Buying And Selling Options Live On Thinkorswim - Thinkorswim Tutorial

so what is actually buying and selling a call like in this video I'm gonna walk you through some live examples in the thinkorswim platform hey how's it going on this channel you'll learn the steps it takes to make a full time income trading in the stock market so if you're new here consider subscribing and today we're doing some live examples of vine and selling calls in the thinkorswim platform so here we are in the thinkorswim platform and this is a one-minute chart of Microsoft so the ticker would be MSFT and we're going to buy a call right now now I wouldn't necessarily suggest as a good spot to buy a call cuz it looks like we're kind of in a nasty downtrend but we're gonna do it anyway just as a good example and it might be a good example of showing you how quickly you can also lose money with calls now one thing to keep in mind with options is the leverage is pretty insane you are basically buying a hundred shares almost and so to do that for buying a hundred shares on Microsoft it would be having to put up over eleven thousand dollars or just about eleven thousand dollars and so just keep that in mind when you're buying a call you're essentially buying a leverage for almost 11,000 shares now it's not really black and white like that but it still is a lot of leverage to keep in mind so here is the options chain of Microsoft and just to close this here are all the different expiration dates we can do all the way up to six hundred and eighty days out calls now these calls as you can see are a lot more expensive now they're about fifteen hundred dollars for at the money and then if we go to the current or one-day to expiration calls they're only about $80 so these will be a lot cheaper and we're gonna probably want to get about sixty to eighty delta calls so right here this is a 80 Delta call so that's pretty good deepen the money and so we will buy that so we can see right here it is trading for about 150 six 160 and just so - by this we're just gonna click buy and then buy single and then that's gonna bring up this tab down here now this is gonna just default at 10 and I'm just gonna leave it at that but you might want to change this to just one or maybe higher if you're trading more and then we won't really need to change anything else now over here you do have the good tool cancel or day so if we wanted to leave this by order in for longer than just one day you would want to change this til GTC or good till cancelled and then this is just going to try and get us filled at the natural or at the mid-price now the mid price is usually what you want to go for it's the more fair trade price or your kind of if you were essentially bargaining for a good price on the call the natural is you're just going for you know I want to get in this right now just take my money I want the call now usually don't want to buy on the natural it's way better to try and get filled on the mid price and usually will get filled on the mid price but just because this is a demonstration I want to get filled right away I'm gonna just click on the natural here and then so we click confirm and send and that's just gonna bring up another order confirmation dialog box and so this trade is gonna because we're buying 10 it's gonna be 160 times 10 so it's actually gonna cost us about $1,700 for these 10 calls so that's quite a bit of money and it's gonna tell us that it's gonna cost that much in buying power cuz when you're buying calls all of it matters is you just have to pay upfront it's like buying chairs if you lose your max losses how much you put up it's pretty nice so you know how much you can lose right away so we're just gonna click send and up here it'll show us that we put that order in and it also got filled right away so if we go back to the chart now we probably bought about in this area so we're probably not up money or down money yet but as this goes up we will start to make money and then as it goes down we will continue to lose money now as time goes on our option will also be decreasing in value because of that theta on our call now the one thing that's annoying about thinkorswim we can't bring up our position value right on the chart and so he actually have to go back to either the trade tab where we can see down here you can see we're already down $70 here or you can go to the monitor tab where you can see that as well one thing you can do is either you could have multiple monitors and so just to try and simulate that I will just bring a chart of Microsoft up and so we could watch the chart go down for up and then see the value of our position change now one thing you can see is that this option has a ton of theta now it just jumped up even and so this option will be losing quite a bit of value over the time that we hold it so we wouldn't necessarily want to be holding this all day or even overnight if the market was just kind of going sideways because there's so much theta on this option that as the market just either goes against us we were losing money pretty quickly because this option is so close and this is the main reason why you want to buy options that are further out in time so you don't have to be worrying about that theta eating away at your profits if we go here and let's just buy another call that is eight days out so next week's expiration so this is a 80 Delta call we'll try and get an 80 Delta call again so these calls will cost us more money so we can try and simulate as much as possible by having our position let's say in half so we'll cost roughly the same amount as our last position so our last one costed about 1700 this one is going to cost about 2,000 and so we'll just confirm and send and then we can see that down here at the bottom I'll just bring the chart up again down here you can see that the theta even though this position down here of the five calls is actually more expensive it costed us about 2,000 compared to days 109 calls that expire tomorrow Casas I believe about 1700 data is a lot bigger on these calls and so it won't eat away as much at our position the calls that do expire tomorrow will have higher Delta you can see that they have about 800 Delta so every dollar that the stock does go up we make $800 on those calls and then of course every dollar goes down we lose 800 dollars and so we would be losing about 50% of our initial position if the stock went down a dollar so that's pretty crazy because this is a over a hundred dollar stock and so one dollar down isn't that big of a move and so it's totally feasible that that happens in a day or even just a few hours or even a few minutes if the market is moving very quickly so seeing as our positions aren't doing very well we're gonna now create a closing order for them and so all I need to do is right-click and then create closing order and that'll bring up this sell order now I can try and get filled at the natural or the mid price again usually you'd want to try and get for the mid price because again this is dollars that I'm potentially losing so if I get filled at the natural compared to the mid that's $3 and then times my 10 contracts I just lost $30 right there and that might not seem that much when you're trading $4,000 on a position but if you do that every time that adds up pretty quickly so I'm just gonna get fit go for the natural just because I want to get out of this position right away now sometimes it is okay to get filled at the natural and right here I'm doing it just because I want to get out of the position right now and so I'm just gonna click comfirm and send and it's gonna show me again just that little summary and then I'm gonna send that in and I'm also gonna quickly close out this one now if we wanted to then short Microsoft so because it looks like it's going down why not let's sell a call now our so selling a call is actually just as easy as buying one but usually you want to go on the other side so if we wanted to sell a call we would probably come into the at the money or out of the money now because it is one day away there's not really great calls that we can sell but here we are going to sell this one ten call because it is just about at the money so I can just right-click on this again and instead of going to buy I'm gonna do sell single and then again you can see I'm gonna sell ten of these and it is gonna be for seventy dollars each so that would be seven hundred because I'll be selling ten now one thing about calls is it's just flipped when you're selling them so instead of our max loss being seven hundred dollars our max profit is seven hundred dollars and our max loss is infinite because we don't know how much we're losing you generally have to put up a certain amount of collateral or buying power in this case and so you can see that the amount of buying power that this is gonna take up is twenty two thousand dollars and so selling calls is a lot harder than just buying them because we need a lot more money so it's essentially when you're buying stock like just buying shares you need a ton of money to buy them it's the same thing when you're selling calls because when you're selling the call you're selling the right for someone to buy those shares from you so you might have to essentially buy those shares at your strike price which here is 110 and so that would be a huge loss with the amount of shares we're about to potentially sell someone the control of and so here we'll just click send and then again that'll sell right up here and show us that we got filled and then down here you can see that we have those positions that we looked at earlier and I will just bring the chart up again and we actually just missed a substantial little move to the downside so hopefully this will come back up a little bit and then continue with this downtrend here and we will see this position get filled so I'll highlight it these right here are our short calls and those will gain value as we go down even though the strike price of those calls is actually down here and someone could exercise them for a potential profit right now because we are selling them with that taken into account we sold them at a higher price even though that technically in the money calls right now they were sold essentially when the stock was up here compared to down here so the pricing of calls can be really confusing sometimes but a lot of the time it's really easy to just kind of put it in stock terms is if we sell a call here it's essentially like shorting shares and so if it goes down we will make money on that position and then on the flip side if we sold shares here and it goes up we will lose money and of course that all depends on if you hold these till expiration now that is when your buying options you can hold until expiration and really not care about the value in between but definitely when you're selling them you always want to keep track of either the potential value they are right now if you want to just sell them back to the market or if you're planning to hold it till expiration being aware that you can get assigned at any time in this case that would be if the person that we sold these calls to decided to exercise their call option and that would be buying the shares at a hundred and ten dollars now it wouldn't make sense if they did it right now but if the stock went all the way down to let's just say 109 way below this chart they could then exercise those calls most of the time they will only be exercised on the last day of the option or even the last couple days so even if the stock went all the way down to 105 and we had let's say five or six or even ten days left on our option the option probably wouldn't get exercised until the last couple days because most of the time people bought those options for a reason and they want to be able to give themselves as much time as possible for the stock to go in their favor and generally when you're selling calls you're wanting to capture these data because the theta is going to be in your favour and so here we can see that our theta is positive and so as time goes on and the stock sits here we are actually making money and so that is a you draw into why people sell options it's because quite often the market will be choppy and so we can just make money as the stock sits there now it's a lot harder with more selling these in the money calls but quite often you will sell you can sell pretty far out of the money options so if we just take a quick look at the options chain again you could have sold these out of the money calls here for $25 each now it's really not that much money especially on this small of a stock but the strike price of this call is a hundred and eleven and so if we look back at the chart the likelihood of Microsoft going all the way back to a hundred and eleven by either the end of the day if that's when you wanted to sell it or by tomorrow would be definitely a stretch at this point and so that is the idea of selling those out of the money calls is well I'm just gonna bet that it's probably not gonna come back up here over this timeframe and if it doesn't well I just get to take all that money and it makes for some pretty sweet easy profits when it works out but again because you're selling the option you have to understand that if this stock went up to let's just say some news came out and then went up to 115 you would be losing a lot of money and so quite often people actually when they're doing this kind of stuff they will do option spreads because selling calls like this it's actually called selling naked because your losses are infinite now selling with a spread is something that's a little more protected now if we just want to sell this we will go to here and then right click create closing order and we can do buy back so because we actually sold these you actually tell you have to buy them back but don't think that you're buying ten calls here or how many you have you were just neutralizing the calls because thing about it you were negative ten calls so you need to go positive ten calls to make a zero and so that is all we have to do here and then because we're actually up money on this position we will have made a little bit of profit on that trade and so here we quickly got filled and then we will be out with our profit on that trade for the day now if you like the idea of selling calls but you don't have twenty thousand dollars to be able to sell those calls by themselves I will have a video out on Sprint's now these allow you to sell calls with protection that take that need for that huge amount of buying power out of the equation now if you like this video I will also have one out on puts so feel free to check that out and if you just like this content in general feel free to subscribe and if you have any questions don't hesitate to ask them any comments below

Channel: Riley Coleman

Views: 147,928

Keywords: thinkorswim, thinkorswim options, thinkorswim options trading, thinkorswim buying a call, thinkorswim selling a call, selling a call on thinkorswim, buying a call on thinkorswim, thinkorswim tutorial, buying options live, live options trading, live options trading thinkorswim, how to trade options live example, how to trade options example, how to sell call options, how to buy call options, thinkorswim options tutorial, thinkorswim buying options tutorial, options trading

Id: 95M7HhZkII0

Length: 16min 6sec (966 seconds)

Published: Fri Mar 08 2019