This is glorious, I've been looking for "buy options with 1 day expiration day call" for a while now, and I think this has helped. Have you heard people talk about - Winoorfa Option Olegroson - (search on google ) ? Ive heard some great things about it and my brother in law got great results with it.
This guy is amazing!!!! No mumble jumble bla bla like some “youtubers” who don’t really understand options themselves and try to use jargon to look “smart” and just confuse people who try to learn. Thank you Mike!!!
Studying for CFA 3 and it recommends selling puts on red instead of simply buying stock. Thought I had a good handle on the basics of options but haven't used them much in practical applications. This really helped.
You would have to already know what he's talking about, to know what he's talking about. I'm rewinding and rewinding and taking notes, which I will read and re-read.
He says, "When we buy options, we have limited loss." But a short is an option, right? And the $GME shorters are being soaked for billions in losses. Everywhere else I hear a short option has unlimited loss because the price can technically go up to infinity.
With puts, ITM strikes are above the market price. OTM puts are below the stock price. With calls, ITM strikes are below the market price. OTM calls are above the stock price. Long calls offer the right to buy 100 shares at the strike price, so strikes above the stock price have no real value at expiration since you can buy shares at a lower price in the market. Long puts offer the right to sell 100 shares at the strike price, so strikes below the stock price have no real value at expiration since you can sell or short shares at a higher price in the market.
@@tastyliveshow thank you! Great content BTW! I started trading options just last week! I am hooked because my very first try at it I made $800!! I am grateful for channels like yours that make it easy to understand these topics!
One of the simplest best video for beginners like myself. watch it more than once and have a white board to draw this concept so you can get it. take your time until you get it.
Great video. I prefer selling cash secured puts since I get premium and if option is exercised You own the stock at a better price. To choose good stocks sometimes I use scanners, e.g. by 5greeks
Hey thats exactly what I want to do. Is that called "buying" or "selling" cash secured puts? I see that you wrote selling cash secured puts but I am confused how you can sell something that you do not own. Sorry, I only do covered calls and I am a total noob. Thanks bro
@@ExtremeWassabi selling a cash secured put option. You are selling the commitment to buy 100 shares of stock per contract that you sell and when you have the cash available to fulfill your commitment it's called cash secured. If you don't have the cash to fulfill the commitment then you are selling naked put options. The guy you commented on has the money to purchase the stock he is selling the commitment on hence cash secured. At the end of the expiration period the options he sold expire worthless and he keeps the premium for selling the commitment or the stock closes below the strike price he sold the put contract at so he keeps the premium and buys the stock at the strike price he originally wrote the option at. I do this strategy very often also. once you get assigned you can start selling covered calls. If the stock gets called away you can begin selling cash secured put options again. Many people call this the wheel strategy.
Only comment that confuses me at 6:05....."Because we have that limited profit and tying that together with the UNLIMITED LOSS, we have a higher probability of success" Huh? Please explain. If you don't cover or protect from the prospect of UNLIMITED LOSS...you not only eliminate success, but you have potential for UNLIMITED LOSS. What am I missing?? Are you basing probability on the possible actions of the stock price (up, down, same) and mean that because you win if it does two of those, that probability is on your side? While that is true, isn't it dangerous to assume or remove the probability that the stock price could plummet from the equation?
What I was aiming to say was that when risk is higher than reward with selling options, the probability of success will generally be higher. Compare an ATM short put to an OTM short put. An ATM short put has a higher profit potential, but lower probability of success because it is so close to the stock price. An OTM short put has a lower profit potential, but higher probability of success because it is further away from the stock price and has a better chance of expiring worthless. Option traders must realize that even when selling put options, the risk of an underlying going to $0.00 does still exist, and it was not my intention to brush it off.
If you sell a put say 8$ strike and before expiration it shoots up to like say 15$ would it be good to close it early and sell your stock? Confuses me if your credit goes up or down when stock goes up vs down .
This training was recommended by legit sources and I can't see why. I've watched the first video of the series and after 2 minutes of the second video I'm finding myself checking other videos to understand this one. This is not for beginners. Don't get me wrong, I'm grateful this is a free course, but I'm also glad I didn't pay for it.
Intrinsic value calculation is fixed at distance between ITM strike and stock price, but extrinsic value could differ greatly depending on the expiration and time remaining.
Forgive me, Im not sure if Im getting this right. Is negative/positive theta correlated with the pop% rate? So giving more time translates to a better probability of the contract to expire while ITM so positive theta? And the opposite for negative theta?
Positive theta just means there is extrinsic value that will decay in your favor if you held to expiration. So, selling an OTM put for example would result in a high POP with a positive theta, since you are really betting AGAINST the stock moving down to your strike. If you buy a put, that will have negative theta, and it will have a lower POP than selling a put because you now need the stock to move in your favor, or have an IV expansion to offset the negative theta decay that the option will realize. With long options, you need stuff to work in your favor. With a short OTM option, you are betting against those things happening.
So if i go to Sell a Put option and i pick one that has a strike price above current market price and the premium brings the breakeven price to lower than the current market price, id be in the green on that option, right?
If the stock stayed right there up to expiration yes, the extrinsic value would decay and the intrinsic value would remain, but you'd have to close it prior to expiration if you didn't want the shares.
stocks cannot go below $0, so the liability with a short put is the distance between your strike price and $0, less any extrinsic value received for selling the put.
@@tastyliveshow A misunderstanding likely due to a lapse in wording on my part then. I meant buying short - shorting a stock - and not selling a put option.
I'm confused here. I get a call option is the option to buy but for put options don't you have to already own the stock and then buy the option to sell it? So if the stock increases you lose the premium but can potentially make that money back by selling the actual stock?
Hi Raul, You would enter an order to BUY the position to CLOSE. Where you get filled will all depend on the liquidity of the product, whether you're putting in a market order or a limit order, etc.
A long put option is the theoretical equivalent of 100 shares of short stock at the strike price, so it's similar to being short 100 shares of stock on that strike price - the difference is extrinsic value in the long put, and the defined risk aspect of buying the put where max loss is debit paid, compared to shorting shares where max loss is infinite.
I am new to stock market. Not sure which is a better option for me. I have little money to invest. So should I invest in Put or in Market when I start our purchasing.
Long call has unlimited profit and limited risk, but a lower probability of success at expiration. Short put has limited profit and the risk of 100 shares at the strike price, but can be profitable in many ways.
When you exercise a put option and don't own the shares, do you technically buy the shares to exercise or does the seller basically buy them and give you the difference?
You cannot - if you hold the put through expiration and it is ITM the broker will give you short shares, but outside of that you cannot be assigned early.
A lot of traders hold the options short term. Say you buy a put @ $1.00, options are traded at 100 shares per option so your cost would be $100. At some point before the option expires the stock price goes down and your option is now worth $1.50, simply sell the option and pocket $50 profit. Just be aware the longer you hold an option the less it is worth. (theta decay) Options can be great, because the price of the option moves a lot more than the price of the stock. (vega)
just a newbie option trader friendly warning: buying puts does not always profit when stock prices goes down. Because this video has not covered implied Volatility. If the stock has been volatile recently, the IV is really high, all premiums on both call&puts are super inflated. If stock price crash, IV also get crushed, therefore you will lose alot of money in your put options even the stock price is falling, that is because you purchased a inflated option premium.
You do not - you can buy puts and calls without owning any stock, with permission from your broker - you'd just be trading in a speculative way in this case.
When you buy a put, and the stock drops, is it better to get the stock and sell it or sell the put to close it? How can you tell? Wondering how best to handle my bought puts with intrinsic value. Also, they are protective puts.
This is really tough - the issue is that if you sell out of your puts, you remove the protection below that strike if it keeps going down. At the same time, if you sell out of your puts for a profit, that is now a cost basis reduction against your shares. You have to make the call on where you're comfortable exiting the put hedge at, since it removes protection. To answer your question, if they'r protective puts we sell out of those rather than the shares, since the protective puts gaining value also means they're gaining extrinsic value that will evaporate by expiration - we typically want to secure that if we're ready to remove the protection. Totally up to you though!
I do like your video on calls maybe you can answer a question for me on LCA on the call in November at $35 strike would you buy it right now the stock is currently trading for around $16-$17
@tastytrade How would this apply to an option that is exercised after the ex dividend date. At that time the stock price would've dropped by the dividend amount. For example, NLOK is paying a $12 dividend, buying put options are looking to be more profitable than the dividend payment.
Wait, so in buying a Put, I have a right to sell a stock, and in selling a Put, I have a right to sell a stock. Not sure what the difference is? It's somewhat confusing...??
Instead of using ITM/OTM I’ll ask a different way...when buying a put, I want my strike price above the current stock price correct? This way, the only time I lose is if the stock price rises above that strike price. Since we are bearish and thinking stock will fall, we’d pick a strike price way above so we cover ourselves, correct?
that is one way to RETAIN value if the stock stays the same, yes, but it's more expensive and therefore a larger loss if the stock moves up. You are on the right track though in terms of retaining intrinsic value if the stock doesn't move.
Ok.... for example buying a Put on Kodak. When purchasing the contract... I want the highest Strike price possible? Thay doesnt make sense... I though you want the price to fall so a lower strike would be the target.
So if the stock I sell a put on goes below the strike what happens? Do I have to buy the stock at the strike, or do I lose the money below break even? In selling puts... Is my total loss considered me buying the contract at expiration? Because my understanding is if it's below the strike, I'll own a hundred shares.
yes, If you sell a put and the stock expires below the strike price. You will be required to buy 100 shares at that strike price. However your break even price will be the strike price minus the premium that was paid to you for selling the put.
Great Video. I'm new to options trading and it is helping me alot. I just have one question, what happens when spot price goes below strike price for sometime and then comes back up again before expiry in case I'm selling put. Hope you'll answer. Thanks, Nitesh Verma
Glad the videos are helpful! Nothing would happen - the strike would slide ITM, which just means it has a blend of intrinsic and extrinsic value, instead of just extrinsic value OTM. If the strike went OTM again, it would be made up of purely extrinsic value again. Assignment risk is only for short options, and that really only applies when extrinsic value is very very low, which isn't the case for an option that slides slightly ITM, as extrinsic value is highest near the stock price.
You are correct - it is not technically unlimited as you can only make the difference between the strike price and $0.00 less the cost to purchase the option, but typically when a stock plummets IV increases, so extrinsic value could increase as well leaving an undetermined amount of extra potential profit. Either way you are correct a stock cannot go below $0.00 so you CAN calculate your max profit at expiration.
Unlimited loss is a little confusing for selling a put because if the underlying asset is below the strike price, at expiration, the option will just be exercised and you now own the stock.
so when buying a put, say the current price of the stock is 100 you need a strike price below 100 but how come there are higher strike price? 101 102 103 104 etc
Those strikes allow you to sell shares at a higher strike price, but the premium for that right is also higher because those options are already in the money.
Stocks are either worth something or nothing. They can never be worth less then nothing. Zero represents the stock being worth nothing. Therefor technically there is a limit to the profit in part of put buyer. The limit is if it hits zero he doesn’t have to sell any stock, he just gets handed the strike price times the amount of share in cash. The likelihood of this scenario is extremely unlikely. Unless we are talking about penny stocks, which would be a stupid put sell.
How is it unlimited profit? If you buy a put at a set price, then you've locked in the maximum profit you can make right? The maximum profit would be if the stock went to $0. The stock can't go lower than $0, so there is a limited profit, unless I'm missing something.
Intrinsic value is capped at expiration, but extrinsic value based on IV spikes throughout the duration of the trade could create boosts in extrinsic value, so it's hard to say how the option could react to changes in the market prior to expiration. At expiration everything is black & white though.
i really just want to mathematically understand how much more money you're making from the put option as it goes down because i just don't get it and nobody explains that. Everyone just makes says that same general statement "you make more as the stock decreases in value" Please help /:
Ok, I am kinda confused on how people make money buying Put options. For context, I'm a beginner trying to understand how people make money doing 'naked Puts' (Where you don't actually own any stock of the company. I think that's what people mean by 'naked') For example, we'll use Tesla, which is selling at $427 a share. The current date is 3-20-20 Suppose I buy a $420 Put to expire on 4-6-20. Tesla prices keep dropping for a couple weeks. Fast-forward to 4-4-20, and Tesla is at $350 a share. This means that my Put contract is very valuable...... But according to this, if I want to sell a Put, then we want the stock price to go up?? Doesn't that defeat the purpose of wanting it go down when buying? I do not fully understand how people make money with Puts. Maybe there's a bunch of different ways to close an option contract that I just don't know about.
Hey Kevin, You're confusing the actual transaction with the directional assumption. If you buy a put to open you absolutely want the stock to go down. You also want IV to expand to help keep the value of the put afloat in case it doesn't move that much. When closing a long put, you do have to sell the put you bought, just like a regular transaction. This just closes the trade, it doesn't mean you want the stock to go up. Now, if you SOLD a put to OPEN from the beginning, then yes you'd want TSLA to go up, because you're betting AGAINST the movement down below your strike price when you're doing this. Sold to Open means you have to BUY back to close. Buy to Open means you have to SELL to close. I hope this helps!
So, summary, buying a put you want the stock price to go down to profit and the more it goes past the break even point, the more profitable, all the way down to 0? I think!
![Felix "Unfair" | [Stray Kids : SKZ-PLAYER]](http://i.ytimg.com/vi/Oswujxm2Ag0/mqdefault.jpg)
I'll definitely have to watch this a dozen more times for it to sink in. Awesome stuff chief.
Me too
Brooo it clicks one day....n its worth it.. u figure it yet? Hit me up i got u
Look at different teachers on youtube. It will sink in soon
A dozen?. You are way smarter than me than.
Facts
we always need to continue to watch this over and over. This is a process of education. Its not a 1 night thing.
It's so fun too
This is glorious, I've been looking for "buy options with 1 day expiration day call" for a while now, and I think this has helped. Have you heard people talk about - Winoorfa Option Olegroson - (search on google ) ? Ive heard some great things about it and my brother in law got great results with it.
Have u figured it out..it clicked for me one day..hit me up i got u
Garbage it's a one night thing only people don't know how to teach it. It's very simple.
This guy is amazing!!!! No mumble jumble bla bla like some “youtubers” who don’t really understand options themselves and try to use jargon to look “smart” and just confuse people who try to learn. Thank you Mike!!!
Studying for CFA 3 and it recommends selling puts on red instead of simply buying stock. Thought I had a good handle on the basics of options but haven't used them much in practical applications. This really helped.
Amazing how you did that in one take. What software did you use to record yourself this way?
It's called "expressions" and "tricaster" software!
woah, found Mikey Millions
Thanks explaining option put call/sell....This has helped me because I was about to pull my hair lol
Why is the bottom right corner blurred out?
Wow, this is the best explanation I have ever had.
thank you. y0u have cleared up what i have been telling my other trading friends that buying puts is for the stock to go down. great vid
A video that finally helped me to understand options
You’re the only one who explained it in a way that I could understand ty!
This made the most sense compared to other videos, much appreciated.
I agree.
They should have taught this in school dang.. my overgrown butt had to watch this 5 times to barely get it
Great effort to teach but I have a low attention span for the complexity. I will get it in time though. Thanks.
A A did you get it yet
@@jadakid1395 nop
Jonathan Vo I agree
I was lost within 60 seconds. :/
stick with it
Good I thought I was a moron
@@tomTom-lb5cu i thought the same....it is quite easy to understand call than put
You would have to already know what he's talking about, to know what he's talking about. I'm rewinding and rewinding and taking notes, which I will read and re-read.
He says, "When we buy options, we have limited loss." But a short is an option, right? And the $GME shorters are being soaked for billions in losses. Everywhere else I hear a short option has unlimited loss because the price can technically go up to infinity.
Great video and explanation; nice pace.
Recommended for rookie option traders
out of 10 youtubers this is the best explained video thanks brother great job!
Thank you for this explanation
Awesome video, thank you.
Thank you, Mike. Appreciate you.
Thanks for that explanation! Newbie here.
Glad it was helpful!
Does the strike price have to be higher or lower than the market price to be "in the money" when buying a put option?
With puts, ITM strikes are above the market price. OTM puts are below the stock price.
With calls, ITM strikes are below the market price. OTM calls are above the stock price.
Long calls offer the right to buy 100 shares at the strike price, so strikes above the stock price have no real value at expiration since you can buy shares at a lower price in the market.
Long puts offer the right to sell 100 shares at the strike price, so strikes below the stock price have no real value at expiration since you can sell or short shares at a higher price in the market.
@@tastyliveshow thank you! Great content BTW! I started trading options just last week! I am hooked because my very first try at it I made $800!! I am grateful for channels like yours that make it easy to understand these topics!
Great explanation!
Nice explanation
Thanks Mike
Finally. I Understand. Thank you 💗
I watched a few different youtubers on options and you just explain it so clear. BTW i'm a 1 week old trader (try not to bash) :)
Glad you enjoy it! Thanks!
Thanks for sharing knowledge.
One of the simplest best video for beginners like myself. watch it more than once and have a white board to draw this concept so you can get it. take your time until you get it.
Amazing! Great explanation. Thanks.
If I have to watch this 100 times to learn it, so be it. It’ll be worth it when I master it 💪🏾
You gave the best idea.thanks a lot...
Well explained
I am desperately trying to understand Casino Royale rn and this is helping a lot.
Excellent job at explaining!
Great video. I prefer selling cash secured puts since I get premium and if option is exercised You own the stock at a better price. To choose good stocks sometimes I use scanners, e.g. by 5greeks
Hey thats exactly what I want to do. Is that called "buying" or "selling" cash secured puts? I see that you wrote selling cash secured puts but I am confused how you can sell something that you do not own. Sorry, I only do covered calls and I am a total noob. Thanks bro
@@ExtremeWassabi selling a cash secured put option. You are selling the commitment to buy 100 shares of stock per contract that you sell and when you have the cash available to fulfill your commitment it's called cash secured. If you don't have the cash to fulfill the commitment then you are selling naked put options. The guy you commented on has the money to purchase the stock he is selling the commitment on hence cash secured. At the end of the expiration period the options he sold expire worthless and he keeps the premium for selling the commitment or the stock closes below the strike price he sold the put contract at so he keeps the premium and buys the stock at the strike price he originally wrote the option at. I do this strategy very often also. once you get assigned you can start selling covered calls. If the stock gets called away you can begin selling cash secured put options again. Many people call this the wheel strategy.
Thanks a lot brother no one can explain better than you
Wish youd explained what theta is and maybe showed some examples of you buying and selling a put
Haven’t yet sold a put . But will try this helps a lot.
Great vid, thanks.
Only comment that confuses me at 6:05....."Because we have that limited profit and tying that together with the UNLIMITED LOSS, we have a higher probability of success" Huh? Please explain. If you don't cover or protect from the prospect of UNLIMITED LOSS...you not only eliminate success, but you have potential for UNLIMITED LOSS. What am I missing??
Are you basing probability on the possible actions of the stock price (up, down, same) and mean that because you win if it does two of those, that probability is on your side? While that is true, isn't it dangerous to assume or remove the probability that the stock price could plummet from the equation?
What I was aiming to say was that when risk is higher than reward with selling options, the probability of success will generally be higher. Compare an ATM short put to an OTM short put.
An ATM short put has a higher profit potential, but lower probability of success because it is so close to the stock price.
An OTM short put has a lower profit potential, but higher probability of success because it is further away from the stock price and has a better chance of expiring worthless.
Option traders must realize that even when selling put options, the risk of an underlying going to $0.00 does still exist, and it was not my intention to brush it off.
Buy a put above a put above or below stock price?
If you sell a put say 8$ strike and before expiration it shoots up to like say 15$ would it be good to close it early and sell your stock? Confuses me if your credit goes up or down when stock goes up vs down .
Options makes this 8 minute video feel like its an hour long 😂😩 Thank you for the great info!
This really opened my mind up 🆙
This training was recommended by legit sources and I can't see why. I've watched the first video of the series and after 2 minutes of the second video I'm finding myself checking other videos to understand this one. This is not for beginners. Don't get me wrong, I'm grateful this is a free course, but I'm also glad I didn't pay for it.
Daniele- Ive watched and dont get it. No context just words on a whiteboard. No analogies, comparison, etc...I'm looking for another video, too
thank you !
Watched it in 1.25x ✋
Can we supercede the strike price for a higher return or is it pretty fixed in you selling at the strike price
Intrinsic value calculation is fixed at distance between ITM strike and stock price, but extrinsic value could differ greatly depending on the expiration and time remaining.
Forgive me, Im not sure if Im getting this right. Is negative/positive theta correlated with the pop% rate? So giving more time translates to a better probability of the contract to expire while ITM so positive theta? And the opposite for negative theta?
Positive theta just means there is extrinsic value that will decay in your favor if you held to expiration. So, selling an OTM put for example would result in a high POP with a positive theta, since you are really betting AGAINST the stock moving down to your strike.
If you buy a put, that will have negative theta, and it will have a lower POP than selling a put because you now need the stock to move in your favor, or have an IV expansion to offset the negative theta decay that the option will realize.
With long options, you need stuff to work in your favor. With a short OTM option, you are betting against those things happening.
So if i go to Sell a Put option and i pick one that has a strike price above current market price and the premium brings the breakeven price to lower than the current market price, id be in the green on that option, right?
If the stock stayed right there up to expiration yes, the extrinsic value would decay and the intrinsic value would remain, but you'd have to close it prior to expiration if you didn't want the shares.
Great explanation on the Put concept.
I sold SOXL put 10 contracts expiring May 20, as I intend to buy. Is it safe?
Lol, I just buy SOXS and sell and get my money...
I might have missed it, but did you mention the unlimited liability of buying short? I feel like that disclaimer should be emphasized.
stocks cannot go below $0, so the liability with a short put is the distance between your strike price and $0, less any extrinsic value received for selling the put.
@@tastyliveshow A misunderstanding likely due to a lapse in wording on my part then. I meant buying short - shorting a stock - and not selling a put option.
I'm confused here. I get a call option is the option to buy but for put options don't you have to already own the stock and then buy the option to sell it? So if the stock increases you lose the premium but can potentially make that money back by selling the actual stock?
nice chapter...
Hi Mike, thanks for your video. My question is how do I close a position when I have sold a Put Option? Do I have to buy it at current price?
Hi Raul,
You would enter an order to BUY the position to CLOSE. Where you get filled will all depend on the liquidity of the product, whether you're putting in a market order or a limit order, etc.
You buy it back at the ask price at the point which you want to buy it.
What's the difference between going short and put options is it the same thing? @tastytrade
A long put option is the theoretical equivalent of 100 shares of short stock at the strike price, so it's similar to being short 100 shares of stock on that strike price - the difference is extrinsic value in the long put, and the defined risk aspect of buying the put where max loss is debit paid, compared to shorting shares where max loss is infinite.
I am new to stock market. Not sure which is a better option for me. I have little money to invest. So should I invest in Put or in Market when I start our purchasing.
whats the diffrence between selling a put vs buying a call? both are betting on bullishness.
when to choose which one.
Long call has unlimited profit and limited risk, but a lower probability of success at expiration. Short put has limited profit and the risk of 100 shares at the strike price, but can be profitable in many ways.
When you exercise a put option and don't own the shares, do you technically buy the shares to exercise or does the seller basically buy them and give you the difference?
If I buy a put can I be assigned
You cannot - if you hold the put through expiration and it is ITM the broker will give you short shares, but outside of that you cannot be assigned early.
So a put is like insurance?
is this CFD?
Oohhhhhhh I get it ok thanks bro ❤❤❤
So for these strategy’s I have to buy at least 100 total shares?
A lot of traders hold the options short term. Say you buy a put @ $1.00, options are traded at 100 shares per option so your cost would be $100. At some point before the option expires the stock price goes down and your option is now worth $1.50, simply sell the option and pocket $50 profit.
Just be aware the longer you hold an option the less it is worth. (theta decay)
Options can be great, because the price of the option moves a lot more than the price of the stock. (vega)
just a newbie option trader friendly warning: buying puts does not always profit when stock prices goes down. Because this video has not covered implied Volatility. If the stock has been volatile recently, the IV is really high, all premiums on both call&puts are super inflated. If stock price crash, IV also get crushed, therefore you will lose alot of money in your put options even the stock price is falling, that is because you purchased a inflated option premium.
So you have to own the stock (at least 100 shares) to buy a put option?
You do not - you can buy puts and calls without owning any stock, with permission from your broker - you'd just be trading in a speculative way in this case.
When you buy a put, and the stock drops, is it better to get the stock and sell it or sell the put to close it? How can you tell? Wondering how best to handle my bought puts with intrinsic value.
Also, they are protective puts.
This is really tough - the issue is that if you sell out of your puts, you remove the protection below that strike if it keeps going down. At the same time, if you sell out of your puts for a profit, that is now a cost basis reduction against your shares. You have to make the call on where you're comfortable exiting the put hedge at, since it removes protection. To answer your question, if they'r protective puts we sell out of those rather than the shares, since the protective puts gaining value also means they're gaining extrinsic value that will evaporate by expiration - we typically want to secure that if we're ready to remove the protection.
Totally up to you though!
What I'd I sold a put way over the money ?
I do like your video on calls maybe you can answer a question for me on LCA on the call in November at $35 strike would you buy it right now the stock is currently trading for around $16-$17
@tastytrade How would this apply to an option that is exercised after the ex dividend date. At that time the stock price would've dropped by the dividend amount. For example, NLOK is paying a $12 dividend, buying put options are looking to be more profitable than the dividend payment.
So sell the stock if it's in the money even if I don't own the shares? so confused
can you sell a put same Day??
Sure - but if you buy a put and then sell the same put in the same expiration, the position will disappear.
Wait, so in buying a Put, I have a right to sell a stock, and in selling a Put, I have a right to sell a stock. Not sure what the difference is? It's somewhat confusing...??
Instead of using ITM/OTM I’ll ask a different way...when buying a put, I want my strike price above the current stock price correct? This way, the only time I lose is if the stock price rises above that strike price. Since we are bearish and thinking stock will fall, we’d pick a strike price way above so we cover ourselves, correct?
that is one way to RETAIN value if the stock stays the same, yes, but it's more expensive and therefore a larger loss if the stock moves up. You are on the right track though in terms of retaining intrinsic value if the stock doesn't move.
@@tastyliveshow thanks for the reply!
I have a question. When buying a PUT you want the Strike Price to be as low as possible to maximize profit... correct?
No you want the stock price to DROP as low as possible AFTER you buy the put, for that put to increase in value.
Ok.... for example buying a Put on Kodak.
When purchasing the contract... I want the highest Strike price possible? Thay doesnt make sense... I though you want the price to fall so a lower strike would be the target.
So if the stock I sell a put on goes below the strike what happens? Do I have to buy the stock at the strike, or do I lose the money below break even? In selling puts... Is my total loss considered me buying the contract at expiration? Because my understanding is if it's below the strike, I'll own a hundred shares.
yes, If you sell a put and the stock expires below the strike price. You will be required to buy 100 shares at that strike price. However your break even price will be the strike price minus the premium that was paid to you for selling the put.
Great Video.
I'm new to options trading and it is helping me alot. I just have one question, what happens when spot price goes below strike price for sometime and then comes back up again before expiry in case I'm selling put. Hope you'll answer.
Thanks,
Nitesh Verma
Glad the videos are helpful!
Nothing would happen - the strike would slide ITM, which just means it has a blend of intrinsic and extrinsic value, instead of just extrinsic value OTM. If the strike went OTM again, it would be made up of purely extrinsic value again.
Assignment risk is only for short options, and that really only applies when extrinsic value is very very low, which isn't the case for an option that slides slightly ITM, as extrinsic value is highest near the stock price.
Super bro
How would a put option and short have unlimited profitability if the decrease in price is limited (to 0$)?
You are correct - it is not technically unlimited as you can only make the difference between the strike price and $0.00 less the cost to purchase the option, but typically when a stock plummets IV increases, so extrinsic value could increase as well leaving an undetermined amount of extra potential profit. Either way you are correct a stock cannot go below $0.00 so you CAN calculate your max profit at expiration.
I understood your teachings well. Very descriptive.
I like the intro music, that's got to be my favorite Led Zeppelin song
a technical topic needs a technical explanation. thank you greatly!
Unlimited loss is a little confusing for selling a put because if the underlying asset is below the strike price, at expiration, the option will just be exercised and you now own the stock.
I failed the FM exam on two occasions. Hence, I partially understand this video.
so when buying a put, say the current price of the stock is 100 you need a strike price below 100 but how come there are higher strike price? 101 102 103 104 etc
Those strikes allow you to sell shares at a higher strike price, but the premium for that right is also higher because those options are already in the money.
can you explain further, what does in the money mean?
What does "cannot pass zero" mean?
Stocks are either worth something or nothing. They can never be worth less then nothing. Zero represents the stock being worth nothing. Therefor technically there is a limit to the profit in part of put buyer. The limit is if it hits zero he doesn’t have to sell any stock, he just gets handed the strike price times the amount of share in cash. The likelihood of this scenario is extremely unlikely. Unless we are talking about penny stocks, which would be a stupid put sell.
You had me sold at led zeppelin
now its right time
Very Informative. But need to watch again, to grasp what ever he is saying. But Love it.
Would I ever want to buy a Put with strike at 50% of the share price?
Interesting. Who pays for the credit you get if you sell a put and it doesn't hit the strike price ?
I make this like then what risk and probability of lossing money.
One call option 100
and put options 110
If market stop 105 what will happens..
loose $5.00 ?
4,000+ put options were invested in American Airlines days before 9/11 - this is how I got here
How is it unlimited profit? If you buy a put at a set price, then you've locked in the maximum profit you can make right? The maximum profit would be if the stock went to $0. The stock can't go lower than $0, so there is a limited profit, unless I'm missing something.
Intrinsic value is capped at expiration, but extrinsic value based on IV spikes throughout the duration of the trade could create boosts in extrinsic value, so it's hard to say how the option could react to changes in the market prior to expiration. At expiration everything is black & white though.
i really just want to mathematically understand how much more money you're making from the put option as it goes down because i just don't get it and nobody explains that. Everyone just makes says that same general statement "you make more as the stock decreases in value" Please help /:
Everyone complaint about making it easier.. take notes of what you think is important & go over that
Ok, I am kinda confused on how people make money buying Put options. For context, I'm a beginner trying to understand how people make money doing 'naked Puts' (Where you don't actually own any stock of the company. I think that's what people mean by 'naked')
For example, we'll use Tesla, which is selling at $427 a share. The current date is 3-20-20
Suppose I buy a $420 Put to expire on 4-6-20. Tesla prices keep dropping for a couple weeks.
Fast-forward to 4-4-20, and Tesla is at $350 a share. This means that my Put contract is very valuable......
But according to this, if I want to sell a Put, then we want the stock price to go up?? Doesn't that defeat the purpose of wanting it go down when buying?
I do not fully understand how people make money with Puts. Maybe there's a bunch of different ways to close an option contract that I just don't know about.
Hey Kevin,
You're confusing the actual transaction with the directional assumption.
If you buy a put to open you absolutely want the stock to go down. You also want IV to expand to help keep the value of the put afloat in case it doesn't move that much.
When closing a long put, you do have to sell the put you bought, just like a regular transaction. This just closes the trade, it doesn't mean you want the stock to go up.
Now, if you SOLD a put to OPEN from the beginning, then yes you'd want TSLA to go up, because you're betting AGAINST the movement down below your strike price when you're doing this.
Sold to Open means you have to BUY back to close.
Buy to Open means you have to SELL to close.
I hope this helps!
So, summary, buying a put you want the stock price to go down to profit and the more it goes past the break even point, the more profitable, all the way down to 0? I think!