OPTIONS INVESTING : 7 Basics You MUST Know

Top 7 basics in options trading and investing that everyone should know! In this video we'll go through everything from option contracts to buying calls, selling puts, premium pricing and more!

STEP 1: The first thing you need to understand about options is that an option is a contract or agreement between 2 parties - a buyer and a seller. It’s important to note that you’re NOT investing in the company- we are just buying and selling the CONTRACT that represents company shares. One of the MOST important things to keep in mind is that you can always sell the contract at any time before expiration. You do NOT have to wait until the expiration date. (See video for full details)

STEP 2: There are 3 key characteristics to options contracts. Firstly 1 contract controls 100 shares of the company (underlying). Secondly each contract has a strike price. These strike prices represent the potential future value of the stock, and investors can make trades on whether the stocks price will go above the strike price or stay below the strike price. Lastly, each contract has an expiration date. This just simply means that the contract expires at a certain point in time. (See video for full details)

STEP 3: All options are broken up into calls and puts and you can either buy or sell them. You can buy a call, you can buy a put. You can sell a call, you can sell a put. These are the 4 types of trades that can be made in option trading. You can start combining these trades to get more complex positions like credit/debit spreads, strangles, straddles, and my personal favorite - iron condors! (See video for full details)

STEP 4: When you BUY a CALL you are bullish hoping the stock will go up. If the stock goes up, this would causes your call option to go further in the money which means they would increase in value. If the stock doesn’t go up that’ll push your option further out of the money and you’ll end up with a contract worth just a few cents or be worthless. When you BUY PUTS you are bearish - which means you think the stock will go down. Now SELLING Calls and Puts takes the opposite side of the trades we just spoke about. When you’re SELLING a call you are hoping the stock does NOT reach the strike price - by either staying the same price or going down - and when selling a put, again, you’re hoping the stock price does NOT fall below the strike price. (See video for full details)

STEP 5: When you BUY (puts or calls) you are paying a premium. When you SELL you are receiving a premium - because you’re the one selling to the buyer. You RECEIVE a premium and that’s called CREDIT or CREDIT RECEIVED. When you buy a call for example, and you want to CLOSE that position- you have to SELL that contract. You have to do the opposite of how you opened the position, right? Now when you SELL an option, to close out that position, you must BUY the option BACK - again the opposite of how you opened the position. ( See video for examples)

STEP 6: Anytime you SELL an option, you must have collateral to cover your position. The option seller, thats you- as per the definition of selling options- has the obligation to buy or sell stock at a given strike price on or before the expiration date. So if your trade does not go in your favor when SELLING options, you may be forced to BUY stock, or SELL stock- When selling calls, you need SHARES of the company as collateral (100 shares for every contract) and when you’re selling PUTS you will need cash as collateral. (See video for examples)

STEP 7: Every option contract has a price. This is called the premium - which as we already know- is paid by the buyer, and received by the seller. premium is made up of INTRINSIC VALUE and EXTRINSIC VALUE. The INTRINSIC value is what the option would be worth at expiration. The EXTRINSIC value is also known as TIME VALUE because the longer an option has until expiration, the more valuable it is. Another thing that can affect the premium price is the volatility of a stock. (See video for examples)

DISCLAIMER : I am not a financial advisor - none of the above video is meant to be taken as investment advice. I am just showcasing MY own strategy and my investments should not be tried and duplicated based solely off the information in this video for risk of losing money.

[PandreaMoney]

What’s the next video hmmm. Thank you all for watching - please be aware of scammers and impersonators in the comments! 👀

[ChristopherAbelman]

I think stock picking is an effort in futility particularly at an uncertain time such as this, my portfolio is still significant about $150k but I'm not confident about picking stocks anymore. Are there really no other options for me to gain from the stock market? I'm open to ideas.

[JosephChism]

I just sold a property in Portland and I'm thinking of putting the cash in stocks, I know everyone is saying it's ripe enough, but Is this a good time to buy stocks? How long until a full recovery? How are other people in the same market raking in over $200k gains with months, I'm really just confused at this point.

[Mayor]

I HAVE INCURRED SO MUCH LOSSES TO TRADE ON MY OWN, I TRADE WELL ON DEMO BUT I THINK THE REAL MARKET IS MANIPULATED.

[McPhersonz]

All I can say is that nothing beats expertise when it comes to trading.

[benjaminhufendick]

Your videos are so incredibly helpful! You explain things in an easy-to-understand way and have a quick pace that keeps me engaged. Definitely the most helpful video series I've found on options trading thus far!!

[imgddoh]

This really helped me understand some basic principles of options better. Thank you for simplifying this for us.

[riyadblue]

Thank you for being so clear in showing us exactly what it means to buys and sell options !

[amilcarflores]

Thank you so much it’s important to learn new things everyday

[happypuppy]

You’re doing a great job with these introductory videos! You’re a great communicator!

[AndreiJikh]

ONIONS - be honest, that's how you read the thumbnail

[ulyssisrincon]

I had to like follow and comment. Thank you so much. You’ve opened up the back door to the club😎 I appreciate you big dog 💯

[Daelahh]

Your explanations are EXCELLENT. Keep it up! Beginner here.

[taylorthorne]

I think these are the best videos on YouTube explaining these to someone who wants to learn but knows nothing! thanks. I'm dabbling into as much as I can so I can leverage my money better. appreciate your work for the average Joe

[willchhun]

Clear and simple explanation, Pandrea. You just started the channel and you nailed it.

[troybynoe]

Thank you for the lessons. I find your channel very informative.

[ZackFoster]

Nice List! Once you begin putting everything together, it begins to make a lot more sense. Similar to the Breakeven Point you made. Once it clicks, everything else you learned previously begins to fall into place.

[nelliemillan]

Very well explained i watched the whole video and is complex but im wating for that aha moment when it will start to make sense, & i know it will come .😊

[cryptoepiphany]

I'm loving this channel. Thanks for the insight.

[avolovo]

I love doing iron condor too! Am subscribing because while I’ve traded options for a little over a year, I still have yet to truly understand the basics and core of options trading. I think your channel will be very helpful in that regard. Greetings from NYC.