guys so i hope you enjoyed that quick introduction about well not really quick it took quite a while all right but i hope you enjoy the introduction about what calls and puts are and again you may have to review that video a few times before you really get it because it takes a while initially but once you get it uh it becomes second nature so here's a quick quiz for you ready grab a pen or you know write it down somewhere yeah okay so remember for call options when you buy a call when you buy a call you have the right to what write your answer down you have the right to that's right buy a hundred shares at the strike price when you sell a call you're obligated to opposite it's always the opposite right you're obligated to sell a hundred shares at the strike price so keep repeating this again and again when you buy a call you have the right to buy the shares when you sell a call you're obligated to sell the shares okay so remember that as the buyer of the option you always have the right you always have the right but as a seller of the option you're always obligated next put options so when you buy a put you have the right to write down your answer before i give you the answer when you buy a put you have the right to sell a hundred shares at the strike price and when you sell a put when you sell a put opposite when you sell a put you are obligated to buy a hundred shares at the strike price so again option buyers always have the right options sellers always have the obligation yes here's a good visual summary of calls and puts so again calls and puts when you buy a call remember it's a nike sign the nike swoosh logo okay so limited risk unlimited return and you buy a call when you are bullish you buy a call when you expect the share price to go up share price goes up you're happy makes money okay when you sell a call you flip that chart over like that so when you sell a call what happens um when you sell a call you are neutral to bearish so you're neutral or you think the price is going to go down so if the price stays where it is or goes down uh you keep that premium limited reward premium but if the stock price goes up the stock price goes to infinity then you have unlimited risk of loss because you have to buy the callback at a higher price that is if you sell the call naked so again never sell naked but if you already own the 100 shares and you sell a call then that's fine you won't have that downside risk if you own the shares then you are covered this only happens if you sell the call without owning the shares or without hedging yourself with another call all right okay on my right i put so for puts if you buy a put that's what the uh that's what the chart looks like it's kind of like a mirror image of the call right just a mirror image of the call so when you buy a put you are bearish right you you're bearish so the more the stock price goes down the more money you make and if the stock price goes up uh you lose the premium so again limited risk but high profits if the stock goes down when you buy a put you have the right to sell the shares at the strike price next if you sell a put you'll then be flipping that chart over like that when you sell a put you are bullish to neutral you're bullish to neutral so if the stock price remains where it is or goes up you get to keep the premium and you uh and the options expire worthless okay but if the stock price goes down and theoretically if the stock price goes all the way to zero you could lose a lot of money if you sell a put uh that's if you do it naked but again if you sell a put on a good company you know good companies won't go down that much and if you have the cash to buy 100 shares then there isn't that downside risk okay so that basically summarizes calls and puts okay so right now let's talk about intrinsic value i've talked quite a bit about it initially but let's really nail down what it means intrinsic value of call options first if you go to the option chain which i'll show you in a while you can see there are many strike prices and again you could choose or buy whichever strike price you wanted okay so these are the strike prices of microsoft call options so let's imagine that microsoft is now trading at 220. if you were to buy this call option what would it mean if you buy the 210 call it means that you have the right to buy microsoft shares at 210 and sell it in the market for 220. giving you a profit of 10 so which means this particular option at 210 strike price has a potential profit of 10 locked into it we call that the intrinsic value so this option has an intrinsic value of ten dollars and we say that this option is in the money in the money how about this option so this option has a strike of 215 which again means that you have the right to buy the shares at 215 and you could sell it to the market at 220 so this option again has an intrinsic value of five dollars correct 220 minus one five is five dollars this option is in the money as well so notice that the intrinsic value of any call option is the stock price minus the strike price so the stock price minus the strike price is the intrinsic value now how about this particular option here the strike price is the same as the market price so we say that it is at the money so whenever we say an option is at the money it means that it's strike price it's at the market price when we say an option is in the money or rather when we say a call option is in the money it means that the strike price is below the stock price hence there's an intrinsic value so you can see that this at the money option has no intrinsic value because you could you have the right to buy the shares at 220 and sell it to the market 220 you don't make anything right so there's no intrinsic value but does it mean that this option is worthless you can buy for free no it's worth something it's still worth something it's worth what we call hope value h-o-p hope value why because there's a hope that microsoft shares could go up in the next few days and if micro microsoft shares do go up then this option would then be in the money so there's a hope it could happen so this option has hope value and we call this hope value extrinsic value write this down extrinsic value and extrinsic value is very much made up of how much time there is left to expiration so if this option expires in say 60 days there's still a lot of hope left and this option could be worth quite a bit okay now this option over here two to five it is out of the money it is out of the money why is it out of the money because you have the right to buy the shares at two to five but right now the shares are 220 so it's kind of like out of the money so again there's no intrinsic value this one also has no intrinsic value but it's still worth something again what does it work it is worth the extrinsic value why because there's a hope that microsoft could still go up in the next few days and these options could become in the money so as long as there's time left there is extrinsic value in this option let's take a look at the option chain right now okay so i'm using the think or swim td ameritrade trading platform now you can use any broker that has options but choose a good regulator broker like think of swim td ameritrade interactive brokers and you'll be pretty similar okay so i'm now looking at microsoft and this is the option chain so you can see the first thing on the option chain would be all the different expiry dates we call it dte dte stands for date to expiration so you can see uh this next the first option expires on the 15th of january which is today so there's zero days left to expiration and going down the list you can see that this option expires on the 26th of february so there are 42 days left to expiration and so and so forth so you could buy an option with you know 28 days left to expiration 35 days 42 days 182 days 300 371 days 400 days even 500 days so you could even buy an option that expires in two years okay so you can choose whichever option that you want now you also notice that you have got these options in purple called weekly options which means they expire at the end of the week at the end of uh they expire on the friday of every week of any particular week sorry right and those options that you see uh that are in black they expire on the third friday of the month they're called monthly options now you don't have to worry about weekly options or monthly options it doesn't matter you know what really matters is that you choose the date to expiration that suits your strategy and we'll talk more about that later when we talk about specific strategies but for now i just want you to know that yes you can choose options at many different time frames different expiration dates so let's open up the one with the expiration date on the 19th of february and that expires in 35 days so let me open that up boom okay now over here i can select the number of strikes these are the strike prices i could select 50 strikes 30 strikes whatever all right okay let's just select 31st now on the left these are all the call options and on the right these are all the put options so let's look at the call options first and at the center you see these are all the different strike prices that i could choose okay so currently microsoft is at 213 this is the last trading price right now the market's closed so that's the last price okay so let's take a look at this strike price over here again two one three that's the the current stock price so if i choose the option with a strike price of uh 210 let's choose this one let me ask you a question this option is it in the money or is it out of the money you tell me in the money or out of the money that's right it is in the money why is it in the money because the strike price is below the stock price so this uh option is in the money now in the money is in yellow the one in white would be out of the money so if you look at this option what is the premium that you have to pay to buy this option again if you buy the option you have to pay the premium if you sell the option you collect the premium you can either be a buy or seller right so you can see that if you want to buy the option you have to pay a premium premium of 9.75 that's the ask price so you always buy at the ask price i repeat you always buy at the ask price and if you want to sell this option you sell it at the bid price so if you sell this option you will collect 9.45 if you buy the option you will pay 9.75 so there's a bit of a difference so you can also take the midpoint or we call it the mark mark would be the midpoint between the two which would be about 960 which is about the center of this two so you can take this as roughly the rough market price of this option okay so question this option that you see what is the intrinsic value can you tell me what is the intrinsic value of this option this microsoft 210 option what is the intrinsic value intrinsic value is always remember stock price minus strike price right so the stock price is now at roughly 213 and the strike price is two one zero so the intrinsic value is three dollars but it's selling for 960. so it's selling more than the intrinsic value y because remember that's the extrinsic value ah so the difference between the price of the option the the premium and the intrinsic value would be the extrinsic value so in this case you can see the extrinsic value would be 960 minus three dollars would be six dollars and sixty cents okay so more extrinsic value later on got it so far okay now if you look at the 205 strike there'll be even more in the money so notice that as we go down it gets more and more in the money as it gets more and more in the money what happens to the price of the option notice the option price is 960. now this option is 1270 16 20 24 so notice that the more in the money the option is the more expensive it becomes because it is more in the money there's more intrinsic value got it now if we look at the 215 option 215 would be out of the money out of the money right so the microsoft 215 option is out of the money can you tell me what is the intrinsic value of this option the intrinsic value is zero that's right because out of the money there's no intrinsic value but this option two one five is selling at seven dollars seven or five which means the extrinsic value is seven 705. so options out of the money have no intrinsic value only options in the money have an intrinsic value and again notice that as we go more out of the money like two one five to twenty to two twenty five what happens the option gets cheaper right seven dollars four dollars three dollars and gets really really cheap it gets really reachy the question people ask would be okay so which strike price do i choose there's so many strike prices the answer is it depends on the strategy so in the subsequent lessons depending on the strategy we choose different strike prices and we'll go through that later on so hold on to your horses the other question people will ask would be okay what date expiration do i choose 30 days 60 days one year again it depends on the strategy more on that later on but what i also want to show you is that the further the date to expiration the more expensive the option is so for example if you choose this option that expires in seven days and for example if you choose the uh the strike price of say two one five strike price you can see you can buy this two one five strike price at two dollars and forty three cents only 243 for this two one five strike price because there's only seven days left right but if you choose 35 days left there's a lot more time left that same two one five strike would now cost you seven dollars so again when you choose a longer time to expiration you've got more time to be right but it's gonna cost you a lot more money and the share price has to move a lot more for you to break even for those really long dated options okay so for put options it's the same except that is the opposite for put options the intrinsic value would be the opposite it'll be the strike price minus the stock price so the lower the stock price the bigger the intrinsic value so again if you take a look these are the strike prices of facebook for example and say facebook is now trading at 150. so if you look at this option uh with a strike of 160 it means you have the right to sell facebook shares at 160 but currently it's at 150 so you could buy at 150 sell your 160 and you could make money immediately so this has an intrinsic value of 10 right so strike price minus stock price gives you intrinsic value that's in the money this one is in the money as well with the intrinsic value at five dollars and now you tell me this strike price at 150 is the same as the market price that is called what the money that's right at the money and at the money there's no intrinsic value as well how about 145 strike that's right out of the money out of the money so again these options out of the money have no intrinsic value but they have extrinsic value the hope value and again the longer the time to expiration the more hope there is the more valuable this is because there's still a hope that facebook could go down and these options could eventually be in the money at expiration so again let's look at the option chain we could we could look at a different stock for example bank of america bac and you can see right now markets still close but the market is going to open at about 34 so you can take the market price as you know 34 and again you can see all the different dates to expiration let's choose the 28 day to expiration let's open that up expiring 12th of february and on my right are the put options so again if you choose this put option at 34.50 it is in the money or out of the money in or out guys you know out that's right it is in the money right yellow is always in the money white is always out of the money so why is this in the money because it is above the current price so for puts when the strike price is above the current price in the money and could you tell me the intrinsic value of this option okay the bank of america 34.5 put what's the intrinsic value it'll be the strike price 3450 minus the stock price 3405. so roughly what's that 45 cents right so the intrinsic value is 45 cents but it's currently selling at the market price of a dollar 61. can you see mark mark that's the market price which is the mid of the bid and us so what is the x extrinsic value you'll be 1 6 1 5 1.615 minus 45 cents so the extrinsic value or the hope value would be 1.165 okay now again if you take the 34 strike it's in all the money guys in or out of the money it's out of the money right so there's no intrinsic value for the bank of america 34 put the intrinsic value is zero but it's still worth 131 so the extrinsic value has to be 131. there you go okay so in summary the premium of the option again premium is the same as the price so again when you buy an option you pay the premium when you sell the option you collect the premium and this premium is made up of intrinsic value and extrinsic value intrinsic value is the part of the option that is in the money so for call options the intrinsic value is equal to the stock price minus the strike price so the higher the stock price goes the more intrinsic value the call has and the call becomes more valuable for put options the intrinsic value is the opposite strike price minus stock price and the lower the stock price goes the more intrinsic value the put option has and the lower the stock price goes the more expensive that put becomes or the higher the premium gets and then you've got the extrinsic value which i just showed you on the chain okay so extrinsic value is also known as like i keep saying hope value how much hope is there left an extrinsic value is made up of two components so what determines how much hope there is it's made up of number one the time value of the option how much time is that to expiration so the more time there is to expiration the more extrinsic value obviously the option has a hundred days to expiration then it's worth a lot more than the option with only seven days left okay the other part of extrinsic value comes from what we call volatility premium or implied volatility so what does it mean so if the stock happens to be a very volatile it happens to be a very volatile stock right it goes like oh you know very evolved i'll stop what happens then the options be worth a lot more because if the stock is very volatile it goes up and down a lot then there's a very good chance the stock could jam up very high and the options that were out of the money becoming the money or there's a chance the stock could drop a lot and the put options that were out of the money can be in the money so there's a lot of hope when the price moves a lot so if the stock is very volatile the options are worth more because there's more volatility premium in the options but certain stocks have low volatility so if the stock moves like that [Music] okay and the stock for example is always at a hundred dollars it's like 101 102 99 right it's very low volatility then the options are going to be worth less because there's not much hope that the stock is going to go up or go down very much all right so it's time to formally introduce the greeks to you so the greeks are all the things that affects an options premium or price so again when we are buying an option we want to ensure that the price of the option goes up when we're selling an option we want the price to go down by what affects the price and basically there are five things that affect the price number one is delta number two is gamma number three is vega and four is theta and the one the last one is row we won't be looking too much at row because row measures the change in the option price due to a one percent change in the interest rate and that normally affects only very long term options that we are not going to really be focusing on so no worries about roll be focusing more on the first four delta gamma figure and theta so let's go to the first one which is theta so we think of theta think of t which is time so we're talking about time value and expiration now again when we buy options we can buy options with different times to expiration it's really it's really up to us and of course the longer the time to expiration the more time value the more expensive the option is so again you can buy options with time to expiration as long as three years as short as one day as i mentioned the further the expiration date the more time value the higher the premium that you pay what happens is once the option reaches the expiration date there's no more time value time value becomes zero and the option price is equal to the intrinsic value so if the option is in the money there's an intrinsic value if the option is at the money or out of the money there's no intrinsic value and the option is completely worthless so look at this chart over here and you can see that as time goes by the option loses time value so it's known as a decaying or wasting as it loses time value till eventually the time value goes to zero and time value tends to decay the fastest in the last 30 days it declines exponentially so as traders of options we want to sell our options right 30 days before expiration so in other words we buy an option and we want to sell it at a higher price so in general we always like to sell it when there's still some time value left when there's 30 days to expiration because 30 days to expiration the time value tends to decrease exponentially and we hold on to the option what's happening is that we're losing a lot of value in the options so we wanna again sell it as at high as high price as possible so we're gonna sell it before we lose that time value but there are exceptions to the rule if the option is really deeply in the money and we want to hold it a bit more to expiration there's nothing wrong with that as well but if we are not really deeply in the money then it may be a good idea to sell 30 days before expiration now when do options expire most of the time we trade monthly options now they are also weekly options but but for most part again we trade monthly options and they always expire on the third friday of the month so again recall when you look at the option chain which you saw a while ago there was a column called theta so theta is the rate of decay of an option so when you see a theta of minus 0.05 that means 5 cents loss a day which means every day that passes the option loses 5 cents including weekends as well and again as the option nears the expiry date you could go up from five cents to six cents with seven cents it increases as you need expiration till whole thing goes to zero so again all options have fixed expiration dates uh there are weekly options but they tend to be less liquid with less transactional volume uh they tend to expire on the friday of every week like i mentioned we tend to prefer to trade monthly options with more liquidity with more volume and they expire on the third friday of the month so when options are more liquid when there's more transaction the br spread tends to be tighter so we can buy and sell without that much slippage in the markets right now there are also quarterly options that expire every quarter and these quarterly options expire on the last day of the quarterly month like january march june and september and finally you have leap options lead stands for long-term anticipation securities and leap options are options that expire many years in the future for example three years in the future and they tend to expire on the third friday of january so that's what you need to know about time value and theta now as an options trader the next thing that we really have to pay attention to is the volatility of the stock and the market because volatility makes up a huge part of the extrinsic value of an option and many amateurs they fail to look at volatility and so they find themselves not profiting as well so as professionals we focus very much on volatility before we buy or sell an option now in general the higher the volatility of a stock the more expensive the options are so when does volatility increase so there are times when volatility is really low and at times when it's really high it tends to get high during news events for example when a stock is going to announce earnings its volatility increases tremendously or when there's some kind of news event like the fomc which is the time when they announce interest rates uh interest rate increases or reductions so times like that um you know volatility increases if you're trading oil whenever there's an opec meeting volatility increases as well so always remember the golden rule we only buy options when volatility is low because when volatility is low option prices are low and you always want to buy when they are low when they're cheap right you want to buy low and sell high okay and you only want to sell options when volatility is higher because again when volatility is high options become expensive premiums are high that's where you want to sell because you want to sell high and eventually buy back low now in the basics option course we're going to focus on buying options in the advanced course we focus more focusing on option selling strategies so for the purpose of the basic course we want volatility to be low before buying call options or put options got it all right so question people ask would be how do you measure volatility of the stock of the market or of oil prices or of the euro for example well we look at a very important measure known as implied volatility known as iv so from now on in this course when we mentioned that iv is high it means high volatility iv slow low volatility so again when do we buy options when iv is low very good when iv is high never buy options because you can't make money similarly when iv is high you want to sell options so first of all what what does iv mean what is implied volatility well implied volatility shows us where the market views the volatility of the stock in the future and option price is always pricing future expectations okay implied volatility basically implies the magnitude of the underlying stock price move within a year with a one standard deviation probability what what the what the heck does that mean okay let me ex let me break it down for you all right so basically let's imagine there's a stock which is selling at 50 for example again coca-cola and the stock has an implied volatility of 20 so what does it mean by an implied volatility of 20 well it means that the market expects the stock to move up by 20 or move down by 20 within a year within a 68 probability and that's what it means by one standard deviation one standard deviation means a 68 probability of it happening all right and so how is this 20 measured well it's measured using an options pricing model known as a black shows formula so don't worry about all that let's leave that to the mathematicians all we care about is what's the iv right now so how can you find the iv again when you go to your think or swim platform or whatever um platform you're using you can check the iv so for example under option statistics you can see for this stock the current implied volatility is 32 okay so is that high or low well we have to measure it based on the stock's one-year history to say okay based on his one-year history you know what's the rank is it you know high or low so what we are more interested in is to look at the implied volatility percentile so this is what we are looking for and it's shown in terms of a percentage so in this case it's 46 so in general we want to buy options only when the iv percentile is below 40 that tells us that options are cheap right now and we want to sell options ideally when the current iv percentage is above 50 but again we'll focus more on that in the advanced options course are we okay so far all right if you have to review this video do it as many times as you can before you get it but again for now remember we're just interested really in uh the current iv percentile for it to be below 40 to buy options ideally now let me introduce you to the next greek so we've learned about theta the next greek has to do with volatility it's known as vega so vega is v v is for volatility so vega measures how much the option premium will change due to a one percent move in the implied volatility so how sensitive is the option to impact volatility so let's imagine as an option with a premium of 150 selling at 150 premium and it's vega it's 10 cents so what does it mean it means for every 1 move if implied volatility moves from 20 to 21 which is one percent move the option premium will increase by 10 cents from 150 to 160. now in general the further we are from expiration the higher the vega so when you buy options with long expiration dates you've got higher vega shorter expiration dates you've got you've got lower vega the next thing is delta so delta is really important because delta measures the change in the option price or premium relative to the change in the underlying stock price so again delta tells us for every one dollar move in the stock price how much does my option price move so if you see a delta of 0.8 what does it mean it means that for every one dollar increase in a stock price the option price will increase by there you go 80 cents okay now this is also known as 80 deltas okay so notice that for calls delta is always positive why because when stock price goes up calls go up so it's in the same direction as positive but for puts delta is always negative because put prices go opposite of the stock price stock price goes up by one dollar puts gold down by a certain amount all right so in general notice that whenever a call option is at the money the delta is always 0.5 always or 50 deltas which means when you buy an option at the money if the stock price goes up by one dollar your call option will go up by 50 cents half okay and options that are out of the money will have deltas of less than 0.5 so for every one dollar increase in the share price deltas the the option price will move less than 50 cents and in the money call options have a delta of between 0.5 to a maximum of one delta so when the call option is very deep in the money deltas increase to a maximum of one so one means the option behaves like the stock the stock goes up by one dollar the option called what by one dollar so the same thing for puts right so at the money puts delta is always minus 0.5 out of the money puts delta is always less than minus 0.5 in the money puts delta is always uh anywhere from 0.5 to 1 negative so if the put has a delta of minus 1 all right by the way in reality you never have a delta of 1 minus 1. it's 0.99 or minus 0.99 right so again if you see a delta of minus 0.99 in a put option it means that for the one dollar decrease in the stock price the put option will increase by 99 cents which is again almost one for one the other interesting thing to note is that delta also tells us the probability that the option will expire in the money at expiration so in other words when you see a delta of 0.5 it also means that there's a 50 chance the option will expire in the money at expiration and again if it's uh 0.6 in the money it means 60 chance the option will expire in the money at expiration so common question people ask would be okay so what's the best strike price to choose what's the best delta to go for now there's no holy grail answer it really depends on your strategy some traders who are more aggressive they prefer to buy options that are at the money or one strike out of the money now when you buy options that are out of the money they are cheaper so that's a good thing about it but there's a lower probability that you will expire in the money your chance of winning are lower so you have to be confident in a very strong move in a stock price to buy options that are at the money or out of the money traders who are a bit more conservative would buy options which are deeper in the money when it's deeper in the money your delta is higher so when the stock price moves your option moves faster and there's a higher probability that you expire in the money so that's the good thing about buying in the money but they tend to be a bit more expensive so again your pros and cons and you will look more into that into detail under the strategy section alrighty let's look at the last grid which is gamma so remember that as the stock or the option gets more in the money the delta is higher as the stock price moves the delta changes as well so how much does the delta change well this is measured by gamma so gamma measures the change in delta due to a one dollar move in the underlying stock price so gamma is known as the delta of delta right so if you think of delta like speed or velocity gamma is kind of like acceleration how fast does delta move with the stock price moving by a dollar okay so we like to have high deltas and high gammas and gamma is the highest when the option is at the money as you can see from the chart and tends to decrease as it goes out the money or in the money and gamma tends to increase the closer we get to expiration date so as the option is expiring theta is decaying so so not really good as an option buyer but what what's good is that gamma increases as well that will increase the delta as the price moves in our favor right so basically that's how we read the greeks now another column you may notice in the option chain is known as open interest so what does it mean well open interest tells us the total number of option contracts that are currently open and have not been closed yet so they're currently active so these are contracts that have been traded but not have yet been closed exercised or assigned and open interest does not change throughout the day it only adjusts itself at the end of the day for the next trading day so how do you reach open interest well now remember that if you want to buy an option like you want to buy a call or put you have to first buy to open and you sell to close it right so you buy low sell high hopefully and you make money or you can also make money by selling first so you sell to open and then you buy the clothes so again if you're selling you ideally want to sell at a high price sale to open at a high price and buy to close at a lower price so in both circumstances you're opening a trade and closing a trade right so whenever you buy to open or whenever someone in the market buys to open it creates a plus one in open interest so open interest is plus one that means one contract has been opened and if you sell to close the contract or someone sells to close your contract it's minus one so open interest becomes zero similarly if you sell to open a call or put option open interest becomes plus one and if you later buy to close the option or someone buys to close it for you it becomes a minus one so it keeps changing all the time and over here you can see the total open interest for each of the different options at a different strike prices so why is this important to us well basically we like to trade options with a lot of open interest the more open interest there are means the more active that option is and the more active it is notice the bit and us the spread between the bit and us tends to be tighter when you see an option with the bit and arms very far away those are not good ones to trade you want the ones where the bit and us are close together all right and again as we go into the strategy section you'll be seeing that we normally trade options with very tight bid and r spreads with relatively high open interest if you see options with you know zero open interest that means there's no one trading it don't trade those options got it all right all right so again if you take a look at the uh think or swim charting platform if i do key in a stock like again faculty and whatever city group so you could see that again we have got our option chain and uh if i click on this you can see today's option statistics so this is what i'm interested in over here and you can see that for citigroup what is the implied volatility it is 38.92 but like i said the most important thing is to look at the current iv percentage which is my god is a hundred percent right so what did i say i said that we only want to buy options when the current iv percentile is ideally below 40 so this is way too high to buy options on citigroup and if you buy options on citigroup they are really expensive the premium is really really high and it's really hard to make money and one reason is because uh recently there's been a big plunge in the uh the s p 500 index creating a lot of uncertainty and fear and kind of like hurricane season high volatility so the iv percentile is really high but again if your strategy is to sell options and collect premium then it may be a good time to sell covered calls for example with a high iv percentile now over here you can see also on the option chain you can select the layout where you look at um delta gamma theta and vega or you can also look at the open interest over here right so that's the open interest and you'll be learning about that as well right i can see that there are certain options with zero open interest which means that no one is trading those options so you do not want to buy options with the strike price with no open interest as well so now that you've learned the basics of calls and puts you will then learn how to put them together in various combinations sometimes could be one call and one put or two calls and a put or two calls and two puts into various combinations in order to create strategies that allow you to profit under any market condition with any asset so think of calls and puts like the atoms and you know that if you combine atoms into different combinations you can create new molecules new compounds that can create literally anything in the universe so now you are kind of like the god of the markets with these things so in the level 1 course iron shell and level 2 iron striker will be covering a total of 16 powerful option strategies that again you can use to profit under different market conditions so for example if you find that the market or the stock is moderately bullish like it's going up but very slowly what can you use you can use strategies like the put spread uh you can use a strategy like the bull put spread extreme or cash outputs by the way my favorite strategy of all would be the bull put spread extreme that is what gives me a 90 win rate and it's most is one of my bread and butter strategies that generates me most of my profits every single month and this will be covered more in level two the iron striker cost but in iron shell we'll also cover uh care secure puts which is also one of my very very widely used strategies now if you're very bullish you think okay the market's gonna fly then you use things like the bullish synthetic strategy which is also known as the bulbang strategy you can use a bull call spread or a callback ratio now you know that all these terms mean nothing to you right now so what the heck does this mean so again these are all different molecules and you will learn in the lessons to come how to combine these two atoms to create all these molecules for example what's a bull call spread blue call spread is you buy a call and you sell a call at a higher strike price it's a blue coil spread all right uh what's a bull put spread a boo put spread is when you sell a put and you buy another put at a lower strike price so you can see different combinations that create different risk to reward scenarios now but what if the market goes on a downtrend his bear is going down okay and but you're moderately bearish so it may go down may not go down i'm not sure so you're going to make money whether it goes down and go sideways use a bad call spread right bear call spread is one where you sell a call and buy a call at a higher price it's called a bad call spread if you're very bearish you think the market is going to collapse you use a bearish synthetic strategy which is basically you buy a put and you sell a call at the same time at the same strike price that's a very synthetic strategy or you use a bad put spread where you buy a put and you sell another put at a lower strike price or use a put back ratio okay and what if you go sideways like you know it's going sideways but i want to make money as you go sideways you sell card calls or you use diagonal spreads or you can also use calendar spreads snipe bags one of my favorites as well and the iron condor and snipex also has over 90 winning rate uh for their strategy and how about special events like you know brexit or the us elections you know volatility is going to increase how you make money from volatility you use the earnings sniper spread or the earnings probability spread so you can see you've got a strategy for any situation and the best thing is this you can trade options on stocks options on etfs options on indexes like the s p 500 index the dow jones index you can trade options on futures like commodity futures like trade options on oil gold natural gas copper you can also trade options on currency uh on on currency futures like uh trade options on the pound on the australian dollar on the euro so it's gonna be really exciting learning all these things in level one and in level two so here's a table to summarize the different type of securities that we can trade options on and we will cover this in time now um as you know bang and me uh we have different preferred ways of trading options and there's no right or wrong we're going to teach you both and that's why you know i'm going to teach you some bank's going to do some and you know some of them you prefer his style some of them prefer my style but they both work okay so the first thing you can do would be to trade options on equities or that's why they know stocks stocks and etfs so usually when we trade options we like to trade options on good companies fundamentally good companies so those of you who have taken my value momentum investing cost and you know how to select fundamentally strong businesses that are having consistent profits and sales these are the safest to trade options on and these are not normally large cap companies so for example companies like apple so we trade options on apple options on facebook walmart coca-cola you can also trade options on etfs like the spy which is the s p 500 etf or the dow jones etf now for me i would say that yeah about 95 95 of all my trades are based on equities that's my preference so when you trade options on stocks and etfs what are the pros well the pros is relatively you can trade with a smaller contract size and what i like about it is that i understand the companies like i know facebook really well i know apple really well because i've studied the company fundamentals so when i know the fundamentals i know that hey it's going to go up all right even though it may go down the short term so i've got a lot of confidence in trading options on companies that i know really well so those are the pros now what are the cons what are the cons of of equities the cons is that equity options or stock options they are american style now what does it mean basically you have got american style options and european style options american style means that the buy of the option has the right to exercise the option anytime any time before or on the expiration date so sometimes there could be a bit of a risk if you sell an option like you sell a call or put the buyer may exercise it before the expiration now it's not really a risk it's just a bit troublesome because that you know you have to unwind the trade which you're gonna learn how to do it in the future and at the same time it is also very very very rare for the buyer of the option to exercise the option uh way ahead of the expiration date like i told you 95 of the time i sell call options i sell put options on stocks and never in my life has the buyer ever exercised the option uh before the expiration date but theoretically it could happen because it's american style but like i said it's really rare it happens very very rare i've never experienced it before even though i've been trading options for 15 years that's how rare it is okay the other con is that when you trade options on specific stocks there could be earnings or news risk which means for example um you buy a call option on apple for example and you think that it's going to go up and then apple announces bad earnings and the stock drops because the bad earnings are bad news and your trade loses all right so that's a bit of a risk because of the news or the earnings that could be announced but then again remember when you buy an option the most you can lose is the premium that you pay so the risk is capped so that's the other con about equity options now what strategies can we trade on equity options well all the strategies okay every single one of the strategies so that's the first one next you can also trade options on indexes now what are indexes like the s p 500 index spx the nasdaq index ndx and the russell 2000 index rut or russell yeah the russell okay now as you guys know you can't buy the index you can't buy shares in index because the index is not a product right that you can buy shares in but you can trade options on the index so if you think the s p 500 index is going up you can buy a call option if you think it's going down you can buy a put option and so what are the pros of trading on the index itself and not specific companies well the pros would be that index options are generally european style so what's european style european style means that the buyer of the option can only exercise the option on the day of expiration but not before that so the good thing about that is that if you were to sell a call or sell a put there's no possibility of the buyer exercising the option early before the expiration date so that's the pro and there are no there's no earnings risk there's no risk of the company announcing earnings because you're buying the entire index of many many companies but the downside would be generally these options require a higher or bigger contract size which means that each time you answer uh the risk will be bigger but the reward will be bigger as well so generally you need a relatively bigger account like for example i would say at least at least fifty thousand dollar account to trade uh index options at least fifty thousand to 100 000 account which i know not many people have right so unless you've got a big account then this is something that you may not want to trade that much you want to trade more of this where you can trade with as little as you know a few hundred dollars per contract size so even if a three thousand dollar account or two thousand account you could trade this really easily now having said that uh bang found van who always keeps saying said options genius he has created a couple of unique strategies like snipex and snipex 4b and this strategy has a 90 win rate and it allows you to trade on the snp index with relatively low capital uh weighs as little as uh a hundred dollars per contract so it is possible with bank's unique strategy okay um uh we all can also trade strategies like iron condor uh and we can also use hedging strategies on the indexes now actually you can trade all strategies on the index you can trade all of them but between bang and myself our preference is in trading uh using the strategy called the iron condor which you're gonna learn in level two and snipex which is also in level two okay next the next thing would be to trade options on index futures what's the difference between index and futures okay now the difference is that uh when you trade on stocks and indexes you can only trade during the market open hours which would be when does the market open it opens at 9 30 a.m eastern time which is new york time so you can only trade from 9 30 a.m eastern time to 4 p.m eastern time but when you trade options on futures index futures it is 23 hours a day that's right so uh sometimes i will trade on index futures because i want to get in before the market opens so i trade the futures and there are basically two which i trade once in a while the s p e-mini futures ticker symbol slash es and the s p micro e mini futures ticker symbol slash mes now bear in mind whenever you trade futures there's always a slash slash okay slash what's it called a backslash yeah backslash sorry backslash es or backslash mes um again what would be the pros european style again indexes are always european style unless you trade the quarterly expiry date then would be american stock but if you trade the normal monthly expiry or the weekly expiry then is european style right again no earnings and 23 hours a day so you could get in a lot earlier before your friends get in but again the cons would be higher contract size usually but this one the micro e mini futures this one is pretty small yeah it's this one is a bigger contract size this one's pretty small i'll show you examples in a short while now again you could trade any strategy on these futures anything but my preference is to trade normally the debit spreads like the bear put spread and the bull call spread and i normally use this uh when i'm hedging my portfolio okay now the next thing would be to trade options on commodity futures and commodity and currency futures now this is something that i don't do at all okay it's not my thing but bang loves it right uh bang does a lot of currency and commodity but i i kind of stay away from it from it so that's more of his area okay so example would be what are commodity futures oil so oil pick a symbol slash cl could trade options on oil options on gold slash gc options on natural gas gas slash ng you could also trade uh options on currency futures the only time i did it was during brexit when i was betting that a pound would rebound i traded on the options on the currency futures so example the euro b 6e the australian dollar slash 6a okay so again a good thing about this would be european style low earnings but higher contract size again you could trade any strategy but for bang he tends to focus on iron condor for futures but you could trade other stuff as well if you want to lastly you could trade options on volatility so for example when volatility is low and you think that volatility is going to go up you could buy call options on the volatility index and normally i do this as a way to hitch my portfolio as well again we'll learn this more in uh the course the lessons to come right and we tend to focus on the vix the vix is the volatility index so we can trade options on the vix futures yep fixed futures right sounds a bit complicated now but it's actually really simple once you learn all this stuff okay and then you can tell your friends i'm a professional trader okay so again european style no earnings higher contract size and you know between bank and myself we love trading on volatility we love it we make a lot of money from it and we tend to use the back ratio strategy and the bull call spread so bull call spread you learn in level one and back ratio you learn in level two okay so that's an overview of all the stuff that we can trade options on now earlier on you've also heard me mention that one contract is 100 shares one country is 100 shares right well not always okay so yes for u.s listed stocks etfs and indexes one contract is always 100 shares very simple but if you're trading for example on the hong kong market which is what i do often as well it's not always 100 shares so if you're trading options on hong kong stocks go to this website hkex.com.hk and it will show you the contract size for all the different stocks and it's all different so for example you're trading options on may 20 and ping ticker symbol 3690 one contract of options equals to 500 shares if you're trading on jd.com ticker symbol 9618 one contract 500 shares but if you're trading on china everglade ooh evergrande sorry one contract is 2 000 shares alibaba one contract 500 shares right so again before you trade options on hong kong stocks check this website out because meeting us 100 shares no it's 500 shares okay now like i said 95 of all my trades are stocks etfs and indexes so just 100 shares really simple but if you want to explore trading on futures just note that it's different for example if you trade on crude oil again what's the ticker symbol for crude oil cl one contract would be a thousand barrels of oil yep be careful if it expires it may deliver the barrels to your house okay natural gas uh would be 10 000 mm btus which is their unit of measure slash ng uh goal if you're trading gold slash gc one contract would be a hundred ounces of gold so it's all a bit different right like i said once in a while i'll trade the e-mini futures e-mini s p futures slash es one contract will be 50 futures now usually the e-mini futures are for people with big accounts at least 50 to 100 grand a crown if not it's too expensive so if you've got a small account like 2 000 account then it would be more affordable to trade the micro e-mini futures where one contract would be five futures and these are all currencies which i don't trade myself but again uh if you're interested to trade a currency future options you can see that for 6e which is the euros one contract would be 125 000 euros for australian dollar 6a one contract 100 000 aussie dollars and so and so forth it's all there so let me just show you uh some of the examples uh of the different things we can trade options on and again the first thing would be to trade options on specific stocks so for example you may want to trade options on say bank of america so bac and just click on trade again i'm using the td ameritrade think of swim platform but you can trade with any options broke as well so again you can see these are all the expiry dates and if i open up this one oh by the way so notice the ones in purple are weekly options which means they expire on the friday of the week whereas the one in black they are monthly options they expire on the third friday of every month does it matter which one you choose it doesn't matter right it doesn't matter um sometimes i choose weeklies sometimes i choose monthlies as long as you choose the date which suits your strategy that's fine okay so for example you can see that for bank of america um how much would it cost to buy a call option for example at the at the strike price or at the money so 33 dollars is the current price if you buy a call option at 33 um if i click again click buy on ask sell on bid so i click buy here you can see it's to cost me a dollar and 41 cents per contract and again one contract equals to 100 shares right so how much would this cost me you cost me 141 dollars in fact if i click this you can see over here there we are my maximum loss which is the premium that i pay will be 141 the profit is infinite because when you buy a call limited risk unlimited return so this would be an example of trading options on a specific stock or again you can trade options on the etf so etf would be like spy that's an etf and again remember for stocks etfs and indexes one contract would always be 100 shares so you can see for the spy the current price is 375 and again if you were to trade for example the the 19 february expiration and if you buy a call option at the money um which is about 375 thereabouts you buy this call option it's gonna cost you eight dollars and 86 cents so again times 100 what's the total cost of this contract 886 dollars so again if you want to check click on that you can see again your maximum loss would be the premium that you paid for the call option which would be about 886 now for some of you may seem quite expensive right it's like almost a thousand dollars for one trade but again later you're gonna learn how to construct uh call spreads where you can reduce this by half or by you can reduce this by half or 80 percent uh by selling another call to finance the first call all right so those are more advanced techniques you're going to learn in the subsequent lessons to come okay you can also trade options on the index so like the s p 500 index would be the spx so this is the index okay and the index right now is 3768 again you can't buy shares on the index but you can trade options on the index and generally um the the contract size is quite big uh so only for people with bigger accounts like you know fifty thousand hundred thousand dollar accounts it will make sense to trade the options on the index if you've got a smaller account then trade the options on the index etf the contract sizes are smaller so again you can see that um three seven six eight if you buy one call um here it's gonna cost you uh seven nine seven zero times a hundred you can see one contract is almost eight thousand dollars okay so it's really really expensive not many people can afford seven eight uh almost eight thousand dollars a contract and you could lose the entire eight thousand dollars if it expires so you know it's it's not feasible unless you got a really big budget okay but like i said you will learn strategies like the snipex where you're able to trade the sbx with a very small contract size of only a hundred dollars the snipex is taught in level two okay so i've showed you stocks i've showed you uh etfs i've showed you indexes next let me show you the futures again remember futures are 23 hours and once in a while i do trade futures so the first one would be the s p 500 e mini futures ticker symbol slash es so this advantage of trading this again is 23 hours a day you don't have to wait for the market to open you can trade it anytime uh over 23 hours do understand that uh futures are a very very very advanced and so fist sophisticated tool uh normally only professional traders use so if you're not familiar with this please do not trade this until you get more experience right but i just want to show you that when you trade options on the futures um um the e-mini futures okay the multiply is five zero fifty right so for example let's open up this expiry over here and if you buy a call at the money 3746 if i choose 13745 that's close enough so click on that buy you can see that the price will be 38.75 correct so if you buy a call you'll be 38.75 not times 100 no times 50. remember from the chart i showed you earlier on for the snp e-mini futures a one contract would be 50 futures so sure enough if you take this times 50 it will be 1937.5 which is the premium that you pay which again is very very big um normally for people with bigger accounts so if you've got a smaller account and you say i want to trade the futures but it's too expensive you could trade the micro e-mini futures which is slash m e s so this one is cheaper right so this is the uh this one the multiplier is times five only times five so again for example if i were to buy uh say this guy i buy 3745 right so 61.50 so one contract would be 61 50 times five would be uh 307 so that's a lot more affordable for people with smaller accounts okay all right okay finally let me show you for example if you want to trade on gold futures right and this is gold and um you can trade um again you get the option chain that comes out as well so if you go back to that chart uh over here you can see that for gold one contract would be 100 ounces of gold right so again you could you know trade whatever expiry date uh you could buy a call on goal if the goal is going to go up goal is eight one eight two seven right now if you buy this uh at the money one eight three zero that will be thirty dollars and ninety cents so you multiply that by what's the chart again multiply that by 100 ounces of gold uh there you go so the maximum loss would be three thousand dollars and profit infinite right okay so we're coming towards the end of lesson one and i do admit it's been a pretty long lesson because we have to cover a lot of the basics of how options work but i hope that again you've got a pretty clear idea right now and if you need to like i said review the lesson twice three times four times whatever it takes for you to understand it and you got any questions send us an email at support piranhaprofits.com like i mentioned before when i first learned options 15 years ago i found it really challenging myself i was lost it took me a couple of months before i got it but once i got it it became really simple it's like riding a bicycle you never forget it and it changes your investing and trading uh life forever and you would never know how you lived without it okay so like i said don't give up if you find it confusing at first review it and you will understand it you will all right great so we've just completed lesson one and let's see what else we're gonna cover in this iron shell level one course curriculum so in lesson two you'll be learning how to set up the charts and the trading tools how to set up the charting platform which i showed you earlier on very quickly how do you create a watch list how do you read and analyze an option chain how do you analyze the risk to reward graph how do you use probability analysis and how do you place and modify your trading orders how do you enter trade how do you exit the trade all that be covered in lesson two and then we go into lesson three so lesson three we begin the strategy section how do you actually um use options to profit right so lesson three is the simplest way to trade options simply buy a call or buy a put that's it we call it long calls and long puts it's the simplest way to trade but it's the most expensive and you need the price to move a lot for you to make significant profits so again you'll be learning all the entry and exit rules and trade management rules of simply buying long calls and long puts in lesson four you'll be learning how do you generate extra income for your investment portfolio by selling covered calls so you sell call options that are covered by first owning the stock and we'll go through again all the rules on how to do that profitably yeah lesson five would be how do you hit your investment portfolio using protective puts so once again in the short term markets go through corrections uh market goes through bear markets for a few weeks a few months so how do you generate short-term profits as the market goes down and use the profits to buy more good companies at a lower price you'll be learning how to do that uh in this lesson and how do you use put options like an insurance policy on your portfolio lesson six one of my favorite approaches which would be how do you buy stocks of your favorite companies at a discount or even eventually for free and this is warren buffett's favorite strategy that's right he uses this the most we call it selling cash secured puts and again all this comes with a lot of case studies a lot of real-life examples then in lesson seven and lesson eight you'll be learning how to use options to for short-term swing trading so for example if you wanna take a long trade in the market you think that okay the stock's gonna go up i'm gonna take a long trade you will buy vertical call spreads now remember that when you buy a call itself it's very expensive can be really expensive and it loses value every day so how do you reduce the cost of buying a call and reduce the effect of theta decay of the time value being lost you use what is known as a call spread also known as a bull call spread and it looks something like that all right so we buy a call and then we sell another call at our profit target and we use the we use um we sell the call and we use the premium from the call to finance part of the call that we buy so it's a brilliant strategy you're gonna learn it in lesson seven lesson eight if you're betting on the stock going down instead of buying a put you buy a put spread we call it a bare put spread again that lowers the cost of the trade and reduces the effect of time decay so lesson 7 lesson 8 will be very useful um in your swing trading strategies okay this is also known as a bull call spread and this is also known as a bare put spread then in lesson in a bonus lesson you'll be learning the basics of technical analysis now for those of you who may not have taken my professional stock trading course or my investing course you may not have an idea how do you read the market trend like is it an uptrend is it a downtrend what's a support level what are moving averages so for those of you this is a bonus lesson to teach you the basics of how do you read the market to know when to go long when to go short when the mark is going to sideways right so you'll be learning all these techniques how to identify trends using support and resistance moving averages and using specific indicators and candlestick patterns so that concludes lesson one of the basics of options trading and i'll see you guys in the next couple of lessons may the markets be with you if you want to catch my latest videos click on the subscribe button right now click on the bell so you get instant notifications once i upload my latest video if you want to check out my online courses go to piranhaprofits.com we're going to learn how to invest and how to trade the financial markets and create an income from all around the world if you want to join my live wealth academy program go on to wealth academy global.com and find out more about how you can learn investing and trading live online this is adam cool and may the markets be with you