Stock Options Explained
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- čas přidán 30. 08. 2018
- Correction: At 4:20, the graph in the top left-hand corner is slightly off; for total return, the curve should not intercept at (30,0), but rather should be shifted slightly to the left so that the bend in the line occurs at (30,-2). Sorry for the blunder.
Option Pricing Factors:
- Underlying stock price (higher = higher call premium, lower put premium)
- Underlying stock price volatility [expected] (higher = higher option premium)
- Underlying stock dividends (higher = lower call premium, higher put premium)
- Option's strike price (higher = lower call premium, higher put premium)
- Time until expiration (longer = higher option premium)
- Interest rates (higher = higher call premium, lower put premium)
Intro/Outro Music: www.bensound.com/royalty-free...
Episode Music: freemusicarchive.org/music/Pod...
DISCLAIMER:
This channel is for education purposes only and is not affiliated with any financial institution. Richard Coffin is not registered to provide investment advice and as such does not provide recommendations on The Plain Bagel - those looking for investment advice should seek out a registered professional. Richard is not responsible for investment actions taken by viewers.
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Happy Friday everyone!
Have you ever used stock options, or do you prefer sticking to traditional investments? Let me know!
plain investing
Traditional investments for sure
regular yet, still new.
I have had good results writing covered calls
@@nightrider301 What broker do you use for you covered calls? did you take an investing course prior to investing or just "go for it". I'm looking to get started in "covered calls", but am very new. Any advice woul dbe much appreciated.
Next please upload “stock options explained, explained”.
First Massage 🤣
😄😆😅🤣😂
😄😄😄😄😄
I got about half of it. The explanations of the complex trades went over my head, but at least I found out what a covered option meant.
jajajajja
I'm a physicist and I had trouble following, now I understand how people feel about math.
I'm a security officer hoping to be a physicist in my next life. What's it like?
@@bobbackward6461 i think it is the same as you, we ignore some things and ignore others
@@EddyFisico brilliant response
@@EddyFisico Fisico more like Physic-o haha
This should be easy for you...
It's important to note that options contracts come in terms of 100 shares. Really pumps up the possible gains and losses more than a beginner would expect!
Wow, 100 Shares of Apple would be worth $15,000 right now, it limits people with short cash a little...
Apple stocks have low volatility so option prices should be much lower.
@@beefcake1876 you’re a genius
You’d think he would have mentioned this small detail. Lol
@@zombie4910The option doesn't cost the whole price of the share contract
You lost me at derivatives
Seems like he meant to loose people! He wasn’t explaining to people who don’t know. He was showing off to people who already knew!
Lol same here
He’s speaking another language that I don’t even understand.
My trauma from calculus immediately kicked in .
It was a bit complex but I think I got it.
If you buy a stock, you will take all the ups and lows.
An option basically means that you aren’t buying the stock just yet, but you are reserving the option (hence the name) to buy the stock at its current price for a certain amount of time. The option seller asks for a premium for you to have this option.
If the price goes up within that time, you use your option to buy the stock. If the price goes down, you don’t use your option to buy the stock and your loss is at most as high as the premium.
Similarly if you have the stock already, you can also buy an option to sell the stock, which almost the same way. Someone gives you the option that you can smell a stock to him at the current price. For this option he also asks for a premium.
If the stock price goes up, you don’t use your option to sell, if it goes down, you use your option to sell and you’ve minimised your loss to the premium.
Of course the disadvantage is that if the stock goes up, you will have paid a premium for nothing. It’s basically an insurance.
If you have a car insurance but never an accident, then your insurance was not worth it, but if you have an accident, the insurance will take the loss.
I've made an absurd amount of money in options. I've also lost it all because of options. Lol
Would you mind telling us how many times you multiplied your starting capital before it up s*it's creek
@@jameslouis5359 Seven times or 700% gain. The next trade I was either going to be a millionaire or I was going to be broke. Guess who isn't a millionaire. 😂
My name how come you didn’t take your capital and than play with you wins??
@@90deltaderivatives35 it's always the ego or the greed
@@adambibinski180 not always, that's what sets people apart.
me watching my grandmas life savings disappear on a "well calculated" yolo
it was calculated, but damn I am bad at math.
Well calculated be like omg Jupiter and Saturn are gonna align i need to quick buy 10k of cum coin with 125x leverage
I jumped forward to the end of the video and am now qualified to YOLO my little brothers college fund.
✋ 💎 🤚 🚀
Saw the comment after just watching Dumb Money on Netflix, this is perfect
I learned that the stock market was a rich man's game (yes, grandparents lost it all back then and preached that forever) but I've been around long enough to really taste how great it can be. To be profitable, with inflation at 6.1% These are surely desperate times, but in my opinion, there is no market condition that a good financial advisor cannot navigate, especially those that have existed since the crisis of 2008 and before.
Stocks are pretty unstable at the moment, but if you do the right math, you should be just fine. Bloomberg and other finance media have been recording cases of folks gaining over 250k just in a matter of weeks/couple months, so I think there are alot of wealth transfer in this downtime if you know where to look.
Is there any chance you could recommend who you work with? I've wanted to make this switch for a very long time now, but I've been very hesitant about. I'll appreciate any recommendation.
I’ve been looking to switch to an advisor for a while now. Any help pointing me to who your advisor is?
STEPHANIE KOPP MEEKS she is whom i work with look her up..
Thanks for sharing, I just looked her up on the web and I leave her a message.
My hunt for more options explainer videos continues after watching this one.
I'm more confused now after watching the video
Cheers for this, been searching for "what is options" for a while now, and I think this has helped. Have you ever come across - Jenameron Penny Smackdown - (just google it ) ? Ive heard some great things about it and my mate got great success with it.
You dumb?
bought GME as my first stock -instantly down 80%. Pray for me.
It’s up now
You bought a stock based on social media lol
@@hanssolo1196 which if you got in early and realized then you would have done very well. Not a lot wrong with social media if there's valid information being shared.
This is why people short GME...
Just HODL monkee
I need a tutorial that explains it to actual beginner dummies, not like an experienced stock broker lol
Yeha right
This shit to complicated
@@JonathanBelloso-tz8mz i finally got it lol read a few free books on amazom but totally worth it
Ezm really lol i don’t get it at all
Ezm let’s talk wat ur number
Box spread = risk free returns lul
wsb for life
Literally can't go tits up
Well you do own the stock so if it tanks...
risk free returns are the reason of so much failure to understand modern finance.
1ronyman tought so too
As soon as I saw the box spread I knew where the "It literally can't go tits up, I've done the math" came from. This was the math.
Very informative, I still struggle comprehending how it all works but this is the best video I've seen yet about it
This is the first time I've actually understood puts & calls, so for what it's worth you're the best explainer on CZcams, and I've been trying to understand this for a while.
A Tip for anyone watching - understand the definitions prior to watching the video - it'll help massively!
I listened at 2x speed and understood everything easily
Said no one ever
I did understand this but I've been paper trading them for a year now and have been studying them.
EricSmyth14 I could've watched at 0.5x and I'd still have to rewatch..
I love how you explained this much simpler to us common folk who don't options trade on the daily.. It still requires more work to understand the complexity. This is the reason i subscribed.
15 seconds in and i'm totally lost.
I'm drunk and my brain hurts
This was one of the better breakdowns on options I've ever watched. Thanks Plain Bagel, you guys are really damn clear!
This is THE BEST video for option trading I have ever seen thanks so much!
this might be one of the best videos ive ever watched
The most confusing one for me at the same time. Phew
He wasn’t explaining to people who don’t know. He was showing off to people who already knew!
@White Wolf Some of us have high IQ in other areas like ...I dunno? Street cred? Or perception? But very low on this shite. Not that I've looked into Calls and Puts much anyways...
@White Wolf i edited it a bit. xD
@White Wolf how you can loose infinite money....
Your explanations are so easy to understand. Thank you!
I just wanna take the time to say thank you so much for your videos. These combined with Investopedia are becoming my primary source for my foundational knowledge in investing. And the more I learn the more excited I become about learning more. Sometimes it is hard for me to grasp certain concepts but when I am patient with myself and allow room for growth over time, the stress of becoming knowledgeable is far less. A little at a time pays off big in the end. It's almost like I'm investing already! Except I'm investing my time to learn about investing money! STONKS!
Your explanation helps me have a clear picture of options. Particularly the four curves, which are the most concise and precise demonstrations I’ve ever seen. Good work👍
Why the hell couldn't the other 57 thousand people who made videos about this explain it this simply!!! Thanks brother!
Brilliant video - really clear and well presented. Gotta be one of the best I have seen. Yes - a little fast moving for a beginner, but I loved it
Currently taking a class on selling options. Great stuff here, you nailed it exactly and I learned something too lol
Thank you so much for taking the time to put together this video! I think I’ve found my new favorite channel. :)
Wouldn't it just be easier to play BLACKJACK ???
The way some people use options, probably! But if used in combination with stocks the can actually reduce the risk of your positions
@@ThePlainBagel Wanna play the Warren Buffet hedge fund bet?
If you count cards and play stocks poorly absolutely
@@EricSmyth4Christ dont they use multiple decks now to make it nearly impossible to count cards in real time?
@@anthonymullings8539 counting cards is actually way different than people think
You only "count" the 2s-6s as +1 and tens and aces as -1 and ignore 7 8 9s
Once the count is +1 to start the hand, the game is beatable using perfect basic strategy by %0.5 or so per hand. The bigger the bet the more money you make on average.
Basic strategy reduces the house advantage to %2 as it is, but because the player gets special bonuses from blackjacks and splitting and doubling downs, you can make a lot more money as the player when there is a lot of tens in the remaining deck density. The bets a card counter makes is the table minimum, but when the deck is in his favor, he bets around the table maximum.
When the houses made it 6 decks, now the game is only beatable at +6 count, since you have to divide the count by 6 to convert it to what it would be under 1 deck. This is called the true count conversion.
Adding decks was definitely to make it harder, but because they deal through 5 decks, it's still common to get a true count of +1 or even as high as +5 sometimes
The winning card counter these days makes about $150 an hour at high stakes, Vs about $500 - $700 back in the day
The hard part is not getting kicked out with a nice win streak, not finding a beatable game in Vegas
The house notices you betting big and also tiny, so they get scared and kick you out
Because of this, some players use "cover" like acting drunk or not betting too big on smaller edges. This let's you last longer.
This is a really impressive explanation. Thank you for doing this lovely video.
Thanks for the kind words!
They are really helpful. Could I know what software did you use to produce this?
I use Adobe Premiere (CS6 I believe is the version).
Options (How They Work) - 0:37
Buying/Shorting a Stock - 2:37
Buying and Selling Options - 8:46
Your lessons extremely helps. Thank you for it, man
Best video about calls and options out there by far
I'm 25 years Old. And listening to all of these is like reading Arabic. I'm clueless as hell. But I'm so excited to learn cos I know this can change my life
You explained it better than my textbook. Thank you
Honestly I've understood like 40% of the video at best. This video is suitable mostly for people who already understand EVERYTHING but options.
CONGRATULATIONS, You've managed explain options in the most confusing way possible. I used to know what options are, but then i saw your video.
“ There’s no money here to steal, this is the stock market.”
“ Really? Then why are you people here ? “
Thanks for explaining this. Now it's clear enough for me to know I have no clue what I'm doing
Awesome thanks Mr. Bagel! Great explainer
wooohhoooo I've been waiting for this type of video especially for weed stocks
Another great video, well done!
Thank you!
Richard I found this explanation to be very clear- even more so than your more recent options post. I guess you can’t please everyone but the plots were a hit for me
I like how you explain the benefit of exercising options as a hedging tool, it's a valuable thing to understand. Any vid on options will briefly explain the mechanics of how options work before hyping up the very risky art of speculating on options, where you buy tons of contracts and hope their values go up before expiration, where 100% losses can happen very easily if you bet the wrong way
I like that Metal Gear Solid sound effect snuck in there
For me to understand this I have sit down and write it out, substitute values and draw the graphs myself. Pause and play the video a few times as well.
I really like your videos, I take screenshots and keep in my phone as study materials. Thank you
THANK YOU.... my head doesn't hurt anymore !
I think I'm still too much of a beginner to understand this. See you all in a few months again
I'm I the only one who's head is spinning after listening to this.😭
Put = Sell
Short = Sell
Call = Buy
long = Buy
this is sooo good explained!! THanks sooo much!
It’s 2am I’m high af, but ngl this video helped a lot. I was confused by the whole concept of puts and calls but you really did a great job explaining it. I’d rather you “show off” than not give us all the information
now, I'm more confused lol
You need 50 million subscribers atleast
T series got nothing on this
Great video, I finally understand calls and puts
jooky87 glad you found it helpful!
Very well made videos, this channel should take off
Thank you that's very kind!
Were you an Econ major? So many graphs (; great tutorial! Thank you for sharing. Do you have an Instagram?
I was a finance major but I ran workshops in economics :) thanks for the kind words! Don’t have an Instagram account yet
Bruh I watched this 4 times and still don’t know what’s going on
You're basically paying someone a little bit in advance for a contract to buy or sell a stock for a preset price before the contract expires. So for a $40 call, you would have the right to buy that stock from them for $40 no matter where the price goes during that time frame. If the price goes up to $100, you can use that contract to still buy it for $40. If the price crashes down to $0, you can just ignore the contract and only lose whatever premium you paid in the beginning
It's an oversimplified explanation, but it's what I understood
@@Shining.Silver thank you bro
@@Shining.Silver Okay but how do you lose money in this situation. It seems like if you win, you win big. And if you're wont you only lose a little bit?
@@KrishabBashyal the "better" the contract, the more premium you have to pay. If the real price is currently $40, you might be able to buy a $100 call expiring that week for only a few cents per share. The chances of it going up to 100 in such a short time is very low though. The closer or more "in the money" your call is and the longer the contract, the more expensive that premium is.
finally one good video i found on options. thankyou.
Thank you for this video! I successfully turned $1000 into $50.
Nice, now I can finally join r/wallstreetbets
Oh hell yes. There’s literally no way this can go
tits up.
This is the best explanation in entire www !!!
I've been obsessed with learning about options the past couple years and this video was excellent.
boi this went over my head... and it doesnt help that I am not a native English speaker :D
Dont worry, im a native english speaker and i dont understand either
I need to trade stocks. If I can beat sports betting, I can beat the even less rigged free market
Super helpful video. All I needed to know why I shouldn't attempt options trading just yet!!
great production and very to the point.
I feel like this guy is reading a script rather than explaining something he understands
That is half accurate! I do write the scripts myself though!
Melvin, please start watching @5:53 for a brief financial lesson.
Dont worry they won't t learn. The government will bail them out and other hedge funds will try to help them out.
Nicely done, still dont understand the more complicated techniques but I have good understanding on long calls/puts and thats enough for me at the moment.
For most people understanding the basics is certainly sufficient, glad I could help!
I like your video very much to explain it very well. And now I have a headache thinking about it. I'm glad I don't deal with options
Casinos are less rigged than options
If you buy or sell them? If you think one side is rigged, just do the other...
I’ve done work for firms who hand options. I’ve also worked for firms who deal in spreads and cfd. I’ve seen them weigh their shekels against their overall customer customer positions. Lots of algos working out numerous investment stats. Like casinos, you don’t see many fail until their cronies turn on them. Red or black 50/50 ‘ish’. Markets? Played...
I would be playing at the casinos before casually jumping into the derivitatives market.
ok now im ready to yolo gme
"Filmed by: myself :(" 😂. Thanks so much for your stuff mate. Really learn a lot!
I now understand stock options and also why I have always loved plain bagels.
"There is actually less risk. So by the way there is actually MORE risk."
Me: yes mhm stonks
Stocks, legal gambling... no thx, ill keep my money
“No fast money here”
Jan 2021
GME walks in
Useful tutorial, Thank you so much
It’s been 2 years since I heard of options trading and i still don’t understand it. I just take degenerate advice from wallstreetbets
You lost me after "Hello"
This was SUPER GOOD!
CZcams is the greatest tool thank you for this video
So you're saying there's a chance....
That I could make infinity money. Nice. Nice.
It's still gambling, and I'm terrible at gambling.
wow nice explanation, i think it was very useful
Thanks so much, make it so clear.
Excellent explanation, thank you
What a great Video .. Thank you so much :)
Thank you for your video. I wish it was explained slowly even if not as much covered.
Thank you for your videos. Can you explain the Option Pricing Factors in another video?
i was so happy i thought i understood it and then you said that was only the tip of the iceberg. got lost immediately afterwards
Thanks for the new video! I think this one will just be for educational purposes, though.
Fair enough! I imagine for many it will be treated the same
Thanks so much for making this. Keep up the great work.
Glad you find them useful!
I'll try my best at an explanation:
Let's start with futures because they're easier to understand. A future is a contract between two parties to carry out a financial transaction at a certain point in the future (hence the name). For eg. A farmer and a grocer sign a futures contract that one year from now, the farmer will sell 100 kg of wheat to the grocer at 50€/kg. Why would they do this? To reduce uncertainty. It's the same as buying in bulk but in the future instead of right now. It's better for the seller because he no longer has to deal with the uncertainty of whether or not the wheat will be sold and it's also better for the buyer because he can buy the wheat at a cheaper price. Futures are very rigid, in that both parties are obligated to carry out the transaction only at that point in time.
Options are the same as futures with *one key difference* - the grocer is *not obligated* to buy the wheat from the farmer. He has the *option/choice* to carry out the transaction but not the obligation (hence the name). The farmer, however, doesn't have this freedom. If the grocer asks for the goods, the farmer is obligated to sell it to him at the agreed-upon price. Options, unlike futures, are flexible. Which means that the grocer can ask the farmer for the goods at any point during the life of the option, not just at the end (this is true for American options. In Europe, the option can only be exercised at the end of its life). And at the end, the grocer can also just not buy the wheat, which is called letting the option expire instead of exercising it.
So now you might be thinking, this sounds like a terrible deal for the farmer. Why would he agree to it? Because the farmer charges a premium for the option, say 20€ (unlike futures, which don't have premiums). Basically, the price of wheat may increase or decrease in a year. Instead of dealing with that risk, the farmer decided to have cash right now and get paid a small amount upfront (the option premium must be paid immediately). I guess he was a fan of the "A bird in hand is worth two in the bush" philosophy.
Options can be of two types: call and put. The easiest way to distinguish them is to look at who has the obligation. In our example, the farmer had the *obligation to sell* , which is a call option i.e. the farmer sold the grocer a call option. Now think of the reverse. Let's say that the grocer had instead given the farmer the option to sell the wheat. Now, the farmer is no longer obligated to sell, but the grocer is *obligated to buy* This is a put option i.e. the grocer sold the farmer a put option (and charged him a premium for it too).
Unlike traditional transactions which take place immediately, options and futures take place later. Which means you don't need to have the underlying asset right now. Which brings us to covered/uncovered options. In our example, the farmer sold the grocer a call option for 100 kg of wheat. If he already has the wheat, it's a covered call i.e. the call is covered and the farmer has the ability to fulfil his obligation to sell. If instead he doesn't have the wheat yet, it's called a naked/uncovered call and should the grocer exercise the option, the farmer now has to buy wheat from someone else and then sell it to the grocer. As you can imagine, this is an extremely dangerous situation. This is why options aren't recommended for beginners. Conversely, a put option is an obligation to buy. So, if you have the money to do so already, it's called a cash-secured put. If you don't, it's called a naked/unsecured put.
As you might have realized, options can be created for any underlying instrument (commodities, stocks, bonds). Hell, you could even create options on existing options. What we're interested in right now are stock options i.e. the option to buy/sell shares in the future. In the stock market, an option contract always refers to 100 of the underlying asset. So if you want to sell 1 SPY option, you need to be able to provide 100 SPY shares ($49,500 as of Feb 2024). Again, this is why selling options is so dangerous. It's possible to burn your entire account on a single trade, no matter how much money you have.
I like to think of it like this: options are highly leveraged instruments and depending on who's providing the leverage, the game is completely different. If you *buy* options, you *receive* leverage, and it's not too bad. However, if you *sell* options, you *provide* leverage. You're basically acting like a bank and banks need to have a lot of money. That's a really dangerous position to be in. Keep that in mind. *Selling options is a completely different world from buying options*
Hope this helps :)
What a good explanation, i kinda get it now. Thanks
@@Hoho-ru7bl You're welcome. I'm glad you found it helpful 😊
Thanks I think I should have just read this instead of watching the video for 10 minutes lol
@@randylin1871You're welcome lol. It's really easy once you know the context 😀