make less because you still have to deduce the, the loss from the other side of the option, the second option that you bought. So this kind of strategy is good, could be not bad because. We have a low volatility and this underline asset. And there's nothing, I think dumbing good chances that the stock might move a little bit more than 2% and this month, and we don't care if it goes up or down, just move more than 2%. That might happen. And that's, in my opinion, could be a good strategy. Now, on the other hand, and I advise you to do that. I mean, if it doesn't work, then you lost $300. But your potential couldn't be significant. If the stock move more than 2% each way. Either way. On the other hand, never do that. If you're gonna see how it works on the other side, if you're going to sell this kind of option strategy for one, I'll go short straddle. And this short kind of implied volatility underline. You can see that our risk here is worse than, because the movement of just 2% will bring us out of the money, see just 2%. So this kind of strategy, selling or shortening the struggle at this point. It's not a smart idea. And my I won't do that for this kind of implied volatility for such a long period of time to expiration. In my eyes, it looks very dangerous. If it goes up, you might lose a significant amount of money and see if it goes down to 60, already lost $2 thousand. Things can happen. You can remember that you never know what's going to happen. Never know what's going to happen next, next minute and next our next month's definitely you're never going to know what's going on with stocks. All right, so this was only a short volatility option. Let's take now some stock with greater volatility. Again, I wanted to show you before that. That again, take in mind that even though the volatility is low and you sell it for 26 days, you've got almost $3. But if you're going to sell it for like a little less than two months from now. We're going to get almost $4. And you see, we're going to get here $2, at least in year $2. That means that the struggle that you're going to sell is going to be 4.3, a little bit better. But still, let's see now, if you're going on a very volatile stock, and you can see here, the TW st option is currently traded at 95. And volatility levels imply both delivers or above, well above 80 percent. So therefore, you're going to see here are 2426 days. And then it's ever gonna buy this struggle. Excuse me a minute. We're gonna analyze a very stressful and we'll what is this? Look at this. We need to pay $17.75, That's still 1000, $075. That means that this is the max loss that we might suffer. After a month, after 26 days. The stock will now moving Stay here this place we're gonna lose $1700 note now. And the breakeven points, because we paid such a high premium, our breakeven and downsides. We need to start to slide down on nearly 20 percent just to make it the break-even point, it's 77. And on the other hand, we needed to rise well above a 112, almost a 113. Just to make it to the break-even point, we're always looking here on the light blue graph. Okay? Now, the pink, the pink line is our current position. And each day that goes by and nothing happens, you can see that it comes down to the values of the light blue. That means that it's teta effect, as you can see here, is increasing. Increasing by each day. Goes greater and greater and greater and greater until bone, you lost all your investment if the stock has move anyway. If it doesn't move anywhere, then why shouldn't we think about selling this kind of option? I mean, we have great implied volatility here. Great premium rate securities, I mean, might not let sell it. Voila. If we're going to sell it. Look at this. We sold here in 1905. Colon put option on the same strike. But 26 days. We got 17, again, $17.75 into our bank account. Multiply it by 100 and forget it, and forget it. And let's see. Now, every day that goes by, we're going to make, we're going to make this premium go up to us. Say everyday, stock doesn't move anywhere. On the pink line is going to come closer and closer to the light blue line and then neutering or making money. And now look when they start to move down below 77 or above a 113 to lose money. And and that's that's pretty much I mean, there are some big numbers the stock has to move. During this period of time. The macular non mega, you're gonna lose money. So if we're going to come to some conclusions, you can understand that it is very important to sell when the implied volatility is high. And by when the implied volatility is low. Now that's general same, not saying that it's going to work on all the time, but it's much more beneficial for us to sell when the implied volatility is high. And implied volatility is high because the stock has risen and fallen too many times in a short period of time. And that's why the options also gain some more premium to their extreme value. And sellers and buyers are willing to buy and sell for a higher and higher prices on the options. And sometimes for no reason at all in the market does not move anywhere. And then you can make a great premium here. You can see here that the teta, every day that stock stays at her current position. You can earn more and more money every day that goes by without doing anything. Remember that you can always close. I mean, when I'm saying close this kind of strategy, that means that you can just buy this call and call and put options and get rid of all your position and you should remain 50 percent, 40% even. Let's say that if you can, after a week by this at, let's say we sold it for 1777. And let's say now that we have an opportunity to buy it back at a lower price, okay? Let's say that we have bought it back just even, let's say $10. Okay? We bought both of them, both the colon and the ports total of $10. Combine them in and we made $775. Fix that. You can move anywhere it can do is in and just look at this. We, we close the position with language. Not that big numbers. Let's pretend dollars if, if we could have like but it back at a dollar and then you can see that we've made 975. If you bought it for $5, then well, ready made $1275, which is also known bad. My advice to you, when you're selling this kind of strategy with a very high implied volatility and do neutralize your delta. I mean by back. And take the profit and runaway. Don't stay and wait for the whole premium to be exactly what you've solved. Mean don't take, don't be too pinkish. I mean, the soldiers 17 and you got it back for 12. Take take it. It's $500, that's good money. And afterwards, search for a better strategy with a new option. When new stock that has a greater implied volatility may be, Everyday, Things change, changes. You can find new stocks with greater implied volatility than you had yesterday. And really don't take too many chances. Be careful. I hope you enjoyed this course. And see you next time. Next lesson. May all have good luck. Goodbye. 7. Strangle strategy basic explanation using options: Hello everybody and welcome to our class. Today we're going to talk about strangles strategy. We're going to talk long, in short, strangles, we're going to see what does this strategy is all about. How can we benefit from it? I must say this is one of the most popular, really, this time it's for real and one of the most popular strategies around the world that is commonly used by a lot of portfolio managers and other traders. And we can see how we can build a range that we can profit from either goes up or stays on place. Pretty similar to the other strategy. Did we learn the straddle strategy but kinda different. And that starts. So we're going to see that we have basically two different types triangles. We have a long strangled and assurance strangle. Long strangle means that the investor Symington and sleep bys and out of the money call an out-of-the-money put option. The call option strike price is higher than the underlying asset current market price. Well, the point has a strike price that is lower than the acid market price. This strategy has a large profit potential since the call option has theoretically unlimited upside down the line acids rises in price. While the option can profit if the underlying asset falls. The risk. The trade is limited to the premium paid for the two options. Well, awards. And you can see that we have here this triangle. And you can see that basically you're buying out of the money call and out of the money PUT, and you're hoping for the best. Now, by buying out of the money, calls and puts, that means that you're paying less premium than means less money. That means that your potential loss, profit or loss is not word. That means you're paying less than you can lose this. And this long strangles Treasury basically aims to a volatile market that is predicted that it's going to be in a market pretty soon. And you're not certain where it's going to go, but it's not going to stay here for long. And you're thinking, yeah, it's going to be voltage is going to move away from this current position. And therefore you're buying out of the money options. Now, as you've learned before, we are also using short strangles, which is exactly the opposite. And that means that the inverse or doing a short strangles soon intensity cells out of the money puts and out of the money calls. This approach using Mutual strategy with limited profile potential. That means everything you got from the selling of the oxygens, That's it. That's how the money you can make. A short string of profit when a price of airline stock trades in the narrow range between the breakeven points and the maximum profit is equal to enter didn't add premium received for writing the two options less, of course, the trading costs, right? So you can see that it looks like this. Looks like a table. That means that you have sold out-of-the-money call an out-of-the-money put. And you get this wide range. And as long as it stays within this range, you're going to make a profit. Now let's sharpen our studies. I would see an example. All right, so what we started with them, long strangle. And in this example we're going to see that the underlying stock price is one hundred and one hundred and ten costs $5 and put 90 also costs $5, and they are both out of the money. Multiplier is 1 and let's say there's a month till, till the exploration. And then we'll go on to build a scenario and a cash flow diagram, as you can see here. And let's assume that again, we're going to have three kind of good or bad expirations for us. All right, so in this example, one we're going to do long strangle. That means that we're buying way, buying out of the money, call and out of the money put each one of them costs $5. That means that all in all we have a fixed cost of $10. Okay? You can see here in this diagram. And now let's assume that we had a very versatile mom. That's a stock has plunged 30 percent and went down from 100 to 70. So let's see our cashflow and how much we're going to make. So of course, remembering that when we bought a call option, they could call option, just like in this example, that means that the coma, a 110, of course expired out of the money and it is worthless. And the last $5 over it. But the put 90 that we bought entered the money and gave us a very nice brush right up to $20. But do remember that we also paid a premium for this option put option and I was also $5. Then even though we'd paid us 20, all in all, we need to deduce $10 of the cost. And that means that it gave us a net profit of $10 for this strategy. Now, keep in mind that we had a very volatile month and 30 percent drop down in the Arno and asset. That's pretty much that's serious numbers and still we only got $10 for it. Okay? Now, let's give it a better example. Let's say that market went down to 80 and we still had to pay $10 for both options. When this time in the put option paid us only $10, that means a reduced exactly our call, our colon and puts buys and gave us nothing 0. And that means that this is our breakeven point AT, is our breakeven point and we're not losing, we're not unwinding. This is, you can say a sad, but it can go even worse. Because any exploration between 9110 is going to be worse than the worst case scenario for us, that the market wasn't volatile enough for us. And it expired somewhere between 90 and 110. By the way, it is even or worsen because any explanation between 79119 and we're still going to lose money, right? So 1490, exploration, stock price going down to 90, then that means that the call option of scores has expired worthless. And also the put option that we bought and put 90 also expired worthless and enemies, they're both betas, Nothing and we still had to pay $10. That means that we lost the others. And also it goes creative ad they also had 100, the same calculation or a lost all our premium marketing wasn't a bold title. Also on 10, what happens is 120. Finally, we are entering into something which is better. And that means that we are on a break-even point here. That means that now the put 90 was expired, worthless by the coal. 110 gave us $10. And that's what it was worth. The exploration. And but we still had to pay previously the beginning of the month. We had to pay a cost of technologies, that means we are on 0. And finally, they fit expired 130. Similarly in just like an exploration, it's 70. We needed a large movement in the market with 30 percent rise and they own their ongoing asset. There was still got to make only $10. We then call 110 was our biggest winner here. He was $20 wars the expiration day. But still we had to pay $5 for him for initial colon 110, $5 and of course put 90, which we said they also lost $5 all in all, this is the strategy straddle. And soon we're going to start. Those things are real live examples, but also keep in mind that this is how it works. Usually, 80 percent of the time you're going to lose money. If you're not buying the straddle very close to the strike price, you're going to lose money then mean that you need a greater and wider movement in the market to profit something and it's going to be pretty much the same on every other assets. Then we're going to see with higher or lower implied volatility, you're going to see that you're going to need a serious movement, the underlying price. Okay? So, but what did works? You get a really good so actually exploration, well, a lot of happiness when it's cold. So on the market really shifted up or down, they can make a significant amount of money. Okay, So this is the long strand around and see the short strangle. And this is a very popular common strategy that a lot of option traders do. And this time I'm, I'm talking serious, this is real. This is 80% of the time. This strategy works. Of course, it depends on the wideness of your strategy and how far or these options that you sold. But generally speaking, let's go back to the example and we see the prices are the same, but this time are selling those options and we're getting a premium of $10.5 dollars each. And let's see, at stock expiry at 70, we're busted. That made that well, we got a 10 dollar premium received, but we had to pay a lot for you to put 90. Then we've sold for $5. If it's expired warning $20 against us. We only got $10 all in all forms. Both the colon, the colon to put option, and that gives us a net total loss of $10. Right? So AD, as you can see, this is our break-even point because even though we gained from the colon has expired, worse, hasn't got all the $5. Good. Ninety still had a value of $10. Okay. So that's the difference. 80 minus 90 plus $10, the total premium received or getting a 0. This is our breakeven point here. 0. Now at 9210, this is our best days. These are most happiest days because this is our wide range. This is the range we wanted. We fought the stock is going to stay here between those two. And within those two ranges, 9110, which is not bad, that means that almost 10 percent extent percent from its direction goes up or goes down. And these between 9110 are getting the maximum profit. And that means that we've sold. Whenever whatever we've sold, we've earned. That means that if it expires as 100, we got $10 premium. And as you can see, it stays here. We're all good because putting IT has expired those and call 110 or so expired, worthless. Good. So but if you're going to sharpen it even more, and you can see that every point in between 79119, we're still going to make some profit, even in 119 are going to make $1 profit. Then I also at $70.70 expiry at 79. We're going to excuse an experiment 81. We're still gonna make money. So between 81119 that even that's even a greater range is pretty wide and no's 20, almost 20 percent for the upside and the ultimate almost 21st century downside. Man every point here between those two numbers AND, and OR 120, We're gonna make something where I'm gonna make a profit for sure. We're not going to make profit as again in the 100 exploration value of the ulna line, you're gonna get a 129 means are we our break even and 0. And of course, any expression above 129, let's say 130. We only got $10 premium. Holland also though, was both combination of options but still call 110 was had a value of 20 and exploration. I went on the page, we only got $5 for it. So all in all, we had to pay for each team and we only get $5 more for a put option that was burned, expired, worthless. So well at all where losing $10 and it's on its own, it goes up, it goes up. Our losses are going to be greater if those non harder or losses are going to be harder. It goes all the time one by one. You can have the whole cake eaten and stayed without any other. And you can't have it. All right? All right, so the problems and the cones, these tragedies. So again, so we're going to see that and long triangle by your, your pros are benefiting from the asset price, move in either direction, but you gotta have a big change in the asset price that's cone, cheaper than the other option strategies like straddle. Of course, because stretto is buying those calls and puts right on the strike where the market is. And it's always my costume, greater money. It's going to be much more. And expensive for you to buy it. But when you're buying loans triangle and you're buying those options out of the money, for sure you're going to pay less. And of course, the best thing this tragedy is also that you have an unlimited Braam profit potential because there's a market skyrockets or crushes, you're going to make even more money. And that's a good thing. Now to cones of it, the last cone, it may carry more resonant honest strategies. Knowing that means that if the market wasn't volatile as you wanted it to be, the new lust and you're busted. That means that you lost. And I guess I'm pretty big numbers. You're going to lose money if the market doesn't move really significantly. Now a new short strangle, the pros are that you can have a large range between breakeven point. That means that it all depends on you. Where are you going to put those two options for cell, you can put a V really, really far away from the strike price in each direction. And statistically, don't catch me exactly on the ward and the same word ear, but it works. It works. 80 percent of the time it works. You're going to make a small profit, but in a very wide range anymore. But onetime, we've done in successfully 9 times, 10 time market is bolt-on. It always happens. And when its voltage goes against sue doesn't matter in which direction are you going to lose money. And you can lose a lot of money. And you have risk, some significant amount of securities, those margin requests, and you got a very small premium. And all, and all you'll Austin, you might loss, lose a lot of money from this strategy. So you'd have to calculate your risks. The good thing also here, that the TAM effect and the Vega effect can benefit for the seller for you. That means that as long as the strategy stays within those two, the breakeven point, the time of trick is going to infect. Here you're going to benefit every day that TikTok effects from it. Plus age, the implied volatility, slow down or go down. Then also the pricing with theoretical pricing of those options that you've sold also going to drop down. And you can then make an instant profit just from the volatility reducing agent. Okay? Now, really the cones for this prezi is you have a very limited profit potential. And again, when you sold something, you got money, you got the premium, and that's it. You're not gonna make any more money out of it. And you have to pray hard. So then the market will stay between those two break-even points. Your loss potential is endless. And I don't need to explain it in again. And make sure that whenever the market that also moves, you're going to acquire margin securities to rise. It doesn't matter where the market's going to go, it goes up or down. You're going to for sure need more securities to edit. Because the brokers and, and ask for more securities. Alright. So now we've said that, let's move ahead and see an example. And we're going to go on Zoom. Well, everybody probably knows these days what zoom zoom. Zooms currently is being traded around 331. And this is our again, our option chain. And you can see that there are multiple multiple expiry days here. And let's go over the 32 days. Exploration little bit more than a month from now. And you can see you have a not a bad implied will do which is pretty high at 55 gloss. Implied volatility both calls and puts. And you can see that if we are going to buy, if you're going to buy this triangle here for 32 days. So let's see how it's look. Or I going to analyze, or you're going to buy a triangle. And it's gonna give us this. There we go. So we bought the 330 and the three 25s, 3.300275. We bought. Call and put all along has cost us a $42. Maybe I'll give another example. It's not wide enough. That's a really going to buy. We're going to buy out-of-the-money put. Let's say we're borrowing here a single put, 320. It's going to cost us around $13. And we're going to buy the cold 340 on.So out of the money option, this is how it looks. We paid 13 and 15. Let's say Ram those random numbers. So our risk profile is gonna look like that. Opinions pretty high. As you can see. It's going to cost us a lot of money. That's that's that's exactly $2800. And we have paid premium to buy Zoom strangle for 32 days. In other words, we need a serious movement from this thought. And we needed to make it here at least 292, to drop down 292 dead. That's almost 10 percent from the current stock price. Strike price, or has to rise up to around 368, which is also somewhere around 10 percent movement in the underlying. Otherwise, every other point here between those two. And we're gonna lose money and lose numbers are for real. That means that this stock has to move within a month, this kind of range. Otherwise we're going to lose our entire initial pay main downpayment for those two options. And pretty much that's $202,800. It's all money, but and then once it moves above when he can make $1000, it should make it to 377378. And also on the on the other side. Well, the question is, do you like it? Well, you take these kind of risks. The thing that Zoom can move 10% in one month. I mean, when you look at the implied volatility of the line and you guys, you can say no, that around 60 percent now yearly. And that means I'm monthly, it's around 5% monthly, this Docker moon, but 5% to each direction. Generally speaking, don't catch me on Award now, but this is what it means that it can move 60 something percent in the air from here to there. So in this case, and if you're thinking that this stock and stay here for a long time, I mean, look at it right now. It reached her pick those Boolean John brands. Exactly stopped here at 33, 3. I can see and also can go down all the way to 280 something. Well, and you can see if you're, if you're doing this kind of trades on technical analysts, you can see that my range between those two points between 330 and 290. So that's have a vise versa strategy. And that's a Oregon. If really understand this, then we might do something like that and let's analyze that. So this put out of the money for $300. And we're going to say that I don't think Let's go for 350. Okay. That's analyze a cell. And wearing, getting a premium of $10 here. 11 though and excuse me, and we sell both calls and puts out of the money. Now 1980 coin range, but still we got this. We sell the put here to 80 and we sell the CO here, 350. Now, as you can see, we got a 14 $1400 premium, $1410 for him. You BAD. Look at the marginal requestor is 5000 and $300 at our break-even points. Going to be here at 360 four. And at here at 365. That means that we're gonna get extra premium for each sign that well, actually goes down. We've got all dependent on the calls and if it goes up and got all the terrestrial deposits that were sold. And this is how it goes. You can, you can say that's a start. You can say that, you know, you don't believe that the stock market is going to stay here for a long. And let's see that the total effect is going to affect us. And that means that as long as the Zoom stock will remain between those two points, three shifty and 280 every day passes by. Theoretically, we're going to make $72. And it's going to rise every day that the stock remains between those two ranges. In this range and they sing. I can see that the text is also rising every day that passes by. And you're going to make even more just from the teta effects every day until exploration tool makes it all the way to 30 days, 32 days off, this option on training. And that's it if it works and works. And when I give you 1500 and almost $1500, that's not bad. Just keep in mind then once it reaches our planet 365, our margin quests, who's going to rise almost double? It's going to be $9 thousand. On the other side, there has been dropped to 80 and we're going to be and $6,200 just to mark margin request. Okay. So this is the example that you could my belief now and you can also waive and greater. I mean, we can say why, why I'm doing this. I can go for 200. I can sell. Now I'm going to get here. $20 is not going to drop down to 200 and it's still way too. Logic. Stocks not going to be crushed started 3%. Then on the other, and I don't believe it's gonna make it to 500. Okay? And again, analyze also. I could even greater when you're going to get here 45 dollars. Very nice for a ride. Extremely wide. Look, where's our breakeven point here? I don't see it. Oh, it's here. And it's below, it's at 199. And on the other suddenly upside, it's going to be here at 501, almost 500 and a half. So now I'm getting a look at this very wide range. Very wide range. All the way between 500 and 200. The stock remains between those two. Between those two lines, we're going to make a profit of 45 dollars. It's not much, but it's pretty it's pretty wide. And i'm I can't say that it's bad thing, but just keep in mind that anyway, your initial marginal cost is going to be $3,300. In the ER, you're going get a revenue of $45. And that's also before premium and costs. Now, thank if it's a good strategy for you to make. I mean, it's not really worth this this kind of premium money. Yeah, hang on. On the other hand, this is pretty, pretty wide and you have a pretty good chances that this talk will not reach one of those two on breakeven points. But keep in mind that eight also might happen. Once it happens, you have to close it right away. But most of the time, stocks don't make such a big, tremendous 33, 40% movement in one month on usually on the average and nothing happens. And it's a pretty big stock they turn, they tend not to make these kind of big changes in young Lenin one, just one month. But again, everything can happen and everything and already happened. And this is where your, your calculation, it grows worse. Your risk taking. Michelle risk lover, not a risk lover. This could be a good strategy for you. That's it. This is all I can say. Now. Also our last example here, let's give an example in the QQQ. And you can see that the QQQ has a very short implied volatility right now, look at the four-day exploration and the QQQ is on 333. Right now, well, you can see that the premium here on implied volatility is somewhere around 16, 17%. So high. For a four-day stretch. Can buy. It's not a 334. That's going to cost you $5 are going it's $500. And that's just analyze running them by this triangle. Now, I say for 70 and we'll see, this is how it looks. We bother it's 333, put up certain 33 for a call option. Kinda diverse mentoring them. But actually you're gonna get a movement from here or here, or here, you're gonna make some money. And this now, also keep in mind, it doesn't really matter. Actually a private that's it. It is high or low. It just matters how cheap or how yeah, how cheap you've got those options are those calls and put options you got to buy. And if you buy them for cheaper, of course. And your, your whole strategy might be even better. But if a $3 or $2, of course, your derisk has reduced here. Alanine is to pray hard and hope that something will happen seriously either way. Okay, so and last, last thing, of course, keep in mind that you do not want to reverse this strategy and sell it for such a short time, for such a short premium for just $2. Never do that. Never ever do that for Desi can say it all the way where I've only 32 days until expiration, nothing's going to happen. I'm going to sell this straddle, this really tight stretto. And all, it's going to be good and I'm going to make money now. Never, ever, please, I pray for you. Never do that for such a short period of time, then don't wait for exploration because your losses can be very significant if you're gonna do it, do it for greater premium. All right. That's it, folks. I hope you enjoyed hope you understood it. We're going to talk everything great early in our next lessons. And I'm going to show you another tips that you can do with this kind of strategy. It's a good stretch, ED. And I hope you all have good trading and success, and I hope to see you in next class. Okay guys, Thank you. Thanks for being here. See you next time. Bye, bye. 8. Covered call the basics: Hello everybody and welcome to our class. Today we're going to talk about the basics of covered calls. We're going to see what is this popular strategy is, how it benefits and how we build it, and why they are there. Risks are possible in this kind of strategy. So let's begin. Okay, so covered calls refers to a financial transaction in which the investor Selling call options owned an equivalent amount of the underlying security. To execute this, an investor holding a long position in asset then writes cells, call options that on that same asset to generate income steam out towards you bought a stock. Now you can sell out of the money or under strike call option. If you're holding 100 chairs, then the proportion is 100. It's one call option which is transact, so transacted exactly to 100 call options. So it goes one by one. This is, this is your performance. Performance. This is how you should generate it, to whom this might fit well, this is a very solid strategy. Excuse me. The solid goes well for the solid investor who wants to lower his risks and get a steady income, even though the profit may have been higher if no coal are written. In other words, this example we are, I'm basically giving up a future maybe speculative income with the rising of the underlying. And in our case, let's say it's going to be a stock and the stock skyrockets, you won't be able to benefit from it. On the other hand, you will benefit a small, sometimes in a small proportion of two or 3% every month. If the other line does not go crazy up or down. How much can you earn from this tragedy? Well, it depends. Only on the given premium. The premium received can help offset they dung downward movement in the stock price in Assam of 23 percent usually per minds, give or take. Don't catch me exactly on this word, but this is the approximate amount that you're going to get every month if the underlying does not go crazy. What are the risks? Well, and this is a big, big, big warning here. Your entire profits rely on the underlying price. That means that he's just stock is plunging down, really diving. You're going to lose. When you're going to lose significantly. And these 23 percent you're gonna get are not going to help you at all. And we're going to see this example shortly. So now good big movement down downwards in the underlying asset that will cause an immediate loss and probably also raising all the further or the amount of if you made any profits from previous trades. So this might raise everything you've paid in the past month and you're busted. Well, if the stock rises well above the strike price, then the seller does not enjoy the full appreciation. That means you also screwed, excuse me for my French, but it's not going to work. Even if it's skyrockets, your mirror doomed because you're going to get those two or 3% every month, which is not bad. Because if the market stays calm, that's a good strategy. And then we're going to see now. So let's give an example. We have the underlying stock price at 100, and we see that in the market called 100 and sold for $5. Okay? So we're going to build as traditionally, three scenarios. And we'll see what happens if the market goes down, stays in place or rises up. So here in this diagram and the graph, you can see that our stock is the light blue line and it's equal to 100 deltas. That means that. And also we are assuming that the multiplier is 1. Then we can see that if the stock is rising from 100200110, then we're going to generate a $10 profit. And otherwise there's no stock goes down and we're going to lose $10 goes to 90. And this is delta 100. Then means you go one-by-one with the market. And that's it. That's regular solid stock buying. Now, the red line here is going to be our salt coal 100 plus the stock value. So now let's see if we had a very bad month. And our stock. After 30 days or at expiry date went down to 80. Then we're going to see our of course, first of all, we sold the call option to call 100 and then we got $5. Now you can see that the stock is worth. Now minus 20. We lost $20. If you're wanting to NADH. We bought in the online and we lost $20. But since the cold 100 has expired worthless, we earned the entire $5 that we initiated when we sold it. And that's why our net profit and loss winks only minus 15, which is better than minus 20 if we haven't sold this call option. So as you see, we could have lost 20 plus 15. It's better than 20. Can't say it's amazing. We haven't hedged ourself pretty much. And you're busted here a little bit because it's going to probably go and take time to this talk to rise back again to the 100 levels day it was here previously. Now, if it goes down to 90, then nearest talk lost $10 over the value. Sadly, but true. But again, colon 100 expired worthless and you got a whole premium through your accounts. So reduce your losses to minus five instead of minus 10. Is it considering the priority? Now what happens if it's expounded 95 smart students I have, you know, it's going to break-even at 0 because we lost $5 on the stock and again $5 from the option. Then we're on 095 is our break-even point. Well, then what happens is one hundred one hundred is a good point. I mean, stock hasn't moved at all. Maybe it moves, but it came back to 101 of the moms in the expiry. Well, just talk words. Not then we haven't lost or gained anything but coal 100 hasn't paid nothing. It also expired worthless. I don't get the whole $5 for us. So now this is an interesting point in 100, instead of counting and our money and seeing that there is no money or we haven't generated in profit. And the end of the month with this tragedy, we're going to count $5. And wow, that's 5% that we've made in a month. In a month where the stock hasn't moved at all. That happen? Well, because we sold one option and that's good because now we're bringing him even the market hasn't moved. Or even, you know, even better case if the marketing and wind down just a little bit, Let's say expired or 98, you still made $3 because the stock lost 22 dollars, but the option gave you $5. Are you still between those two lines, between those two parameters between 95 and 100, 100, there's still going to make some profit. So that means you're in, it gives you an additional 5% downwards and still making money. Every month. By the way, stock hasn't really shaped or moved too much. What happens is the 110. Now we can see or entering some problems because there's 110 are stock gained us $10, we made a good profit. But since we sold coal 100 for just $5 and in expiry, this stock option was should pay needs to pay $10 and we only received $5 for a premium, then that means that reduced our profit. And as you can see, we gained only $5 instead of $10 that we could have initiated initial having sold this call option. And it goes worse if it expired even higher, let's say 120, our stock, There's gain $20. That means that I was a 120 now, but you won't see now almost nothing of it because call 100 is now worth of expiring needs to pay minus $20 and he only received $5. That means that it initiates, you name a minus 15 dollar profit. And since the stock gain 20, so your, again, your whole total piano brush, a P&L is only $5 and so on and so on forever. If the stock will skyrocket, reach it to 200, you're only going to generate $5 all the time. This is why this tragedies so solid, because gives you a little room for the non-words side. But if the stock is gone, skyrocket, and I'm going to generate anything more than $5 on this example. Okay? So generally speaking, is selling a covered Cold War thread. Well, as you can see, selling covered calls for income offers both advantages and disadvantages to outright stock ownership. They can be a great tool to generate additional income from an equity portfolio. However, using on their simple COVID called strategy can get you into trouble due to its limited upside potential and limited downside protection. Well, that's it. That's basically this tragedy. Strike price is here. Then you might generate a little bit more profit potential is limited. You get a better breakeven point and you're still going to lose now I'm just going to go down. You're going to lose a lot of money. And we never like losing money. Now let's see how we worked on rail. So we're going to see in our group and example on the Facebook share. Facebook. Facebook mean. Now it's better. We can see that Facebook has been traded now at around 331. Okay? So let's say we have bought it for 331. So we bought we bought Facebook or 33 one. Give me give me a discount. Let's make it 33. Oh, okay. Because we want this round numbers. So it'll be easier for us to understand and see. Okay, so this is how the Shay's book stock looks like on a graph. As you can see, we have a delta of 100. And if Facebook will rise to 340, we're going to initiate one hundred, ten hundred dollars. If it reaches 340, fissure is just three-fifths. The $2 thousand, on the other hand, if it goes down, it goes down in the same proportion. 320, we're going to lose $20 and so on, so on. So this is our, this is how our stock looks like. Now, let's see if we're going to build and add a covered call this and let's say we're not sure if Facebook is going to rise anymore, but we don't see going downwards two months then. Covered coal is a great, a great strategy for you. I can really strongly recommend doing it. And if you're going to see now the sane option for Facebook for 30 days expiry. You're going to see that traded here and then around 25 percent implied volatility. And for col, 3, 3, 0, we're going to get 10, 10 something dollars. So let's see and analyze how it's gonna look like when we're going to sell one call option. And let's say we sold it for $10 or K. Spelling it some round numbers. Say that I'm always circling upwards and gaining some more profit. Okay, So now what's going to happen is that we're going to see This is our strategy. So it looks die backwards a little bit in time and C, always going to look like. So we're saying we bought Facebook 13330 million. We paid for that a pretty pretty much. I mean, it's cost us 33 thousand dollars. Yeah, we bought 100 shares and we got only $10, which is $100 premium. We got it in advance and that's it. So now you can see that we already, if 30 days from now, Facebook is going to stay here at 330. 330, we're going to generate one hundred, ten hundred dollars. Even though Facebook hasn't moved at all. And that's not bad. On the other hand, if it goes up, still wanted $1000 solid. Again. And let's see, without these, without the call covered, you can see the regular initiate at 340, 100 thousand. But now look at the downside where they can see we've got $1000 then that gives us a break-even point at 320. And this is our entire premium. We got received and that's not bad. Now, key factors when you're doing this strategy. First of all, when you're writing down this option, make sure you won't make it to the exercise date. No way for the expiry day, then you're going to exercise my hope that you won't be exercised during the lifetime of this written call option. And that's a no one has exercised you before prior to the time of the expiry, So then you don't have to buy back the stock. They the option that we've sold, let's say. We had a pretty good month and Facebook shares have been a reason too much and we were able to buy it back at, let's say $1. That means that we sold and then we bought the option, then our obligations are over. We don't owe anything to no one and we can say that we kept locked $900 of profit. Now, look what will happen exactly at the moment. Then we closed and sealed this written call option. We generated $900 of profit. Now look how breakeven in the beginning was at 330. Now it went to 321. As you see. That means that it looks like we have bought Facebook for 321 and not for 330. That's not bad. I think. I mean, look at this. You gain two hundred, nine hundred dollars and it's yours until it falls only backwards to 321. 321. Now, let's say we were lucky and that's a we manage do that again. Next month we were we were able to generate again $900 from selling and buying the same option and sand strategy. And look, now what happened is our, we move on 321, 321 to 311. They would say even better. Still we are open to the downside losses, but regain a higher. You see we gain a higher movement downwards, still do new break-even point. Now as a further, we're going to do that. The more profit and we're going to generate more money every month. If we are able to do that and earn $900, this will always reduce and reduce the price. The initial price of $300 now, $333 thousand that we spend my the underlying. Now, just keep in mind that you're buying it for 330 and you only getting $10 back. That means that it's less than 3%. Maybe it's closer to 2.5%. And you still need to make a lot more tradings until you will be able finally, to, again, the whole price of downer line with those profits so that it will be always profitable. You see that means that nature and getting 2% or 3% for the money, that means that you're going to need at least somewhere between 30 to 50. Successful trading and gaining these profits. And we're, if we're talking about 30, 40 trading and in one month resolution, then that means that you're going to need like three years from now to gain back their whole underline. Initial initial costs for you off this Facebook stock. Okay, So kitchen Mine's gonna take it at least three years to generate it. Now, I haven't spoke about the downside risks that still Facebook him. I go down and are satisfied. Here is when Facebook skies rocket. And that's a, we're going to go back to our initial Example, will see that if we're selling 100 and for y, and I say Facebook is skyrocket. Again, remarriage 400, you're still going to make the same amount of one hundred, ten hundred dollars. And that's Boehner because if something really good happens to Facebook, you won't be able to participate in the party. They all going to make money and you're going to make this little money. So it all depends on your own if you like it or not taking too many risks. I can strongly recommend to your taking this is a good strategy. But keep in mind, stocks tend to fluctuate a lot. They can, they are very volatile way, way more than the real estate. And even big stocks like Facebook, Google, Amazon, they all have also the trend of life and they also sometimes tend to fall sharply and rise sharply. And there is no really solid stock DAC and recommend you doing this strategy. And keep in mind that she only getting 23 percent extra. It's nice, but sometimes it might or might not have none. I help you at all. And you're going to spend maybe a year or so just try and to receive backyard your profit and gangs that you could have made. But the stock fell show so sharply than you're going to spend the whole year just trying to make this money back. And keep in mind that also saying Facebook, well it's irregular. Dawn the most versatile stocks that thing, zoom has a greater implied volatility. Seed goes, Oh, let's go more extreme. Let's take twister, my favorite because I always see that they have serious implied volatility inside them. We can see. So you see, you can try to do it on a more volatile stock. Keep in mind that low volatility comes with a price if you're going to initiate this and, and this kind of stock which is virtual town and conceal. So hearing the charts again, you see the stock has reached over 200 and plunge below 100. That means the loss here, 50%. I don't think you're going to, even if you're going to sell cover calls. After you initiate that this level or this level. It's gonna take you a lot of time to recover your profits or getting back all your losses. So be careful when you're doing this strategy. Basically. Yeah. I didn't recommend it. It's not a bad, But thank you. Thanks. You're thinking about your risks. And may all of you have good luck? I wish you all good luck and I hope to see you in our next lesson. I hope you enjoyed it. I hope you understood it. I can, I will give more information and more tips and tricks to use the strategy in our next lessons. And I hope to see you again. May all have good luck and goodbye for now. 9. Long and short Butterfly basics in options: Hello everybody and welcome to our class. Today we're going to talk about butterflies, but yeah, really butterflies. How can you do better butterfly strategies with options? We're going to see how this very popular and very exciting, I must say, strategy. That can gain us sometimes a very nice but small profit with a very limited risk. On the other hand, we can see that we can gamble. May I say gamble? But we can like say, let's have a hinge for a one-point in the market, and then we're saying that it could stay there and the market will remain this point and we can make a very nice profit. We were very limited, lost potential. So let's see how it all works. Butterflies, right? Butterfly is a great one for the risk haters referred going on the short butterfly. The, we can see that our basic assumption of the market is that we don't know where the market is going to go and don't feel bad about it if you don't know where to mark it goes because a lot of people don't know where to market might go. But you're pretty certain dead Margaret will not stay in this place for a very long time. And actually, it's always moves, goes up, goes down. But you're not certain and you don't know, but for sure want to make a small profit. And they k, Let's say minor risk. So a butterfly spread is an option strategy combining bull and bear spreads with a fixed risk at capped profit. These spreads involving either for calls or puts or a combination of both. They are intended as a market neutral strategy and pay off the most of it if the underlying moves prior to option exploration. Now, remember this key numbers one to one. We're going to talk about them really shortly. The short butterfly spread is greater by selling one in the money call option we the lower strike price, buying two at the money call options and selling and out of the money cold option and higher strike price. A net credit is graded when entering disposition. Alright? The next maximum profit is equal to the initial premium received. Thus, the price of commissions and commissions, it's a problem for those who pay commission for training. And we're gonna talk and see how they are can be harmful for us. The maximum loss is a strike price of the bot called minus the lower strike price. That's the premiums received. Other words, that's an example. All right, so our basic assumption is that we don't know where it's going and we pretty much don't care, but we just wanted to move and it makes them money. So remember that creating a butterfly strategy, you can do it either by calls or by puts. So we'll give one example with calls, one example which puts. So for this example we don't know again, we're in a migrants might go but just we hope you won't. It is current position. And so, excuse me again, for this example, we're going to see that the strike price now, the market is what? The underlying is, 100. And we're going to sell one called 90, where you're going to buy two calls, 100, and we're going to sell one call of a 110 call option. So wherever if you're gonna do this tragedy, we're going to see this kind of butterfly graph. As you can see. There is a, generally speaking, of course, there is a very bad point in the market that if it stays here, the current position at 100 and we're going to suffer a loss. But on the other hand, that's pretty much enough if the market moves, as we'll see in the examples, even one or 2%, up or down, we're going to initiate a profit. Now how much profit we can make and how much money we can lose. It very varies. And it's very different. And it depends solely on the boot options that you gotta pay or receive from premiums that you're gonna get and By, so therefore I'm not giving you numbers, but this kind of creation of the butterfly could be a very good butterfly. You shouldn't can get the right numbers. Or other words, the right money. You pay less and get more money. And we're going to see how it works. All right, so this is the short butterfly. Now remember that an option I can every trading we can always see that varies the opposite, the other side. And in this case, we're talking about long butterflies, which is looks exactly but apps. That means that the other strategy that can go short butterfly, excuse me, we go long butterfly. That means that we are pretty certain that the market is not going to go anywhere. And we're pretty sure it's going to stay here at this current level. And we can create this butterfly by this exemple, we can buy wine, put 90, cell to put 100, and buy one, put 110. And we're going to get this kind of butterflies. And the strategy has been to look like this. The market doesn't go anywhere. We're going to get a significant profit. We're going to be to to, to break even points that we cannot go below or higher than those two. But if it does exceed the break-even points, we're going to suffer a minor loss, which is okay with us because, you know, to her risk, but we didn't lose too much money. And for sure we're not going to lose it out of money. So maybe you should or gambler, or you want to be someone who, I don't know whether certain richer yourself or predict the future. And you're going to say, well, this boring. So I think the mark is going to end for at least for a few days till these options expire. So I'm gonna take my bats, take my risks, and build this kind of strategy. Okay, So now that's good. Now we're going to see how it works in real. Well. I mean, I just show you the exam, the two examples of those two different strategies and butterfly. And now we're going to see how he works in reality over real prices. And there is a key factor here about pricing that is really crucial and very, very important for us to understand. So our underlying today, we're going to see the examples on the QQQ. Anybody knows there's one on the Nasdaq. And as you can see here, we have the option chain. And it goes pretty well every missing, every 234 days, you have different explorations. And let's see the short exploration. And that's going to happen. I'm going to close it. And it's going to happen two days from now. And the strike the strike now is that 33, 3.9, let's say 33, 3. Then we can see this option chain here. And these are the prices between the calls and puts. So let's see. First thing we need to do, That's a. We're going to guess that the QQQ is not going to stay here for the next two days at this level at 333. And what we're trying to do is we're going to run out By the butterfly and see how it goes. So as, as I showed you before that we need to go one price below the strike price, that means call. Now also see before you're starting, see the differences between the implied volatilities between the calls and puts and calls. It's 8.10.88 and under put side it's 10.68, pretty low, pretty low implied volatility. So let's see. We need to first cell the 33 to call. And I can see that there is a the trends and the prices are ranging between 2.402.5. Let's say, you see the last one was it to 250, but this is crucial here. So let's see. First thing we need to do is to sell one single. And let's say we're going to get 240, okay? 245. And we need to buy two calls on 333. Bc. We're building in here, and it's going to cost us somewhere around 175. If we're going to get this price is for real. And we're going to sell one out of the money call option, which is 33 for and we're hoping to get at least 1.2 for this, okay? Again, these are assumptions. We might have those prices, we might have not. But let's see how the risk profile looks like. As you see. Now. This is our strategy. If we're going to get, and again, I'm saying it over and over again. If we're going to get those exact prices, 245, call 33 too, 175, they're going to buy 2333 and we're going to sell one I 33 Ford call option for 120. We're gonna get this kind of butterfly. Our max profit is going to be $15. Our max loss is going to be around 60. And if it goes well above 334, we're going to iron also $15. Whatever happens with the market, goes up or down, we're going to make some $15. As you can see, this strategy requires a margin request of $100. It's not bad. And this, this is the basic strategy. What are sure like it then it can do it. As long as you can see here we have a 3.993. It's going to be our breakeven point. And here also at 3.831 is going to be our second break-even point. And if it goes over to this side of this type, we're going to make some profit. But look at this crucial element here. That means we're playing. The maximum for us is $15. That means that this is our total, all total net profit if you're gonna make it now. Thank in mind that there's some serious issues here. If you are paying for commission fees because some broker companies you need to pay for those transactions and transaction as far as I know, kinda reach up to two maybe even $3 as commission fees. These on each option that you're buying or selling. We only have 15 dollar margin to play with commissions. That means they, if, if you're going to give us $2 for executions in options, and we're dealing here with four kind of options. That means that we're going to spend A1 more dollars from our net profit. That means our max profit will be $7. And here you need to also add those a dollar tomorrow, maximum loss and she couldn't reach above $70. So keep in mind that this margin is pretty tight and you don't have too many options to play here. If you're not paying so much commission trees, then that could be an ad bad strategy and I sometimes strongly advise you to do it. It's pretty safe. You also know exactly how much money you're going to lose and how much money you can make and see that there's a spread here is really small. That means that less than a quarter, something like quarter 1 third of a percent from referred to Margaret and move here or here and you're in the money boom, that's not bad. Not bad at all. But keep in mind that you have to get here some kind of revenue, excuse me, when you're selling those two calls. And you gotta have more than you're in buying cars. If you're going to sell it for even more, $1 more than means that you're going to make here on this another dollar. And if you're going to make it to 250, let's say you're going to sell this called 332 for 250. That means we're gonna get $5 more. And also look here, our maximum losing point would be slightly less than 60. 60, maybe move of more than 60. But every dollar they were making money, we can make more than this. Just going to help us. As you see here, I'm adding some more profits for selling. And of course, on the other side, if we, if we managed to get this buying, does to call options that we need to buy in a cheaper price. It does the same effect. Since they needed to sell these high and low as you can. Now I know what you're thinking is Megan was saying, yeah, let's let's take a risk. Sure. Why not? I think that the market now is pretty high. So I'm not going to perform all those four options at the same time. I'm just going to perform right now the cell options. And I'm going to wait 10 minutes, hour to hour, come back tomorrow maybe. And for sure, I'm going to buy those cold to call options. I need a way much way to price. I'm saying to you, what are you doing? If you're thinking doing that, then you're a pure gambles. That's a gamble when you gamble you my way and you might lose. And my advice to you is to gave those perfect numbers and execute them at the same time. Just make sure you are on a revenue position. Otherwise, if you're going to gamble and finger, you're going to get a better price is later on year for sure. Sooner or later you're going to lose money. And that's my strong advice for you when you're doing it. Now. After I've said that, let's see another example. When the opposite, I'm pretty sure that the market is going to stay stable and nothing's going to happen. And with certain and the Margaret is going to expire. It's 333. So we can do the opposite. And we can buy 33. 33. We can sell 33 for when it's so two of those. And we need to I add 335. Let me see. I haven't done I've got 33, 34, and 35. And wallah, we've got this kind of butterflies tragedy. There is no margin request here because we bought two calls and result two option. Well, we bought one outside and inside the money. In the money. And if it's going to expire and around 33, 3, then we're going to make a whole bunch of dollars, almost $60 profit than if it's not. I'm going to go there. And then we're going to lose maximum of twenty-three dollars. That's a different kind of perspective. If you think that the exploration is going to be an exact point. I've had works, works well, you made 60 bucks or nothing. Our margin requests. Another thing. Another option that we can do is we can try and make something lighter. We can go deeper. Let's say we go back again on this long butterfly and we're going to do it on 330, excuse me, 335 and 340. That's a, that's how a wider butterfly. Again, we're going to sell one single here and now, and the price is pretty critical here. We see spread here is between 3.24. Let say it's going to be 4.1. Okay. And where ago now by 2, 3, three, fives. And he's going to cost us, let's say around 0.78. And we're going to sell out of the money, 340, just a single one. Now I'm going to get for this 0.6. Let's see how this of course, for me to buy two of those. That's why it's not a bug that gives me again. Now we've done this butterfly with a wider range from 333, 40. And as you can see, now, our max profit, it's going to be $260. My knee sides bug. We've got a greater break-even points by reminding you that we have only two days to exploration. And when name the market to go well above three, 37 now and 33, 2.5. Otherwise, between those two gaps, we're going to lose money and lose a little bit more than $200. Now because we have this wider butterfly, Winnie, the larger margin request now. And that goes by $500. But we haven't graded chances for making more money. If you're pretty sure that Margaret is not going to stay between those two points. Now again, this is this is a considered a maybe plan not bed will also position and either we're seriously thing that you can get those numbers. So then you can do it. You take $250 and that's not bad for 500 and margin request. And let's see different example, even wider and greater muscle on the center square exploration. Now let's say we're going to go 320. We're gonna sell one. And this time we're going to get, let's say 13.813. And we're going to do it on 340. So but it's a bit wider to to wider. And so I'd say we're going to go in 330. We're going to buy two. And it's going to cost us $4.15. And we're going to buy, and then we're going to sell 344.60. Even greater and you're going wider. Now look at this first thing Mao or marginal question would be $1000. But on the other hand, are jar or you can make even greater revenue and profit if it goes below 325 and 3, 3, 4. From here. You can see this is not a bad and this might not be as bad as it loads. But again, look at the belly size now, a reach 400. And that means that you're in a risk of losing $400. Michelle wrongs are taking these chances. Or making $500. Again. Whatever happens to the market when it goes up or goes down. Here, for sure are going to make this profit. Exploration. You're pretty much 0 because you're going to need to give to a 100 and option $200 line, stocks, 80 epsilon this Brian, this example. And but you're going to get also to ETFs all and all tall, you're going to be 0. But again, make sure that your burger, He's not taking too many commission fees for those traits. And you might do pretty well. Again, as long as this stays here between those two break-even points, otherwise, for sure you're going to lose. Now, I don't know I don't know what to say. I don't know which one. It goes individually, whether you're a risk-taker or not. And that's not a bad unusual, it's not a bad strategy. And when a market is Volta, he always comes to work. So you can make profit. Now, all depends. If you want a shorter range between those two break-even points, then make sure that you're getting as much money as you, as you can get. And if you want to go wider, you can make more money. But mind that you're going to need to expand more requests and you're going to suffer my tougher, a greater loss. So that's it for now. See why it's a short example of the basics of butterfly strategy. I hope you enjoyed it, I hope you understood it, and I hope to see you in our next class. So may all of you have good luck and see you in our next lesson. We'll get by. 10. Spread legs strategy using options bears vs bulls: Hello everybody and welcome to our class. Today we're going to talk about spread options, bulls versus the Bears. We're going to talk about a very popular and highly recommended strategy and also a very common strategy that can help you not lose a lot of money. And if you're making money, then it's going to be not bad, but we'll see how it works. Okay? So spread options basically is, again, very common strategy. It comes to hedge one side written option by buying and out of the money option. And the same quantity. That means that whenever we're considering selling Naked option, we should always consider making it a spread and spread strategy. That means that my Sometimes thing that we are, I'm pretty certain about one direction of the market and we think that this is going to go this way. And we're selling the right option for this way. But sometimes the market can be evil to us and Solver give us some serious suffering and we might lose money. We don't want to enter this. Because if you remember the first class that we've spoken about, writing options on aged. And then that basically meant that if the market goes against us, we might lose and endless amount of money because we're not protected. We don't have anything, we don't have anything to behead and that thing can come and help us. And that might be very, very dangerous and very smart strategy. And this is why the spread options strategy comes to help. So there are basically two kinds of spread options, spread strategies. The first one is the bear and the other one is the bowl. So we're going to talk about a bear and the bear spread strategies and not a form of vertical spread. In this tragedy, investors soon tenuously simultaneously, sorry, purchases options at a specific strike price and also sells the same number of ports at a lower strike price. Both options are purchased for the same underlying asset and have the same expiration date. This tragedy is used when the trader has a bearish sentiment about the underlying asset and expects the asset price to the client. The strategy offers both limited losses and limited gains. So it's having an example for a bear put spread. Well, so in this example we're considering that the underline right now is at 105. And what we need to do is since we are thinking that a Margaret is going to go down. But the put 110 cost us $10. And this might sometimes be considered as a expensive option. And we want to reduce the amount of cost. And that's why we're selling a put 100 and bring us a $5 profit. Now I know that I gave you the example about selling out in dip into money as tragedy. And we're going to see that. But think in mind that this strategy can be composed in both ways. And we're going to show both examples pretty shortly. But one way to do this strategy is buying the put, which is deep in the money, and selling one put out of the money so that it will reduce our costs. And let's see if, excuse me. So this goes for 30 days and multiplier is one as usual. And we were talking about exploration day. And since the market wasn't 15 and the expiration came in 80 Pell to it felt pretty badly. And so here we can see now our securities and this graph that we spend, we're going to spend $5 constantly domains that are bought, the put and 110 for ten, What do we got? Five. So all in all, we always, you're going to spend money and it's been done a cost us $5 anyway. So if the expression was at 80, put 110, wars $30. But putting one hundred and one hundred is going to cost us 20. That that's because he entered the money. And it's worse for us minus 20. So all in all the P&L. Profit and loss, net value of our US is going to be 30 from the put 110 weeks. Well, God, and the exploration. Now when we have to deduce 20, because putting 100 is worse minus 24 us. And remember, at all and all, we also spent $5 for buying those two options. So that gives us a net profit of $5. Expression in IT pretty much the same. Put 110 is worth 20 and put 100 wars against us minus 10. Then the P&L calculation is 20 minus 10 minus 5 equals 5. That means when we made $5 profit, what happens at a 100? Pretty much the same. But when our intent is worth $10. But put 100 is 0. So that's why we're still staying a five-dollar of solid profit. Not bad. What happens if the Margaret Rose a little bit? And now here comes the tricky part. Now, a went up by state, excuse me, stay, there's 105. And that means that put 110 is going to be worth only $5. Remember that we bought it for ten, but put 100 is out of the money now. And he's brought his, excuse me, pretty much worthless. That means that he is 0. So all in all we got $5 from the put 110. But we still have to still spent $5 in total for those two up put options. So that, that that's why it brings us at 105, our break-even point. This point here then means I were breakeven. Democracy rises and goes seriously against us. And I'd say it's expired, it's 120. So we lost, we lost the put 110 and put 100. Both are 0 and they don't pay us any damage on the market seriously and wind against us and we lost $5. And this loss will remain $5. That means that if we hadn't sold the put 100, that means that we have lost $10 and not five and add 50 percent. The difference between those two and that may be pretty significant for many traders. If some is good strategy because if you're not pretty certain that the market is going to go down. And this kind of strategy then when you don't want to spend all chunk of money that this option costs, then it's a good strategy because it reduced and reduce our losses. And that's the difference between losing 10.5. That's a big difference. Okay? So this is strategy for if you're thinking the market is gonna go down. Now, let's say the bulls, bulls strategy, exactly the same, but it refers to a 40 upside in a bull's calls. Calls spread strategy. The investor simultaneously, we need to buy calls at a specific strike price. Well, so selling the same number of calls at a highest strike price, most call options will have the same expression day and underlying asset. This type of vertical spread strategy is often used when an investor is bullish on the underlying asset and expect moderate rise in the price of the acid. Using the strategy, the investor is able to limit their upside on the trade well, so reducing the net premium spent comparing it, of course, to buying a naked call a pin out, right? Again, the same, same strategy, but this time some examples. So this time we're going to buy the coal 100. The strike, strike price is 105, and we're going to sell call 110. We're going to receive $5 from summing out of the money call 110. And we're going to buy the cold 100, which is in the money. And we're going to spend $10 for it. And I remember always there is some kind of extra premium that we're have to pay for options that are still alive. That means it is still hot days to expires or it's pretty coming in, you're going to pay extra premium for that. And so in this strategy, again, we're spending $10 but receiving $5 back. So we're, we're. All in, all, in total of minus $5. Well, on this strategy. And now let's see if the stock expires at 80 on this same example, remember that we are bullish on the market. That means i, we're thinking Margaret is going to rise. And unfortunately it fell and fell all the way to 80. So in this way, we're pretty much screwed because call 110 war is worthless and also call 100 is worthless. So since we got $5 from the call 110, and still we have spent $10 for the coal 100. All in all it gives us a net loss of $5. And also same happens at 90, strike and 100. And strike. That means that we're going to lose all our initial strategy building and that's $5. So as you can see in the graph at 105 strike price, every day, if it expires in 105, then co-owner and 10, It's going to be worth this, but we're going to get $5 from the coal 180 wars $5. This expiry. So 5 minus 5 equals 0. So at 105, this is our break-even point. And every single point above 105, we're going to make $5. We're gonna make a few more in dollars. We're going to make I want 061.172 still reads the experience, the expression at 10 and 110. And that means that again, coal 110 is going to be worse this because they're expired exactly on the spot, but coal 100 is going to be worth $10 exactly. And remember that we spent five more dollars, that it means that we're staying stable as $5 profit, net profit, and so on and so on. If it expires in 120 and we're going to make $5 and it's not expired 200, we're still going to make $200.5 dollars. Excuse me. So this is the example of the bulls and the bears. So why is it says Such a good strategy? I want to show you now on the trading platform. And here we can see the example on the QQQ. And as you can see, it's been traded today around 33, 3, that's their market. Qqq goes on the Nasdaq. And we're looking here at the option chain. And we're looking at this quarterly exploration chain, which has right now 29 days to exploration. And we can see that the implied volatility on this asset isn't so high. And where thinking that the market is gone is going to rise, but not too much. So we're going to see that we're going to make the spread. We're going to see that cold three, 330 is around $9 and 40. So that's why we're going to buy it. And we don't think that the market needs gonna go to rise above 340. And I'd say we got $3 and 40 cents. So that means that there's a gap here are five of $600. And let's see our risk profile and this kind of strategy. So we're saying here that we bought the call 330, cause us 940. And if we were to buy it an aged, remember that it's pretty expensive for 29 days, that's a total of $940. You're buying it naked eye and if the market doesn't go up well, doesn't it? There's not rising at all. Then we're going to lose this hall money, this whole $920, almost one hundred, ten hundred dollars. That can be severe. But on the other hand, we don't we don't think that Mark is going to rise too much above 340. We're going to think it's going to stay here were 23, 35, and 340. So that's why we're going to sell out of the money. Call 340. And we're going to receive $340. Now what happened? We deduced $340 from our initial may be lost. And the maximum are going to lose now is just 600. On the other hand, wants to market it reaches 340, are going to make a solid 400 dollar profit, net profit. Keep in mind that this kind of strategy does not require any margin or quests. And the total effect is pretty small. Now. Maybe the odds against this, but it's pretty small. So this is a, as you can see, when if it rises, still going to get $400. If not, then we're going to just lose $600. Again. Without it. We would have made a little bit more. But we're not. Third one, I don't think that the market is going to make 315. If you think. And then the market is not going to make it to 350 and 29 days. Then you can see here that you have a potential profit of $100 approx. And but you don't want, the pig is too much, then you can take $400 here at 340. Now, keep in mind that if the market does expire, 340 and you haven't sold the call 340, then you would have made almost nothing because maybe $40, something like that. That's because now you're gonna get 340 and that's better if it expires right here at this point. So if it expires here, it's better for you anyways, is going to be better for you. Now when you're hedging yourself this way and you're going to get $340 less loss. And that's a good thing. Okay, So this is how it works. Now, I want to show you this is if you go bullish. Now, another way to make this kind of strategy. Strategy is to thinking, you're going, I'm going along, then you can do it with the okay. So let's see how it works on the audible way. Just a minute. Okay, so now let's see the rod, the vice versa strategy for this type of calendar. And we're going to see in this example, we're going to see now how it goes if we're going to try to vertical strategy for this. And it goes pretty much the same on the same option chain and the same options, Siri, we're going to sell one, put 333, which is in the money. And simultaneously we're going to buy the put 33 2, which is currently out of the money. We're going to get a credit of $0.3939. And let's see how it looks. And keep in mind, my request was not then just $100 and that's the gap between those two options. And this is our risk profile gonna look like today. We are at 33 3 and we're bullish on the market and we're thinking that it's going to arise. So that's why we are just for dx. Thinking he's going to rise up and were approved certain that the market is going to make a significant run on the upside. But soon density, we're not too sure and we don't want to lose a lot of money. So that's why we're not solving it naked and we're buying instantly and 33 to put option. And that gives us a credit. There's always gonna be a credit between those two. Because we're selling the hiring, buying the cheaper out of the money, and we're getting credit. So the credit rugged here, 39 dollars, as you can see here from this point on, going upwards, from 333, we're going to make a solid thirty-nine dollar profit. But if it falls down, then we're going to maximum lose $60. Now, you can play with it. Now. I mean, you, you don't have to hide yourself so closely and you can say, Okay, I want to earn a little bit of more money. I don't care, so I'm going to lose a little bit more. So I don't have to add it on 332. I can have this done and that's a 3, 3, 0. This way I'm going to get higher credit. 1.11, that's $1111. And in this case I'm going to make $1111 or I can live with a smaller, bigger loss will 175 one, almost a $180. So it's either almost a $180 loss or a $111 profit. That's nice, That's not bad. You can also play with it, can even bring it. Bring those grader you can sell even higher in the money puts like say you can sell the 340 and you're going to get even a greater credit. But on the other hand, now you're going to lose much more money. Much more margin request now, but you can earn almost $500, that's $456. On the other hand, the maximum you're going to lose is merely the same. That's far longer than $7,540. So the more interesting, you'll need a greater margin request. But again, this is the game. This is how you can play with those strategies. This example was on the put's. Let's see how we can do that on the same way on the calls. And remember that I told you that we always should keep in mind that selling at higher implied volatility and buying a shorter implied volatility. And by the way, you can always look at it when you go here and charts. And you're going to have product better. And you can see all the strikes that are coming in this series. And in our example, we were looking at the June 30. And you can see the calls and puts and it can update. Excuse me. So you can see that there is some kind of fluctuation here. And the calls, and then Plato didn't call that it's 33 is greater and falls. Q of the implied volatility falls until it reaches almost 350 something-something, 355, nearly. That mean that here out of the money calls, they have a lower implied volatility. And that means that it's better for you to sell in the money or calls and buy out of the money calls. That's good, but then that's better when you have this kind of cue. That looks like a smile skew. We're going to talk greatly and a lot more in our angle. In the other course is done when I'll show you later on. And we're going to talk greatly and more and much more deeply about this view and how it's going to be much more efficient for us to play with them and how we calculate them and see how we can make much more profit or fishy, fishy and strategies. So let's see just the example. Let's say we are going and we're going to sell the strike here. We're going to sell its angle. We're going to get seven. That's a $750 for lists. And we're selling it naked. Just for example, our risk profiles gonna look like that. $750, if it falls below three is 33. But if it goes higher than 33, 40, then we're gonna get busted and we're going to start losing money. So then are you going to have to buy out of the money options? And they say we're going to buy the 340. We've got to pay for, let's say $4, okay, It's even greater. And then we're going to hedge ourselves. And this is how it looks and see break-even point pretty close, but we're pretty certain when we're working, we're doing this kind of strategy, the vertical strategy. Then we can see that where we're cutting our losses, potential losses, and we might lose only $350. On the other hand, that we can earn $350. So it's kind of a gamble strategy. I always seriously recommend you hedging yourself always. And remember, there is a key sentence that says, every hedging is a blessing. That then means that always, when you had Jim, you spend money on hedging yourself and not bringing yourself to a naked, total naked position. It is always a good thing and it's always blessing for you because you don't know where demography might go. And it can go seriously against you and you might lose everything. Here. You lose a lot of money. And never be certain about the market or bodies direction where I am. I know. And if you want to gamble, go to Vegas, but if it's your money, I don't want to, you want to protect it. So always consider doing the spread strategy. It's always going to be beneficial for you. Keep in mind that also in this kind of strategy anyway, when you're selling options, you're not gonna make any more revenue. That means that you're going to make $750 or lose $7 thousand. Um, but on the other hand, you can earn just $350 and maximum loss, lose $350. I'm sure the second option is way better and my waist smarter for you to own to do? And remember, hedging is a blessing. So that's it for now, folks. I hope you enjoyed, hope you understood it, and I seriously hope to see you in our next lesson, my own view of them, good luck. And I'll see you in our next class. Good about. 11. Delta: Hello everybody and welcome to our class. Today we're going to talk about the Greeks. Everyone, if you know, this is hello in Greek. And today we're going to see what are some of these words mean in options. And we'll see how important they are for us when we are building strategies in options. And we want to look deep inside and see how our strategy is going. If it's pretty flat or maybe it's different, maybe it's difficult or maybe it's dangerous. And we'll see how they, those Greek letters can help us see and measure our positions. So let's start with the general definition. The Greeks are a measure designed to better understand how options price change when the underlying stock changes in value and or in time passes by. And you do remember that options decline in value through time. The Greeks are a vital tool in risk management. Each Greek measures the sensitivity of the value of a portfolio to a small change in a given underlying parameter. The Greeks in the black shield model are relatively easy to calculate a desirable property or financial models and are very useful for derivatives trader, especially those who seek to hedge their portfolios. I'd awards, it really helps you to see better wasn't going inside your option strategy. Okay? Now, remember that we talked that options have prices, but sometimes they vary because we don't always know how much an option costs. So that's why we have this theoretical model called black and Schulz model and helps us to understand a relatively how it works. One of the parameters inside this model, black and has this letter called Delta. C. Delta is a, the amount option will change in value if this dye goes up by $1, Exactly. If an option carries a delta of 70, let's say the stock goes up by $1, price of the option will arise by 0.7, that means $70 and the multiplier is 100. Okay? Now, owning an option has a delta of 70 means that you owe the equivalent of 70 shares of the company stock. That means you're not 100 Delta, only 78 percent delta. And then means that the OEM maybe 70 percent of the stock. So that means they've just stock will go by $1. The call option will rise only 0.7 and not one whole dollar policy. This example a little bit later. All options do not have the same delta value. Dip into money options have very high delta value, perhaps in the nineties and I go with the one hundreds. While way out of the money options have very low delta values and it go, would really go below 100, below 10. You can calculate the delta value of your composite option position by multiplying the delta value of your long position by the number of those options. And subscripting the delta value of your short options multiplied by the number of those options. The resulting figure you get a net value, tells you how much the value of your current option portfolio would change if darker lines, stock goes up by $1. It is perhaps the best measure of market risk at any given moment. Okay, enough with definitions. Let's go and see what it's all about. For real. We're going to see now. We're going to see now the Apple share, which is currently traded at around a $125. In this example, you can see the graph of the underlying asset, the stock, the Apple stock. And you can see that here we have what is called Delta. And the Delta is 100 dead means that it goes plus 100. If we buy the underlying food by the stock, then that means that every movement equals to $1 equals. To 100. So then as you can see that if the stock will rise from 125 to 135, we're going to generate a $1000 profit. Okay? So then that means that we have here when we buy an asset, we have a delta 100's. On the other hand, if we are selling into going short run this doc, then you can see that the delta has changed to minus 100. That means really going negative, we're going short and that means that we have a negative delta and the market goes down, then you're going to generate the profit because your delta is negative. So this is how delta 100 works. Now, let's see how it works in options. Here we have the option chain of Apple, which has a 29 day till expiry. And you can see here that right here in the middle, 125, this is our middle point. And you can see that the bid and the ask values that is running right now currently, again, the stock is at 125. And interesting thing I wanted to show you is that here the delta is more than 0.5, then that means that 0.5 and delta, that means that the stock is exactly at the strike price right now. That means that whenever the stock will rise up and we bought the call option, that means that this call option will entered the money. And that's why the market is starting. And that's why the delta is going to rise until we reach the level of one hundred. And one hundred delta means that it goes one by one by the market. It acts just like you but the whole stock. So now see those. The sea coal 90 or a 100 on Apple is pretty deep into money. So you can see that delta here is almost 0.9. Now through time. Now, this option will get a greater Delta. The Delta will rise because the other line has entered, is entering the money. See here, when we have almost one day to exploration, the deltas here is already 90, but 00, 00, 00. Options are pretty much inside the money, dipping the money. And that's why they built up way above 50, closer to 100, deeper you go, the higher the delta goes. Now on the other hand, if you're going upwards and looking at the out of the money options, call options. And you can see that the delta is declining. That means that if you're looking here at Apple stock at 140, the depth is 0.06. So out of the money. And even if, if, if the Apple stock will rise by $1, it's failed while making a big difference. They didn't have a significant way to go Up until the stock will reach the money or any other money. In the end, they only then when will delta will rise up out of the money? Very low delta. Let's see that on the graph, Let's say we bought the coal. 125 is me. And you can see here that you see here we have those price slices. Excuse me again. And you can see that at this point, at 125, which is the current stock price. And you can see that delta is nearly exactly 50. When the market will rise up to 150. Let's say the delta will be exactly 100. Otherwise, it should goes out of the money. The delta will decline. And that's it. That's all I need to know about. Delta. Market goes up. Delta goes up. If you've been to call option, it goes the same if you go short with to put. Let's see, Let's see the example. Let's say we're buying a put option, but let's by someone who was in the money, put, 135 foot is, if you can see here, the Delta is 100. So if you're going to buy one by just one, now, you're going to see our risk profile. That's it. And you can see that the delta is again minus almost 199.96. That's not bad, but energy can see. It stays there until it reaches out of the money and then the delta will be 0. It's exactly the same as which we've solved. The stock. You can see that also the delta will be minus 100. So this is basically how you calculate. Deltas should go long or short. The delta will show it to you. Now. Let's see something interesting. Let's say we bought the stock, okay, and we've added also purchase another call on strike and 2000 2005 and we patriot three hours and 30. So see now, the data has changed. You see, because we bought the stock and the call option on the same stock, on the strike, and then we got an additional 50 deltas to our calculation. And once the stock will rise hopefully and enter the money or really enter into, deep into, into the money. The delta will also rise until we're gonna make it to 200. And that means that your equivalent exactly as if you bought to opt in to underlying stock options. Stock options. So you have our delta from the staggering 100 delta from the option that you have bought. Now, keep in mind that if in the underlining will go down, then your Delta, eventually. Of course this if you bought this call 125 when it went out of the money, then your combined position holding the stock and the option will be reduced to 100. Okay? And that's it. This is how you calculate. Now let's say, let's make it more fun. And let's say that we have, but also the put option. That's really annoying. Okay, now, as you can see, we bought also one put option on so, but this one is really deep in the money as a 135. Then you can see that this whole combination now we don't hold exactly 100 delta anymore because when we bought the put option, remember, it gave us a minus delta and it really reduced this whole calculation of our entire portfolio. Now in this portfolio we're holding again what we bought one stock, we've got one call to 125 and we bought one independent money put in. All this combined together will bring us again to 50. If the market will rise up and you can see that we're going to have a delta of 90 and then eventually the length of 200. But if it falls to 100, you're gonna get a neutral. We're going to get a 0. That's because. Recap, quick, quick recap. Remember, when you're buying the stock, you have a delta of 100 and, but, and you buy a put, it gives you a protection. Then that means that you cannot lose long then this put hedging. That's why I reduced our Delta and our losses are also reduced significantly. Because if you're going to treat this position one or two maximum loads little bit less than $400. Without the buyer of the put, then you can see our delta. Then we would go down. So delta is really good for you to see where you're standing and how your portfolio will change when the underlying asset will move up or down $1. Okay? So let's move to the other one. 12. Gama: Hello everybody. And now we're going to talk about the gamma. What is gamma? Gamma is a very important instrument that we get here in the option world. It really helps us to see better how the delta is functioning, thing is, is functioning. And we're going to see that each measure of how much the delta changes with a dollar changing the price of the stock. Justice with the deltas. Well, Gottman's have different, four different options, right? Most long options have positive gamma and most short options have negative gamma. They dong options have a positive relationship with gamma because the price increases. So Gama and quizzes as well, causing that God to approach one from 0 if you're buying a long call option and 0 from minus 1. If you're buying a long put position, that inverse is true for short options as well. Gamma is greatest approximately at the money and diminishes. The further you go, the further out you go either in the money or out of the money. Okay, so first, you can see here in this diagram that we have three timeframes for our, let's say call option that we bought. And we can see that the black line here refers to if we have two weeks to exploration. And that's a pretty long time till, you know, exploration two weeks is a very long time. And things can change in many things can also happen during those two weeks. So the gamma is pretty low and it can go up and then go down. So the Gemara is pretty low and stable here. But if we were increasing, decreasing our timeframe and going up upwards for one week to expression and exceed the gamma is increasing and it will increase even higher when over-reaching only one day till expiration. And then in this point, if the call option is really close to the strike price, then it means that the gamma is very high. And that means that it can go either way, either it goes into the money or out of money. So it's very, let's say, dangerous position to your right now and you might get in or get out. So basically what the government does, it tells you if $1 change in the online, how much will your delta change in price? And also in the underline. So let's have an example here. And we're going to look at the new Apple stock, which is currently traded at a 123.5. As you can see, we're looking at the strike at a 100, 23. And we can see that we have 29 days until expiration. And we can see here that the gamma is 0.05, while the delta is pretty close to 0.5, that means very close to this trike. See on this one we're looking at a 124. Now. We're going a little bit deeper into the money. And then you can see that the, of course, the delta is going to increase and decrease until it reaches 100 if it goes really deep into the money. But then the gamma will decrease. You see, now it's very varies if it's pretty close or not to the money. Okay, So let's have a look. Now. A here, It's charts and you can see pretty clearly here that the gamma here, 123, very, very high. But she is, if the stock has been to go, gonna go higher than your delta will get bigger and so the gamma will decrease and also getting out of the money. So then your current position, which are long call a 123. 123 that you've bought, then nothing will help you because it's stay out of the money and nothing that will help you. So here the gamma is very, very sensitive. And below you can see the desktop of the call. And you can see that Further down we go Did that. There's going to be greater, but if we're going out of the money, then you're going to see that the Delta, it's going to be pretty much 0. Okay? So now let's analyze. Let's say we've just bought the one call, excuse me, 123 for $3.5. And let's say our risk profile out. You can see that we have bought only this call option. And now at around a 123, we have a delta 50 and the Gamma highest value is 6.19. That means that if the stock will rise from a 123224, then you're going to see that 50 plus 6. But I'm going to bring you to 56. You safe. And that's what it adds to the delta 50 plus 6 gonna be willing to 56. Now, aphids going to arise from 23 to 24, a 120 excuse me, for a 240000125. And you're going to see that you're going to need to add 56 plus 6, gonna give you 60 to something, okay? At a 125, they're going to get a delta of 62 NADH. You're going to also Jay, I want to see, so I'm gonna go to 126. Then you're gonna get 62 plus almost. We're going to bring you to delta of 68. And this is how Gamma affects you on the delta if it changes by $1, up or downwards. So that's it, that's gamma. This is what it does. Now, you can see that if you're going to add a salad, let's say we're going to also buy the stock. And let's say we bought this long each shares of stock for a 125 and well, so edit they taught. So we build some kind of salad here. And you can see that we're pretty neutral. This levels of 122 and downwards is, does pretty delta neutral, stays around 50 region. And the further we go down and you see nothing, nothing will change. And if you go as far as 100 and gamma one help you dental and help you, you're pretty busted. But on these, in these levels, then you can see that you can really, this is where all the magic happens at this point and surrounding it. And 123, 122, 124. You can see that the delta get to spike and sties and starts to rise up and up and up and up. And once you make it to even further, and you can see that the delta will be even greater. Further up you go. Okay, so that's it. That's what the demo does. 13. Theta: Hi everybody. Now we're going to talk about that. What is teta? What is it? Is it good for? Well, that time the Greeks options is a very, very important element. That measure helps us to measure the sensitivity of the value of the derivative to the passage of time. In other words, teta is the amount of Delhi decay with options in options. That means that it expresses as a negative number if you own an option. Now, remember that when you bought an option and I increase, insist on saying that you're bought an option. That means that you bought an option but you haven't bought in intrinsic value Probably, because there probably were also the element of time value. As you can see here in the equation, the absolute value. Really, you need to deduce the intrinsic value and then you'll get the time value. Now every option has a, most of the time, a some kind of time value that is a part of the risk that the seller is taking due to the period of time that is left for the option to expire. So he doesn't want to expose themselves to a greater risks. So he's asking for greater premium or higher premium, more expensive payouts for the option if there is a longer time for the option to expire. So in other words, if you're buying a option and there is going to be a significant difference issue, bodice option that's going to expire in one day or expiring one year. So if you're buying it in the option for one year, then there is going to be a greater teta effect on the price of the option. Now in this diagram here you can see that the time decay on the a they option that you have bought. And you can see that the time decay works at the beginning very slowly. You can see here that if there is a 120 days to exploration, then the time decay. Well probably being range of 5%, something like that. In the option value. And the further you go and the teta be grown up and it's going to be bigger. And now it's going to be like 10 percent decay. And the option value if there are 90 days remaining, if there's going to be 60 data mining, then the time decay will increase to probably something like 20% more. And you're gonna jump from 60 days to 30 days exploration. That's what we're saying is you're jumping between two months and one month to exploration. Then the time decay and usually will be the greater. Read the greatest amount and can drop significantly almost 70 to 60% in just one month. And then in the last few days, the teta is going to be at the greatest value. Measure are going under 30 days prior to expiry. Then a, the total delta detector is going to be a greater and greater every day as time passes, right? Until it reaches 0. That means that inspiration and expiration time comes. All the options value exactly what they value. There is going to be is not a baby anymore. Premium added or something like that. One day job exploration. Usually the options though they all been traded as their exact value. Okay, So now let's see an example. On also we're looking at the apple stock and we have 29 days. And I want to show you the teta effect. Here I've added the teta. They can say that there is a time decay of 0.05. And as time passes by four every day, if we're buying it for 30 days. You're going to look at the risk profile, look at this section. And let's say we have bought call 123, 123, call for, let's say 29 days from now. And I want you to look at this, this place, the teta. Then you're going to see that we're beginning at the month. The data is pretty small. Let's say the stock is remaining at a 123 and every day passes by. And you're gonna see that the teta is increasing and increasing and increasing and increasing until it eventually see the teta really strikes are the last day. Goes and rises, rises as time passes by. You see minus 18, minus 1, 4 and that's it. As day of trading with this option is going to lose its entire value and it's going to be wars exactly what it was. So theta is very important for you when you're a buyer of the option, then theta goes against you. If you are a seller of this option of scores, then in this case the theta will come in Shaver for you. But again, it will only every day is going to rise greatly and greatly. Every day a little bit more until it reaches maturity. You can see here, we're selling, writing down an option, then the teta will come in favor for us and if they underline is not moving at all every day, this option is going to lose from its Valley in value. And that means that you're going to make a pretty nice profit just from the time decay. And what could it be better just sitting and doing nothing and start doing nothing. And you're just making money from writing options. So this is a good thing for the writer and a bad thing for the owner of it. Okay? So that's it. Keep in mind that the Theta when it reaches sometimes when you see and the option, well, if there are any to10 days remaining till expiry, then deep in the money or in the money options, there won't probably have any teta because they all, they all generated inside and they all came into their exact intrinsic value. And so dependent money options, they usually pretty close. Even a few days or even weeks before exploration, they already been traded exactly at their intrinsic value. So the teta will come in fact, much more greatly when you're looking at the, at the money options. And we can see that one. So here the data on the call option, let's do it also on the upper side. And you can see as time passes by revoking now, this one was pretty close. Then you can see that the teta is affecting harder and harder on the Otherwise, if you're buying you're buying a much longer time option, option to expiry, then you can see that the teta effect isn't going to be minor and minor. But out of the money options, they're going to have a greater teta effect on them. So that's it for the teta effect. And I hope to see you in our next lesson. 14. Vega: Hi everybody. Today we're gonna talk about Vega. In the, we're trying to understand what is this letter means, even though vega is not a Greek word or letter, Excuse me. But vega is very important in the option world. And it helps us to measure one of the key elements that I repeatedly talked with you about, and that is the implied volatility in the entire volatility of the underline. And about the pricing of options. And how can we know much option costs and what basically makes the whole difference in option pricing. So vega is a McKee measures to check the sensitivity, sensitivity, volatility, and awards base. Vega is typically expressed as the amount of money per underlying shared that the option value will gain or lose. As volatility rises or falls by 1%. Okay, it's been measured by percentage. All options, both clubs and pull puts will gain value with rising volatility and lose value with declining volatility. Okay? So basically what it means is that while the market turns to be voltage, then that means the far most cases. At the utmost cases, 1D market starts to fall. And it's usually happens when it falls. Traders began to kinda, when that is a normal human behavior. When your market or stock, or even something bad happens in the world or in your country, it will affect the stock market. And of course it's going to affect your stock that you have bought. And that's why traders and investors seek to gain protection. And the most basic protection they can get for their stock and they don't want to sell it. They want to hedge it. They're going to have to buy puts. And that's when all the trouble generating our men becoming, whenever money starts to panic and saying, Oh my God, the microbes are going to crash, Everything's fall. We need to hedge ourself quickly and quickly by puts. This is where everything is starting to decline. And everyone gets panic and everyone wants to buy those puts. And then when it happens, the prices of the goods rise up. Of course, this is all a matter of supply and demand. And when demand is high, the price is high. And that's why you can even evaluate what is the normal or regular or what the price of the put should be in this kind of situation now, because everyone is panicking and are willing to buy puts it at any price. And they don't even know what the, what the, what the real price of dispute should be because they don't know where it's going to. All of those follicles are going to end. So they keep on and on and on buying those puts it enterprise and the prices rises. And sometimes it really goes crazy as how when the market is just slips, even sometimes even just a little bit, investors get so panic, they buy it in and any price. And this is what costs the put options and even out of the money, even far away from the money. To RASIC slim behind because they're saying now, yeah, yeah, the market is going to crush and it's gonna make it all the way there and let's buy it now. And that's why the volatility and the put options rises. But also similarly simultaneously also the coke prices rise up. Why? Because there are other investors thinking, not this way, thinking that the market is already crashed or wind down now it's a good buying opportunity. And they're seeking for calls saying, hey, what's going on, All rise back. So we're not, you'd be thinking in going after wearing long analysis, knowing, Mang those goods, are we thinking that the market is going arrives bearing going upwards? So give me those calls. Now. Although now all of a sudden the whole market is woke up and everybody is hysterical. Everybody wants those calls and those puts. And that's my implied volatility on the coals also rises. Now we're just spoke about the buyers of the options, but what about the sellers of the options? They also know the risks. They're saying. And thinking, Jesus, I'm not going to sell any obligations or puts on his down some securities when I'm not sure where the market is going to go. And so I'm asked me for a greater the risk premium for my, for my misunderstanding maybe of the market and add on and lose money. So that's why I'm asking for a high-grade or premium. And this is where it's all gets pretty happy and the option world, and this is what we always like. A volatile market is very good for options. So now the Vega was go back to Viggo. The more the voltage, the more volatile the market gets, the more option prices rise. And then we'll add the option prices were rising the more days you still have till exploration. As you can see here in this diagram, that at the money and more days you have, the more effective vigour will have over your option that you have bought. Now, if time declines and went down to five with one de Vega won't help you anymore. That means that the game is going to be over in a few days and that's it. And most of the options come together. And really, you can't ask for more than what their value is because there is no more time to expiration and they all getting into the intrinsic value. And that's what the options are gonna be. Priced it. Okay, so let's see now an example on how the market behaves whenever buying, option and volatility rises. Okay? So let's say for example, Apple chair. And we're going to add some, we're going to add some something, some mind. And let's see what I can long from now. We're going to look apples and incubated it and hungry 25 right now. And let's assume that we've bought, let's assume that we have bought the put option. And it's going to cost us, let's say $3. And we bought it right on the spot at 125. So you can see that we have here in the graph and it costs us $3, of course, because we bought the put option, then we needed to make it to a 122 and power past the a 100 told to mark our break-even point. So we've bought ads and now let's say during this period of time, something happened with Apple and stock, a stock starting to go down. Now as I said, explain to you, and volatility will rise. Okay? So the theoretical price right now is $3. And we bought a 125 then, then that means that this, this put option has only time value to turn herself. But if we zoom in the know, I want you to look at the pink line. And let's say the volatility has risen by 10 percent. Look, now what our theoretical price is gonna be. It's gonna be somewhere like around $200. Almost $200. That's because you see in this line, this column, Vega affect every, every, every percentage that the market will add themselves to the volatility. Volatility the Vigo arrives the theoretical price of the option. And that means that if we were here and it grows almost by 10%, then, then, then that's mean that we're going again almost, almost a $150. Now if it's going to rise it on further, Let's say that arise. That's a theoretically of course, the implied volatility will rise to, let's say 35. Then you can see now until ethical price, even though we're still far away 30 days from exploration, the Vega effect affects the stock, the option pretty heavily and now the theoretical price has risen it and above 500. And if it goes up and up, let's say now to 100. Oh wow, kaboom, look at this and you're going to instantly shifting $175. Just because the implied, just because the Vega has risen so much, even though an expiration, it's going to be worthless and is going to be 0. Then you can take the profit went away and not wait at all till exploration. Theoretically, of course I'm speaking. So of course, on the other hand, keep in mind that if the implied volatility will, then you're also, your theoretical price will decline pretty, pretty badly. And the option will start to lose at her value pretty fast. And mean. Maybe you about it today and tomorrow. The price of the put option will go pretty fast to 0 in no time. Okay, so vague, that effect is a very important element here in our option or NRI trying to evaluate the pricing of options. Now keep in mind that always you should buy makes you want to buy. Options for protection. Then keep in mind that the teta effect will work against two. But the Vega effects can work both ways if the vigour will rise now, so your stock price and your option price will rise as well, even though it's worthless at expression, meaning measures if it were to expire right now. So generally speaking, I would always recommend you if you want to know and had she herself, then try to buy options with longer with longer time to expiration, and with low volatility as possible. And sometimes if relativity rises, then you can make a hell of them money. Just when the Vega effect, if you get lucky with the rising of the volatility. So basically that was it. Every option, every stock has its own volatility and the tongue Vega. Now also every option in the option chain has different Vega. And keep in mind again that relativity is a key, key, very important key. It, our option estimation. So that's it for Vega. I'm going to talk greatly about Vegas strategies in our next course. And we'll see how can we play it and make money using this kind of strategies. As I said, you can always try to buy some options far away from the money and pray with a long time till exploration. And we'll see how many interesting things we can do with this strategy using Vega. Okay guys, hope to see you in our next class. Goodbye and good luck.