Notes on Options Trading on Webull

Introduction

• Presenter: Adam
• Goal: Teach how to trade options on Webull
• Importance: Essential for success in trading options
• Expectation: Comprehend the content for a good foundation on options trading
• Encouragement: Adam mentions it's manageable even if it looks complex
• Promotion: Link in the description for signing up for Webull to get free stocks
• Video Navigation: Sections with questions at the end for self-assessment

Initial Setup

Applying for Options Trading

1. Open Webull app
2. Select the account
3. Go to More -> Option Trading Level
4. Apply for options trading (Levels 1, 2, 3)

Recommended Level

• Level 3 to access all option strategies
• Beginners may start with Level 1

Updating Options Data

1. Go to account
2. Select Quick Trade
3. Tap any stock -> Options
4. Tap blue clock in top right -> Oprah real time data ($2.99/month)

Understanding Options

Call Options

• Definition: Contracts allowing buying 100 shares at a strike price
• Purpose: Leverage to make more money when stock rises
• Options Chain: Multiple options listed with different strikes and expiration

Terms

1. Intrinsic Value: Built into the price based on current stock vs. strike price (immediate benefit if executed now)
2. Extrinsic Value: Based on time to expiration and implied volatility
3. In-The-Money (ITM): Exercisable options with positive intrinsic value
4. At-The-Money (ATM): Stock price equals the strike price
5. Out-Of-The-Money (OTM): Exercising results in financial loss

Example Scenario

• Call Option Strike: $95
• Stock Price: $96.84
• Intrinsic Value: Positive, allowing a potential profit upon exercising

Buying and Selling Call Options

Buying Strategy

1. Call price listed in premiums; multiply by 100
2. Entry and exit depend on the estimated stock price movement
3. Example: Stock rise to $97 enhances call option value

Selling Strategy

• Exercise Less Preferred: Immediate loss of extrinsic value
• Instead, sell the call option once the desired profit is reached
• Exceptions: Near expiry in-the-money options

Break-Even Analysis

• Definition: Where intrinsic value compensates for the premium paid
• Calculation: Strike price + premium
• Illustrates how far stock should move up to break even

Example Profits

• Buying out-of-money options: High leverage, high risk
• Buying in-the-money options: Lower break-even, less risk

Implied Volatility

• Explanation: Indicates anticipated stock volatility
• Higher IV: higher premiums due to potential large moves

Strategy

• Buy in low IV environments with mean reversion expectation

Greeks (Option Statistics)

Delta

• Measures change in option price for $1 change in stock price
• In-The-Money: Approaches 1
• Out-Of-The-Money: Approaches 0

Gamma

• Rate of change of Delta

Theta

• Time decay; how much the option loses its value daily
• More significant in short-term, out-of-money options

Vega

• Sensitivity to changes in implied volatility
• High at-the-money options

Others

• Rho: Sensitivity to interest rates (least important)

Liquidity (Bid-Ask Spread, Volume, Open Interest)

Bid-Ask Spread

• Difference between buy and sell orders
• Importance: Tighter spread indicates better liquidity

Volume

• Number of contracts traded daily

Open Interest

• Number of active contracts in the market

Practical Purchases

• Avoid wide bid-ask spreads
• Prefer options with high volume/open interest

Puts vs. Calls

Similarities

• Both have intrinsic and extrinsic values
• Both prices influenced by Greeks (Delta, Vega, Theta, Gamma)
• Both affected by implied volatility

Differences

• Calls: Betting on stock price increases
• Puts: Betting on stock price decreases

Exercising

• Calls: Buy shares at strike price
• Puts: Sell shares at strike price

Break-Even

• Calls: Strike price + premium
• Puts: Strike price - premium

Conclusion

• Key Takeaway: Use the specified strategies to manage risks and increase chances of profitability
• Final Thoughts: Adam shares personal insights on ideal setups for trading options

Questions for Review

For Each Section

• Break-even calculation, Greeks, Buying and Selling options effectively, Impact of implied volatility, and Differences and implications of trading puts vs. calls.