Call Options In Robinhood 2021 | Beginner - Advanced Guide

today we're going to be talking about call options in robinhood also known as the only options you'll ever need to buy just forget that that other type of option even exists you will never need to trade it so what's the point of even learning about it trying to learn about puts after you've learned about calls is like having batman but insisting that you need robin you do not need robin robin's a loser and the only thing robin is doing is robbing your robinhood account just take it from this guy he's warren buffett that's why i've compiled tons of resources from people significantly smarter than myself as well as lessons from those towards the left side of this graph to create this all-encompassing guide on buying call options without understanding the ideas in this guide the only calls you're gonna need to worry about are calls to your girlfriend explaining why your life savings are gone we're gonna start out with some more basic ideas then move into some more advanced tips and strategies all with one goal to make you as much money as possible for the sake of this video and most of the degenerates watching it we're not going to be talking about how the option contract itself works or what it's meant for learning what an option is is like learning how a football is made can you throw it like tom brady if not then who the cares for example i could sit here and tell you an option is a contract that controls 100 shares of the underlying stock and then you'll have 100 more questions as to what the that actually means and won't be any closer to making your calls print most of what people consider trading options is actually just buying an option premium while it's cheap then selling it to someone else when it increases in value so instead of explaining how an option contract controls a hundred shares i'll just tell you that options are leveraged and small moves in the share price mean big moves in the option price and we can use these values called delta and gamma to determine how those two are related there are plenty of videos on youtube that explain what options actually are this video instead is strictly practical advice on how to actually make money trading calls let's begin a call is a bullish investment meaning you're betting that the share price of a stock will go up as if you bet anything else you can look at calls like this right in robinhood by going to a certain stock pressing trade and pressing trade options this will bring you to what's called an option chain it's the list of all the options that you can purchase right now at the top you'll see the expiration dates these dates can be as close as one day out to multiple years out scroll to find your share price in the middle of the screen all the calls above this bar are what we call out of the money this is because the share price is below their strike price and if the share price doesn't reach that strike price by the expiration date these calls will expire worthless on the left hand side you can see the different call strike prices as well as their percentage to break even on the right are the prices of each of these options also known as the option premiums scroll around the option chain and notice the relationship between the percentage to break even and the price of the calls also look at how different expiration dates affect the price of the calls calls that are five percent out of the money with a few months until expiration are multiple times as expensive as five percent out of the money calls that expire tomorrow take a few minutes just scrolling through the different calls of different stocks and see how both time to expiration and percentage out of the money affect the price of the option think about how the prices of these different options might be indicative of the amount of risk you're taking when purchasing them this is one of the most basic ideas to understand despite some struggling with it let's look at a super quick example of a basic call option play in robinhood i think that boeing's share price is going to go up over the next few months with the coronavirus vaccine the airline industry is going to start to recover and thus i think boeing's share price is going to increase by around 10 i'm going to go to the april call options and find a call that's 10 out of the money keep in mind that these percentages in robinhood aren't always accurate i'm going to buy this 230 call and there you go if i wasn't broke didn't have my capital tied up in other positions i could buy this option for eight hundred twenty dollars eight dollars and twenty cents per share for one contract of a hundred shares now that you understand what an option play might look like let's get into some ideas and tips that'll make you more money these tips go from general fundamental ideas at first to more specific advanced actionable tips later on the idea being that if you don't understand the fundamental ideas first you don't need to worry about those other tips your account will evaporate quick enough buying calls is like being the captain of the titanic except this time the big part of the iceberg is above water staring you in the face and instead of an iceberg it's greed and instead of the titanic it's your robinhood account and what do you do every time drive the boat into that iceberg when you first start trading options you think to yourself well i just won't be greedy then two weeks later your entire portfolio consists of 400 gme shares and zero days to expiration tesla calls this is a graph of your career as an option trader if you don't actively control your greed as your risk tolerance increases you slowly make your way towards nirvana not because you've reached the state of perfect happiness and peace this is nirvana and your kurt cobain how do you control your greed the best way is to plan out every aspect of each position you take this doesn't need to look like this but it also shouldn't look like this what are your exit triggers what is your profit target what is the trajectory of the stock gonna look like during the life of your option building a habit of doing this basic planning every single time you make a trade will legitimately make you so much more money than just saying it we're all guilty of doing it but right now is always the best time to start trading right it'll also make you feel like you actually have any idea what you're doing which in a backwards way will slowly make you actually know what you're doing it's weird how it works out like that defining your risk when buying calls is a little bit difficult every call has a percentage likelihood of being in the money at expiration however this isn't necessarily the percentage likelihood you'll make money on the trade call prices fluctuate up and down over the life of an option due to a few different factors as long as you're selling your option back to the market higher than you bought it whether or not it expires worthless doesn't matter when you're looking at the calls in robinhood click on sell at the top as if you were looking to sell these calls then take a look at the different percentage likelihoods that each of these calls will be worthless at expiration even though it's difficult to define your risk perfectly you can get a pretty good idea by looking at the relative likelihood each call will expire worthless ask yourself how that might be indicative of the risk you're taking if you intend on holding an option for most of its duration [Music] you're asking about something called delta and you can find it on your call in robinhood delta is a measurement of how much an options value will change when the underlying stock moves by one dollar let's say i have a call with a delta of .35 what does this mean for my call it means that for every one dollar the underlying share price increases your option is going to increase 35 dollars if we had a delta of 0.40 our option would increase by 40 this also works the other way if the share price drops by a dollar your options going to decrease by 40 dollars as well delta range is anywhere from zero to one the higher the delta the more sensitive the options price is to movements in the underlying stock calls that are further out of the money have a lower delta calls that are deep in the money have a higher delta that's because of these spooky complicated words if you don't understand intrinsic and extrinsic value i'd recommend watching another video on it it's another one of those things that might help clear up the why with some of these concepts but it isn't necessarily something that's going to make you trade better if delta's jordan gamma's pippin you just gotta make sure you're playing for the bulls gamma measures how much delta changes when the stock moves one dollar gamma's a little more complicated so i recommend watching an entire separate video on it we know delta's jordan so theta's kind of like jordan taking a trip to vegas the length of that trip may be different but no matter how long it is all the money is going to be gone by the end the only thing that changes is if he's blowing 50k a night or 500k at night options have expiration dates because of that they lose some value every day we measure this value with something called theta theta is your worst enemy if you're a wall street bets degenerate theta is a negative decimal that shows how the value of the call decreases every day you're holding it a theta of 0.1 means your option will decrease in value by 10 every day you're holding it theta also increases as your calls get closer to being at the money implied volatility is equally as important in making money as deciding whether to buy calls or calls in fact there are entire options strategies that only bet on increases in volatility without any directional prediction of the share price this is the general idea of implied volatility which would you pay more for a five percent out of the money call or the underlying stock has regular daily fluctuations of five percent or a five percent out of the money call where the underlying stock has regular daily fluctuations of one percent assuming both options have five days until expiration you probably pay more for the first call option that's because it's more likely to be in the money at some point before your expiration date implied volatility is a prediction of the percentage a stock will move up or down within the year it makes up a large part of an options price ivy can have fluctuations but usually tends to return back to an average level because option premiums are more expensive when iv is high as a call buyer you want to buy when iv is below the historic average iv for your stock the assumption being that iv will eventually return to its historic average this increase will drive your calls up in price this historic average will be different for every stock so it's important to look at what iv is relative to the historic ivy i'd recommend going on a website called marketchameleon.com and just looking around at different stocks and analyzing the different iv levels iv's relationship to your calls is measured by vega a vega of 0.24 functionally means your option increases 24 dollars in price for every 1 increase in implied volatility vega like gamma really demands its own entire video to explain thoroughly so i'm going to link a good one in the description delta gamma vega and theta are the four main option risk measurements called the greeks there's also row who's kind of like the school shooter outsider of the group but you don't really need to worry about him right now i mentioned earlier that you don't really need to understand what an option is to make money trading it however what is important is understanding the greeks and the relationships between them when you start to understand those relationships you really start to learn how to hedge your positions properly and buy options that are undervalued this is really when you're able to start multiplying your gains consistently understanding what an option is is like knowing what a basketball is made from understanding the greeks and how they influence one another is like knowing what angle you need to shoot at to hit a three in both scenarios you're probably not going to be steph curry but in the second scenario with a little bit of luck you're going to be splashing threes all day at least in the special ed league earlier we talked about how important it is to understand the level of risk you're taking when buying a certain call every day you have a call position you want to continue to gauge that level of risk are you taking a disproportionate amount of risk relative to your reward there's a lot that goes into this but in general if you understand how the greeks affect one another as well as the option price it should be fairly intuitive let's think about a hypothetical i buy out of the money calls that jump right to my strike price on the first day and i make a lot of money that's how you know this is a hypothetical i know that theta decays my call the most when it's sitting right at the money so what kind of move in the underlying stock am i gonna need to counter this decay if i intend to continue holding my option is that a tim cook announces release of new iphone move or a tim cook tweets apple as multiple functional fusion power plants move is letting theta me for a while a risk i'm comfortable taking how could i hedge against theta in the scenario that i do want to hold my call understanding where the risk in your position lies and hedging accordingly for your prediction is so incredibly important and you can only do that well by thoroughly knowing the relationships of the greeks and recognizing how things in the real world will influence those values and must print you money this is one of the most interesting things that i've ever learned about options and surprisingly i don't see a lot of people talking about it implied volatility historically is almost always overstated relative to actual volatility we as humans always tend to over hype things which leads our forward-looking predictions of stock market volatility to be higher than what they actually will be this is remarkably consistent across the lifetime of the stock market it might be beneficial for you to keep this idea in the back of your mind when looking at really hyped up events like earnings or the tesla cyber truck launch this is anecdotal evidence but almost every time i've played a really hyped up earnings the stock has never moved as much as anticipated then again any position i touch tends to move against me instantly so i'd take that with a grain of salt even if my profit target is nothing under a 10 bagger after i open a position i like to immediately set a good till cancelled order at my profit target psychologically this is so incredibly important the only way and i mean the only way to keep yourself from being greedy is to not give yourself the option to be greedy make a prediction hit your profit target then move on to the next trade and please god don't look at what those options would be worth if you held them overall i think these are the three most important things to do when buying calls buy calls that have implied volatility at a low level relative to their historic level thoroughly define your risk and create a plan that considers your target profit and multiple different exit strategies buy calls with at least a few months until expiration and go post a screenshot of your calls printing in our slash investing i hope all you guys can take these tips and make a lot of money you might be a loser with robinhood like me but if you implement some of these ideas and stay diligent with them i know you'll have a 500 screenshot to post on wall street bets in no time and that's really all any of us could ask for

Channel: Benjamin

Views: 59,883

Rating: 4.9723396 out of 5

Keywords: Call options robinhood

Id: NW5927_LPUs

Length: 14min 7sec (847 seconds)

Published: Wed Feb 17 2021