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Which is More Profitable? Buying vs Selling Options | Options Trading for Beginners
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- Опубликовано: 14 авг 2024
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So hard to visualize what your talking about without looking at option chain.
If you can draw an Option Chain and refer to it while discussing, it would make it easier to understand.
honestly I still don't understand. LOL Do you know any material that will help me understand better?
@@leewengsheng7674 ruclips.net/video/7PM4rNDr4oI/видео.html You've probably already figured it out, but in case you haven't that video is really good [it has indexing (timestamps when hovering over different parts of the video) so it should be easy to find the topics you want to learn more about].
That's why I like skytrading channel he shows visuals
For Selling put options, if it the stock price goes down and we have to buy the shares, it can also be a good thing IF we are comfortable owning shares of a good company at a lower price. If you have confidence that the stock is going to go up based on the company's earnings and the company's potential, etc, you can always keep the shares and just sell call options and collect premiums while owning the 100 shares of the stock. So it could potentially be a WIN WIN WIN for the seller of a put option :)
Exactly, as long as you are okay buying the shares at the price you choose for the strike price, it truly is a win win win situation! Just don't lie to yourself about being okay at that price.
Unless the owner of the stock did not executed their positions…otherwise you will loose money it is a risk.
@@MB-qz7xb what do u mean?
Mike I love you so much, you are my great mentor in financial markets, you are the best of the best teacher in stock market to understand
It's a difficult thing but at least this video helping me understand a lot of basic ideas behind those option trades.
Best explanation I've encountered yet. Thank you!
So is buying and selling premium synonymous with buying and selling an option? That's the main thing im confused on. i keep hearing "selling premium" but i thought the premium was the fee you paid on top of the option..
Nadia,
Yes that's correct! Premium just refers to the value of the option. Selling premium would be selling an option, buying premium would be buying an option.
The fee you pay on top of that is referred to as the commission cost / transaction cost / resort fee usually.
think you could organize the videos in order?
Might be on purpose so that you'll visit their website rather than watching them on YT
Thanks Mike, and Tastytrade for doing this.
The problem with selling premium is you are 90% right of the time and make 20 cents of premium... but when you are wrong you lose 10X as much - so in the end you lose...
It is very important to manage risk:reward when selling premium, but there are ways to mitigate losses and 10x loss isn't always the case. We have shown over and over in our research that selling premium can be a profitable way to approach trading. The concept is very similar to an insurance company or casino - you can have big blowouts along the way if you have a huge number of occurrences, but if you're trading small enough to be able to absorb the blow and have time and IV overstatement on your side, you can come out on top
I am trying to learn this stuff. If you sell a covered call aren`t your losses very limited ??
Glad you point this out, lol So glad I didn't try this thing. Btw wanna know what strategy do you trade?
You are not necessary losing money, you might be forced to buy the 100stocks because you will be asigned. You need to have decent account (at least 3-4k if you are planning selling options for a stock that is worth around 30$/share. You are not losing money you will own the stock and sell them eventualy when the price go up. Just pick decent stock that you will own it no matter what and sell options, you will either make premiums or you are going to be assigned and you will buy the 100shares.
12:45 - how would implied volatility expand if the price didn’t move?
Furthermore, theta was not taken in to account either.
The market could be moving on a macro level causing the VIX to go up. So implied volatility on all options will tend to increase as well, regardless on what happens with the individual stock. It is possible to see your option price change without a movement in the underlying.
So left is the new down and right is the new up?
Hello, I have a question please. Consider I have a short call position ?
Question 1
If the option become OTM way before exp.
do I have to wait till the exp date to win full premium or not ? Because according to exp. Graph, it shows that theorical p/l is still way below max profit of the premium.
Question 2
What if I got assigned with previous option ITM,
Or I closed my short call ITM manually,
How do I calculate my loss, is it according to theoretical p/l or according to exp. Gragh line?
Thanks
No - you can close any options position prior to expiration by routing the exact opposite order. If you sell a put in MAY, you can buy that same put back in MAY to close the position.
Profit and loss is nothing more than the simple debit and credit transaction for the trade. If you collect $1.00 on short OTM option and you are assigned when it moves $2.00 ITM, you have a $1.00 net loss and now you have shares. If that stock then moves $1.00 in your favor you would be at a scratch.
Lightbulb! Thanks Mike!!
Thank you very much for this effort to explain it. You are the best. Gratefull
it would be nice for us VISUAL ppl for you to add examples showing numbers and everything in chrono order, ty
Keep an eye out for our beginner course that we're building and releasing in the next couple of weeks - it's going to be very visual with quizzes too!
Great video, but what is you are short an option and the stock goes against you, then you have unlimited loss potential, that s so scary, going long has a limited risk
This is true - naked calls do have unlimited risk as the stock price has no cap, but naked puts are capped when the stock price goes to $0.00, as a stock cannot go below that. That is why naked puts have the same risk profile as a covered call (long shares + short call), and a naked call has the same risk profile as a covered put (short shares + short put)
That's why you play spreads... to mitigate the "unlimited" risk on the naked short position.
What if you want to get out before the expiration what do you do?
You can simply route the opposite order to close the trade - If I sell an option, I can buy that exact option to wipe my slate clean of the trade. Similar to if you're buying stock, you sell it to get out of the trade. It's just the opposite when selling an option, or selling stock to begin the trade. You have to buy it back to close it.
tastytrade Thanks
Thank you for your this.
So I’m still trying to understand this. If I sold a call to open and it expires out of the money, I don’t have to cover the sold call?
So you need higher tier to sell the premium
So you can have a purchase a contract to buy an option for a premium then sale the contract before the exercise date at a higher premium you bought it for? Is that what he’s getting at with the IV stuff? I’m confused. I’m a novice.
Yes, you can buy an option contract and hope it increases in value then turn around and sell it for more money. You don't need to exercise a contract to get the gain/loss from the stock movement.
Another outstanding tutorial. Thank you!
Keep an eye out for our beginner course that we're building and releasing in the next couple of weeks - it's going to be very visual with quizzes too!
you are rock star teacher
Very useful videos.Thanks a lot.
Fantastic explanation
Great explanation, very clear. Thanks a lot.
So where's the selling part? How much do we need to sell???? All you talked about is semantic,
My confusion with selling a put is that the seller buys the shares if th buyer exercised. How can you buy something you already own. Is it because the buyer of the put received the option and ultimately the seller has to buy them back? Why does the seller buy when selling a put?
When you sell a put, you don't own the shares. You will be forced to purchase the shares at that strike pirce if the buying of the option chooses to exercise and "put" the stock to you. The seller of the option can choose to buy to close the contract. This will get the seller out of the obligation to buy the 100 shares at the strike price. Think of buying to close as a way for the person that originally promised to perform an action, to get someone else to take his place.
This video would of been better with an example up front and a simple chart like the seller of a call is bearish or neutral vs buying a call is bullish.
Thank for vedio. I have a question if I sell a call option deep ITM . And market moves in my favour & before expiy if I want to sell that option would it be profitable ?? It is possible that at the time of expiry the call option might go against me and I want to sell it before expiry where it is in my favour . What would be the impact on primium I received after selling that option.
Yes it would - you would BUY BACK the option, not sell it.
If you SELL an option to open, you BUY it back to close.
So if you sell a deep ITM call, which has intrinsic and extrinsic value, and the stock price drops dramatically, the call will lose a lot of intrinsic value, and you can likely buy it back for a lower amount than you sold it for, resulting in a profit.
This is good stuff. I guess that before youtoob someone had to have a mentor
Love your stuff. I have to watch them a couple of times to get more out of them. Fortunately your presentation is easily tolerable. Question. Do you address capital commitment margin from the broker And do you address strategy for accounts if max $5000
We do address a number of different things on the tastytrade.com archives - Here's a segment about trade size: www.google.com/url?client=internal-element-cse&cx=015477303216471237373:u_cnlyqjhzi&q=www.tastytrade.com/tt/shows/best-practices/episodes/3-key-concepts-of-trade-size-09-13-2016&sa=U&ved=2ahUKEwj5g4m_ntnoAhWHB80KHWR_D0oQFjAAegQIAhAC&usg=AOvVaw0v3VYXcdhhJMUfXV3gz77X
And a segment on trading in a smaller account:
www.google.com/url?client=internal-element-cse&cx=015477303216471237373:u_cnlyqjhzi&q=www.tastytrade.com/tt/shows/mike-and-his-whiteboard/episodes/3-keys-to-trading-in-a-small-account-06-10-2016&sa=U&ved=2ahUKEwjvyM_SntnoAhVLZM0KHRgYCHsQFjABegQICBAC&usg=AOvVaw1o8UmRPQtkRIikUHfJ4Id7
What if the seller is selling at a really high strike price? Like the stock is at 14, and the strike price 18. Could the buyer of the put just exercise for $1800 dollars?
Sure, if extrinsic value in the 18 put was low and the counterparty wanted to exercise. That changes nothing though. If you sold a put at 18 and the stock was at $14 you collected $4.00+ extrinsic value. If you were assigned, you'd keep all extrinsic value you sold and you'd have a stock-strike difference of $4.00. The only thing that changes really is the fact that you'd now have static 100 delta and 100 shares of stock, and the buying power would change. Risk profile doesn't really change since you already held the theoretical equivalent of 100 shares of stock with the ITM put strike.
Nice work.
great video) . I have one question: If I Sell a call deep ITM, it means the stock price is below or above the strike price? Thanks a lot
A call option is ITM when it has intrinsic value, which means the stock price is ABOVE the call strike. If the stock price is BELOW the call strike, the call has no intrinsic value.
Thank you. The one thing that is still unclear is based on what analysis you determine the POP of 60-70% when selling options? Based on Technical analysis? Support and resistance levels? Stocks go up and down significantly for many different reasons. How can you say you have a 60% success chance? pls help me understand
good vid, need some more clarity, like: what and how can happens if the sellers trade goes against him/her? what happens...exit strategy?anybody
It's really up to you - you can buy back the option at any time and exit the position if you become uncomfortable with the risk
Anyone offering options simulator where we can write call and put?
If i bought 100 shares today then sold a call exp in 2 weeks is that a day trade
Nope. Options are their own trades. If you bought 100 shares today, then sold a call contract that expired today and were forced to sell your shares today that would be one day trade because you bought and sold the shares in the same day. But two weeks out, you're all good!
If i sell an option and if then that option goes down and i buy that option. Do i then own the shares and have to sell them back. Sorry i'm new to options.
Lea,
You would not - if you sold an option and you bought the same option later, it would close the position. You cannot be long and short the same option in the same expiration, so the position would be closed and you would have no risk left on the table.
A short option turns into shares of stock is if it is held through expiration and it is ITM - the broker will then turn it into 100 shares of long or short stock depending on the option.
For most underlyings, an option can be exercised early by the option owner which would result in the same thing, but this is more rare than people think, as anyone who exercises an option gives up the extrinsic value left in the option. Therefore, early assignment generally happens with very very deep ITM options with little extrinsic value, or options that are very close to expiration.
tastytrade Thank you. I was just about to ask about early assignments but if the option is still out of the money, then there is no need to worry that this would occur. That's what I got from what you're saying.
If you sell your stock as an option do your shares eventually sell or do you keep them?
If you own 100 shares of stock and you sell a call against it, and that call expires in the money, your shares would be "called away".
If you are just trading options and they expire in the money, they would turn into shares of stock.
@@tastyliveshow what?
Shoot me an email at support@tastytrade.com with a detailed question & example and I can walk through it with you.
Wait so sellers benefit from high IV but doesn't the option price decrease when volatility is high meaning you get less premium and is this for both shorting puts and shorting calls
By the Way do you guys have any tutorials on using the Think or Swim platform?
We do not - I would reach out to support@thinkorswim.com as I'm sure they've got some.
Michael,
Implied volatility is an indication of inflated option prices, therefore if IV is high option prices must also be inflated. Therefore, when IV is high, option sellers will get more premium than if IV was low, and that can be opportunistic for option sellers.
Hi, lets say I sell a naked put for a certain amount of credit. during the trade, will the value of the options change? Will it ever be possible that I buy it back and make more than the credit i got the first time? thanks
Yes it will most certainly change! It's not possible to make more than the credit received, but it is possible to buy it back for a lower amount than you sold it for with plenty of time left to expiration.
Wonderful Mike sir
good video
good
how do i find the iv of a option? I use sogotrade
most platforms provide this info - tastyworks.com is the platform and brokerage firm we use!
noob question, what if you buy a call lets say $50 and it hits higher before expiration. would that complete the contract or you'd have to do something else to finish it?
Thans in advance :)
As the call owner, you would still have that contract all the way up until expiration if you wanted to. You would see intrinsic value immediately as the stock price went above the strike price, and could sell the contract for it's intrinsic value + any extrinsic value remaining. If held to expiration, the broker would automatically exercise the long call and turn it into long stock at your strike price. Many people sell out of the option for profit before then though.
Is he rocking the new 2020 comb over?
Roll'em if ITM!!
If I buy a call for $1.21 and I sell it .88cents. I'm only losing 31c per share right? Nothing more?
That's correct - just the difference.
@@tastyliveshow thank you sir! Cause I did like 30contracts friday of walmart and lost on 80% about $800. And I'm over here thinking I'm going to get charged like $20,000 at some point of hidden fees.. thank you so much for the response!
A Mdz did you make that line back yet?
What I saw was a contradiction on selling a call...…...
great vids btw
Bruh went from 0-100 real quick with the IV stuff and so on 😂
This is Definitely not a beginner options selling video....just to let yall know. Lol
I'm really annoyed at tasty trades, the "free" educational hub created by, guess who, a MARKET MAKER, always encouraging people to sell sell sell. They will blow up unless they hedge. The CORRECT way to trade is yes, sell, but ALWAYS hedge, and BUYING options is ABSOLUTELY a profitable part of options trading if done correctly. Rejecting one side over the other is like rejecting yang and just focusing on yin.
This is true - hedging is very important with undefined risk trading and high risk trading in general. This video is merely a basic explanation of the tradeoffs between buying and selling options, and why selling an option gives you more ways to be successful compared to buying an option. That doesn't mean we should go nuts selling premium without hedging/defensive tactics in place prior to placing the trade.
Too confusing. You should talk about selling puts and calls first and then buying puts and calls second instead of talking about buying or selling a pot and then buying or selling a car. Speaking way too fast
Use a stock and its price as an example.. such a nuisance trying to follow along