I am reminded of the first time I played “casino craps” the pit boss said , throw your money dont like you dont want it anymore.
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Can someone here use Ga. redneck lingo to explain options trading to me?
- Thread starter WallsGa
- Start date
Option Alpha is the best free options education out there IMO. Kirk is a smart dude and explains things very well. Been a paying member here for many years. Tons of free info, no membership required.
https://optionalpha.com/
https://optionalpha.com/
This is not in redneck but maybe this visual will get the juices flowing.
Here’s an options table for Apple stock. It’s trading for about $132 per share. These are June monthly contracts. They expire June 18th 2021. So lets say you wanted to buy 100 shares of Apple. Right now it would cost you roughly $132 per share or $13,200 total. Let’s also say you are bullish on Apple and you think (for whatever reason) the stock will be at $150 or higher before or by June.
So you decide you want to buy the $150 Calls with June expiration. You can see that it will cost you $7.45 per contract. Each contract represents 100 shares so your cost for 1 contract would be 100x$7.45 or $745. That’s a lot less that $13,200. So much so that you might be tempted to buy 2,3, or more contracts. So let’s say you buy just 1 contract for a total of $745. You now control 100 shares for a fraction of what it would cost you to buy 100 shares outright.
And now some math. Let’s say Apple moves up to $150 in April. If you had bought 100 shares outright, your capital investment would’ve been $13,200. Those share are now worth $15,000 so you sell and profit a tidy $1,800 or 27% return on capital. Not bad at all.
With the options, you paid $7.45 each and now they are worth more, but exactly how much more are they worth? This is where things get complicated. Options pricing is determined by a complex algo called the Black Shoals method. It takes into account many things like volatility, delta, gamma, and theta. Yes, we’re literally speaking Greek now.
For simplicity sake, let’s say the options doubled in value and now they’re worth $14.90 each. You can sell them for double what you paid ($1,490). You just made a $745 profit or 100% return on capital versus a 27% ROC with buying outright, not to mention you only had to outlay a fraction of the cash. Now let’s say you had bought 5 contracts. 5 x 7.45 x 100= $3,275 vs 500 x $132 = $66,000. This is where “leverage” becomes apparent. You can make a hefty profit on much less capital deployed.
Now if you’re even more bullish, you can continue to hold the options. If Apple goes to $200, you have the OPTION to buy it $150 because that’s the strike price you bought. Then you’re really in the money. If June rolls around and Apple doesn’t get there, your option expires worthless and you lose $745. It happens.
Here’s an options table for Apple stock. It’s trading for about $132 per share. These are June monthly contracts. They expire June 18th 2021. So lets say you wanted to buy 100 shares of Apple. Right now it would cost you roughly $132 per share or $13,200 total. Let’s also say you are bullish on Apple and you think (for whatever reason) the stock will be at $150 or higher before or by June.
So you decide you want to buy the $150 Calls with June expiration. You can see that it will cost you $7.45 per contract. Each contract represents 100 shares so your cost for 1 contract would be 100x$7.45 or $745. That’s a lot less that $13,200. So much so that you might be tempted to buy 2,3, or more contracts. So let’s say you buy just 1 contract for a total of $745. You now control 100 shares for a fraction of what it would cost you to buy 100 shares outright.
And now some math. Let’s say Apple moves up to $150 in April. If you had bought 100 shares outright, your capital investment would’ve been $13,200. Those share are now worth $15,000 so you sell and profit a tidy $1,800 or 27% return on capital. Not bad at all.
With the options, you paid $7.45 each and now they are worth more, but exactly how much more are they worth? This is where things get complicated. Options pricing is determined by a complex algo called the Black Shoals method. It takes into account many things like volatility, delta, gamma, and theta. Yes, we’re literally speaking Greek now.
For simplicity sake, let’s say the options doubled in value and now they’re worth $14.90 each. You can sell them for double what you paid ($1,490). You just made a $745 profit or 100% return on capital versus a 27% ROC with buying outright, not to mention you only had to outlay a fraction of the cash. Now let’s say you had bought 5 contracts. 5 x 7.45 x 100= $3,275 vs 500 x $132 = $66,000. This is where “leverage” becomes apparent. You can make a hefty profit on much less capital deployed.
Now if you’re even more bullish, you can continue to hold the options. If Apple goes to $200, you have the OPTION to buy it $150 because that’s the strike price you bought. Then you’re really in the money. If June rolls around and Apple doesn’t get there, your option expires worthless and you lose $745. It happens.
Any way you slice it, it’s not for everyone. You don’t have to be super smart, but you do need to understand some basic fundamentals and possess a strong desire to learn something new. Anybody can buy a call or a put, and you might get lucky a time or two, but you will not survive unless you are educated and disciplined. It’s almost exactly like walking into a casino, minus the cigar smoke and free drinks.
y'all gonna lose yo ass boy......quickly.
collect early, pay late...
The most important feature of an option is that at the end of the contract, if you are in a negative position, you only loose the premium cost of the option.
