did you know that each day trillions of dollars are traded on the stock market yet a significant portion of this trading doesn't involve buying or selling stocks directly welcome to the Intriguing world of options trading a space where investors wield the power to bet on stock prices without owning a single share there's also a free options trading guide that works in combination with this video we'll show you how you can get it later in this video make sure to hit the like button as it goes a long way in supporting our team so what is options trading exactly options trading is the buying and selling of an option which is a contract that gives the bearer the right but not the obligation to buy or sell an underlying asset for a specific price and within a specific time frame options trading at its core is about the right to make a trade in the future at a price decided today it's like having a voucher for a sale price on your favorite Gadget that you can use before it expires whether the price of that Gadget goes up or down let's now get into some key terms and Concepts you must know call option A call option gives the option holder the right to buy the underlying asset for the strike price before or on the expiration date imagine you're eyeing a new smartphone that's set to release next month buying a call option is like paying a small fee today to lock in the purchase price for the next month regardless of if the phone's price skyrockets due to its popularity let's say you're bullish on a tech Company's stock currently priced at $100 you could buy a call option with a strike price of $105 for a small premium of let's say $3 if the stock price goes up to $120 you can exercise the option and buy the stock at $105 even though it's currently trading at $120 in contrast if the stock goes down instead you lose your $3 premium put option A put option gives the option holder the right to sell the underlying asset for the strike price before or on the expiration date let's say you are bearish on a company's stock currently priced at $100 you could buy a put option with a strike price of $95 for a small premium of let's say $3 if the stock goes down to $80 you can exercise the option and sell the stock at $95 even though it's currently trading at $80 in contrast if the stock goes up instead you lose your $3 premium expiration date if you haven't exercised the option buy the expiration date the options contract becomes worthless the more time there is before an option expires the more valuable it is if all things are equal an option loses value the closer it gets to the expiration date because the probability that price will move decreases this is known as time Decay strike price the strike price is the agreed upon price at which the asset can be bought or sold if the option is exercised in the money this is when you own a call option and the strike price is B below the current market price so if the stock is at $100 and your call option has a strike price of $90 it is in the money in contrast if you own a put option the strike price is above the current market price so if the stock is at $100 your put option has a strike price of $110 meaning it is in the money out of the money this is when you own a call option and the strike price is above current market price so if the stock is at $100 and your call option has a strike price of $110 it is out of the money in contrast when you own a put option the strike price is below current market price so if the stock is at $100 your put option has a strike price of $90 meaning it is out of the money outof the money options are less expensive than in the money options at the money this is when the strike price of the option is identical to the current market price of the stock premium the fee paid by the option buyer to the option seller for the actual options contract is known as the premium the Greeks the risks associated with options have actually been given names based on the Greek alphabet and are referred to as the Greeks in simplified terms the Greeks can help gauge options premiums through measuring risk the most common Greeks are Delta which is a sensitivity to price changes of the underlying asset gamma which is Delta sensitivity to price changes in the underlying asset f beta which is sensitivity to the passage of time also known as time Decay Vega which is sensitivity to changes in volatility row which is sensitivity to interest rate changes so there are two main reasons why Traders like options first is limiting downside when you purchase an option the most you can lose is the premium you've paid this contrasts sharply with stock ownership where the potential loss could span from minor to catastrophic depending on the Stock's performance second is leverage options trading also offers a smaller Financial commitment with potentially higher returns this is because options allow you to control a larger amount of stock with a relatively small investment the premium if the stock moves in your favor the percentage return on the premium can be substantial however if the market doesn't move as expected your only loss is the premium paid making it a calculated risk with a clear maximum loss let's now get into some options trading Strat IES buying calls or long calls imagine you've got a hunch that a particular Company's stock let's call it rocket Corp currently priced at $50 is going to soar in the next month because of a groundbreaking product release buying a call option might be your ticket to profit from this potential surge without needing to Shell out the full price for the stock so you decide to buy a call option with a strike price of $55 expiring in a month for a premium of $2 per share the C contract gives you the right to buy shares of Rocket Corp at $55 each no matter how high the price leaps if your prediction hits the mark and the stock Rises to $70 you can call in your option buy the stock at $55 and either hold on to it or sell it at the market price of $70 your profit take the current $70 market price minus the $55 strike price minus the $200 premium which leaves you with a $13 profit you can also sell the option contract for a profit instead of exercising the option buying puts or long puts suppose you believe that rocket corpse stock is about to Tumble from its current $50 price due to unfavorable Market rumors you buy a put option with a strike price of $45 paying a premium of $2 per share with the same one- Monon expiry this contract gives you the right to sell rocket corpse stock at $45 even if a nose Dives to $30 should the stock price indeed plummet you can exercise your put option your profit take the $45 strike price minus the $30 current market price minus the $2 premium which leaves you with a $13 profit you can also sell the options contract for a profit instead of exercising the option covered calls a covered call is when an investor owns a stock and sells a call option on the same stock covered calls are an effective way to protect an in investment in case of decline in value they also give the investor an opportunity to make money on the premium the covered call strategy is a favorite among investors looking to generate an extra stream of income for stocks they're already happy to hold on to here's how it works imagine you own shares of a company called Blue Sky Technologies currently trading at $100 you're bullish on the company's long-term prospects but don't expect significant price movement in the short term to capitalize on the stagnation you decide to bite or sell a call option on Blue Sky Technologies with a strike price of $110 expiring in 1 month for which you receive a premium of $3 per share the beauty of covered calls lies in their ability to provide a cushion against a slight dip in the stock price thanks to the premium you pocket if Blue Sky Technology's stock stays under $110 the option expires worthless and you keep the premium adding a bit of padding to your investment however if the stock surges past $110 you might have to sell it at this price potentially missing out on higher profits essentially you're trading the chance for additional gains above the strike price for an immediate return protective puts the protective puts strategy serves as an insurance policy for your stock Investments imagine you've seen considerable gains on your shares of green earth Innovations now valued at $150 each while you're optimistic about the future you're wary of upcoming Market volatility that could erase your hard-earned gains to safeguard your position you buy a put option with a strike price of $140 expiring in 3 months for a premium of $5 per share the protective put limits your potential loss to the difference between the Stock's current price and the strike price of the put plus the premium paid if Green Earth Innovations stock drops to $120 you can exercise your option to sell at $140 significantly reducing your loss however if the price remains stable or climbs the premium paid for the put cuts into your profits essentially you're paying for Peace of Mind ensuring that no matter how the market swings you have a predetermined exit strategy that protects your initial investment both covered calls and protective puts demonstrate the nuanced balance of risk and reward in options trading covered calls allow you to generate income on your existing stock positions with the trade-off being that you might miss out on higher profits on the flip side protective puts provide a SA safety net against downturns ensuring that your losses are not catastrophic at the cost of the premium paid for this insurance now to access the free options trading guide go to the description below and click the link make sure to hit the like button as it allows 4our team to continue to produce more free content on YouTube don't forget to tell us in the comments below what topics you want us to cover next also go follow us on our Instagram account @ W stre to 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