Options Trading For Beginners | Step By Step

big forehead take two hi my name is andre jake hope you're doing well come for the finance and stay for the beginner video on options trading this is the big video that i've been meaning to make for so many years but the truth is i didn't know how to do options trading back then and after playing with it for several years now i still don't so in today's video i wanted to invite somebody who does know what they're doing and his name is alex pandrea he's somebody that i had on my youtube channel when i first started almost three years ago and back then when i created his robinhood account for him he had zero experience with investing he started with about fifteen thousand dollars he started to play around with options and in just two short years he was able to turn his fifteen thousand dollars into well over a million dollars which is kind of crazy to see that progress now in this video i'm going to show you how to do options trading with alex and it's going to be very complicated halfway through you're going to get bored you're going to be tired of it you're like where is this going but i promise if you watch this video all the way through till the end you will learn three investing strategies that anyone can do starting with very little money that you can apply today and hopefully make some money with now in this video i'm not gonna sell you a course this is not about collecting emails or phone numbers from people this is all 100 free so i hope you enjoy it and hopefully we can simplify options trading and have it go from this [Music] to this so having said all that let's get alex on and finally start the video what is up this is alex pandrea what's up man what is going on super excited to finally learn options trading it's something i've always wanted to learn i already know what you're thinking you want to take your monthly salary and put it into out of the money spy call options expiring tomorrow make a lot of money right if you said yes you're in the wrong place get out it's my house bro when we did a video together two years ago you started with about sixteen thousand dollars i set up your robinhood account and in two years show everybody your portfolio i'm gonna i'm gonna make you do this he's gonna make me do this uh this is what it is all right so this is from trading options in the last two years from about sixteen thousand 000 it is now worth about 1.2 million which is a crazy return it doesn't really seem realistic to me you started my account with about in robin hood i've been investing long term for since i was 20 years old or something consistently but when i got into robin hood i started learning more about trading and investing in different types so i've been trying to learn over the last few years like andre's dividend investing is so boring none of that warren buffett stuff like i was watching the videos and i was like i need something else man this is just like yeah the thing is about options trading is you don't have to be like this crazy day trader definitely not there is definitely a stigma to it that it is risky and that it's like almost going to the roulette table and putting it all on black let's go but that's the preconceived kind of the thoughts that people have especially in the last few years with wall street bats and the forums and everything that's going on you're like options stay away or if you're like a gambler baby options sign me up i'm terrified of options which is why i've always wanted to learn it because i know there are very safe ways of doing options in a way that makes you some extra money and you can essentially turn any portfolio into an almost dividend paying portfolio there's many different choices and options no pun intended for options you know when you buy a stock you can buy a stock you can sell a stock there's very few it's limited let's just get started with it we've pumped it we've hyped it enough the first question i have is what is the difference between buying stocks normally like buying and selling stocks which i totally understand and options trading well that's a very good question andre i'm glad you asked that all right so get your phones ready because we're going to go into this right after that you got it yeah he's ahead of the game this one so when you're buying a stock yes you could hold it forever sure yeah if you could live that long but in options you have a expiration date and the contract will expire at some point right so it's not a forever thing the second thing is leverage you have to understand that one option contract controls 100 shares of whatever the underlying stock is or a company okay so if i buy one option contract whatever it is in apple you're controlling 100 shares so you're leveraging up the position with less money so you're telling me one option is worth a hundred shares i don't even know how you did that and i'm watching from behind yeah yeah just totally incredible like and the last thing is that there's just more choice there's a variety of different things that you can do rather than just buying and selling a stock which is basically what you could do with stocks there's just a lot more choice all right so pull your phone out and follow along this is not going to make any sense to you when i first was shown this i didn't make any sense to me but i don't know about you look it didn't make sense to me either but that's why we're here right to learn the basics and a contract and options have a few key elements that i think are important to understand okay and we're gonna go through them one by one and then we're gonna go through examples yeah and then i promise we're gonna apply these techniques to actually make some money with but here's the interface so walk me through to the beginning okay so go ahead grab your phone and go to your favorite underlying your favorite asset your favorite stock company whatever you want to call whatever turns you on we're going to use our capital to purchase these underlying equities while adjusting your bow tie yeah so go ahead in this case we chose apple okay okay so as you can see at the bottom right hand corner you have trade you might have to turn this feature on in robinhood if it's not turned on already okay to get option trading but you'll notice a few options here you can buy the shares you can sell the shares if you have them or you can trade options and that's what we're going to go on so go ahead click trade options and you're going to get something that pops up that looks a little bit like this now at first you're going to be like oh i got a very confusing looking yeah can it be like up down left right you're going to be turning around in circles you'll get dizzy and then you wouldn't want to do any of this anymore because you'd be like i just need to lay down so don't worry take it easy we're gonna go through each of the key elements starting with the top now the top has a bunch of dates on there okay this is called the expiration date and it's the first key feature of an options contract and basically what the expiration date is is how long is the contract going to be valid for okay okay two people make a contract there's an expiration date it expires then and that is what the dates here represent so you'll notice that has august 6 which is tomorrow right august 13th which is next week or september 3rd which is next month so as you can see the options go out even to a few years out right so the farther out you go the less risky it is and the closer you pick a date the more risk you're taking 100 because it's very hard to predict what's gonna happen tomorrow but we could probably predict that two years from now the market will probably go a little bit higher yes or probably not do something right as you'll see in the next example so let's pick a date let's go september 3rd a month from now all right now you'll notice once you hit a date a whole bunch of things pop up yes screen for those jet pilots out there you'll be like oh wow this is my jam but for everybody else that's included we gotta just learn a little bit about the basics right so if you look in the middle here we see share price 146 this is what the current price of apple in this case is right now at the time of recording now on the left side you have strike prices we call them strike prices which is basically the future potential price of the stock so it could go up or it could go down this is pretty basic but we have strike prices we have 147 148 149 150. so strike prices are basically what the stock should be worth at the end of the contract but investors could never use really simple words like that's what the price is so far so good okay now the third key piece is just the premium and the contract which is here on the side where you see all of these little numbers 3.40 395. this is called the premium and the premium is the amount of money that is paid by the buyer or collected by the seller for the contract itself so those are the three key elements that you need to know the expiration date all right when the contract expires how long it's valid to the strike price the potential future price of the underlying stock and the premium which is either paid or collected let's give you an example of actually applying this stuff so you'll see it and it'll make a lot more sense so in our contract there's a few things that we have to discuss right it's the key elements that we just talked about right the expiration date the strike price etc i want to have the rights to buy this deck of cards six months from now and that is the expiration date six months from now and now we also have to put a price on it i am willing to buy this for let's say 13 okay i think it's gonna go up to 15. so i'm gonna put my strike price in at 13 let's say but i think it could go maybe even more than that so i'll just pick a strike price 13 but i know this is selling for 10 right now so now we've had the strike price figured out as well okay we have the expiration date we have the strike price and now andre comes to me and goes why would i want to enter into an agreement with this guy why would i want the contractual obligation the reason i would ever want to go into a contract with this guy is because he's going to pay me a premium cough it up son what do you want a dollar give me that dollar oh it didn't work look at that dollar so that's my premium that i get to keep and that's the benefit for entering into a contract now our contract represents a hundred of these decks it's not one deck it's a hundred of them and we already know that right one contract controls a hundred shares of the underlying asset or in this case apple that we did or in this case a deck of cards all right so with this contract we've already established our terms and we're gonna see how it plays out okay okay okay so options could be broken up into two sections calls inputs option is basically just two things it could either be a call or it could be a put and you can do one of two things with those options you can buy a put or you can sell a put you can buy a call or you can sell a call simple these are the four options we're gonna jump right into exactly what each of those mean very important to understand and once we do that we can go into some examples and make some money okay so now that alex is gone let me just explain it in my own words because it's pretty complicated but hopefully this helps first you can buy a call option this makes you a bull because you think that the stock is going to go up in value beyond the strike price at or before the date of expiration at which point you have the option to buy that stock but you also have to pay somebody a premium for doing that you can buy what's called a put option which is just a way for you to be a bear which means that you think the stock will go down below the strike price at or before the date of expiration at which point you have the option to sell your shares but you also have to pay someone a premium for doing that now you can also sell what are called call options which means you have the obligation to sell your shares at a strike price at that expiration date and you make money by collecting those premiums for selling those call options now if the stock does not hit the strike price you do not have to sell your shares and you get to keep your premium but you can also sell the put option which is the obligation to buy the stock at the strike price at or before the date of expiration and again you make money by collecting the premiums and if the stock does not hit the strike price then you don't have to buy those shares that's how it works those are the four things you can kind of do that's a very simple explanation which i know is still complicated so just press the j button on your keyboard a few times to go back and hopefully it makes more sense now that you know all of that let's apply these techniques to your investing and hopefully make some money there's three ways to actually do this and we're going to start with the first one which is selling covered calls yes a very easy strategy if you are out there and you already have a portfolio of a bunch of stock with at least 100 shares of each you can then sell a covered call which basically means selling calls exactly what you just explained and collect the premium on your already invested shares so let's go ahead and do that so it's almost like you're getting some dividends so go ahead and show me how you would sell so go ahead trade okay trade okay and then you're going gonna hit trade options okay and then again like we did before we're gonna pick an expiration date okay i usually tend to think a safe route is a few months out let's say call it two months out so go two months out okay so what is that october sure let's do yeah october september that's fine okay so now again we're going to sell a call which means sell call perfect so we're going to sell the call which means hit the sell button and hit the call button right and once you do this all you have to ask yourself is i don't think apple will get to x strike price so go ahead and choose a strike price of where you don't think that apple will be by october 15th and guess what your opinion is fine but robinhood here does the calculation for you as you can see here you have your strike prices and next to them chance of profit now if you go for a chance of profit let's say 83 percent i'm gonna do that i want to do 83 okay which is 83 chance you're gonna make money off of this trade which means apple will most likely not get to 160 by october that's right and if it does all that means is you are going to be forced or obligated to sell that my share your shares right at that price but it means that my investment doesn't go to zero it's not like i lose everything all it means is just my stocks are forced to be sold and that's okay because i'll still have money to either buy back into apple or i could buy something else and the best thing is you're still collecting the premium on it so if you own 100 shares so for example for me if i put one that represents 100 shares my premium would be 177 dollars which is pretty incredible and if i put two that's 200 i know i have at least 200 shares i don't want to have 300 so i can't put three but i know i could use at least two and that would give me a premium of 354. that's right so if apple does not get to 160 you get to keep that premium all 354 dollars which you get right away and you don't have to sell your shares so let's do it review bam swipe up damned it's gone now i still receive my dividends even though robin hood took it as collateral right that's right it's still your shares these are yours that you own uh they're just keeping it there just in case all right so the second application of options trading is buying stocks by selling puts right yes so basically you might be out there saying i want to buy whatever stock you're interested in and before you go straight into buying that you take a second and you say hold on i can probably get a better price by using options to get into my position so remember selling a put is the obligation to buy that underlying so we're going to use that to our advantage so what company do you want to invest in so i've always wanted to buy the win but maybe i can get a better price on it right now it's 98 bucks and maybe you're saying i could you know do better than 98. right so go ahead trade okay trade go to trade options okay and we're going to pick first and foremost the expiration date so so let's go to the end of the year let's say the december 17th okay so now you have your option of do i buy do i sell do i call do i put right all of that stuff what are we doing i what did you call me all right sell put perfect so now you just have to ask yourself what price do you want to pay and are you okay owning win at right so i'm okay with owning the win at i mean even honestly at these prices but let's say 85 85 i'm perfectly happy with owning it at 85 okay so worst case and we're not saying worst case scenario now because you actually do want to own it sometimes you're selling the put just to collect the premium hoping it doesn't get there but in this case and a lot of institutions use this method to get into and out of positions we're going to go to the strike price of 85 great and for every one contract that's going to have you buy a hundred shares so let's just say one for example and you're going to collect the premium of 523. so if it doesn't reach 85 guess what you're going to collect that whole premium and go home happy pappy get yourself some ubereats and some pokemon uncut sheets oh for 500 bucks nice that's not gonna happen deals right it's not gonna happen and if it does hit that price then guess what i'm obligated to buy those positions i will be forced to buy a hundred shares at 85 which is okay because when selling options you just have to ask yourself and i'm gonna ask you now are you okay owning win at 85 we already established that the answer is yes that's good and we're good to go we're good to go okay so you're going to collect that premium so you can review and you need buying power right as collateral just like we did covered calls you're using collateral of your shares in robinhood for in this case you need the enough to buy the 100 shares of stock so make sure you have that robinhood will keep that as collateral and you'll be on your merry way so now i've just made 520 of premium right away and on december 17th if the win does not hit that 85 i get to keep that 520 because the option will expire worthless yeah and you don't have to do anything nothing happens but if the win does hit 85 or below then i would have to buy 100 shares worth at 85 which by his standards is okay okay with me too we're good to go done bingo bango bungle bongo drums where they at all right and the third option is something called leaps which are pretty cool yeah so basically we understand the fact that one option contracts controls 100 shares and again we're taking advantage of all these options key features in our investments so if you want to let's say buy apple apple so you want to buy apple yeah which is pretty expensive and i might not have the money to buy a hundred shares and that's perfect because we just learned about options right and we understand that one option share controls a hundred you got it and they got it too they're yelling at the screen 100 shares and smashing that like button oh it's so smooth you're so smooth so if you want to invest in apple and maybe don't have the capital to buy a hundred shares which is going to be at this price 146 dollars times uh it's gonna be fourteen thousand dollars to buy 100 shares right you can control that 100 shares by buying some options so let's go ahead and do that this is really interesting so just quick math here a hundred times four 146 is roughly 14 600 ish dollars right now let's say i don't have 14 and a half thousand dollars to buy a hundred shares but this is what we can do we could go to trade trade options and we're going to pick a expiration date really far really far yeah so the farthest we can go in this case is september 15 2023 great so it's a few years out we're gonna buy our call so now you have to ask yourself what price do i think apple will be by september 23rd 2023 well i don't know what price it will be but i i think it'll be above a hundred dollars that's a very good call get it and call so we can make the bet that apple will be above a hundred dollars yeah so we can go ahead and buy the call option for a hundred dollars now in this case you'll notice something if we go down to a hundred the strike price of a hundred we're going to give us ourselves two years for apple to be above 100 but if you take a look right here break even it says 153 right because we have to take into account the premium right that we pay so yeah this is the interesting thing so even though it might seem as though by buying one contract for a lot cheaper for example if we click on this you could see that right now today it's going to cost me 5 340 that's right and for that amount of money you get to control 100 shares and that's a lot cheaper than paying 14 600 exactly but the catch is that this is a premium you have to pay somebody to exercise this right to get a control of 100 shares that's right but that's why right here the break even number that you see shows you 153 dollars that means the strike price plus the premium that you're right it's taking into account the premium so two years from today if apple is 153 dollars and 40 cents that means you technically broke even you didn't make any money that's right so for you to actually make money apple should be worth more than that so 153 is around what the price is today we're basically saying our bet is it'll be worth more than it is today now what if apple actually drops below a hundred dollars you lose only money there's no easy way to save it i mean there is an inherent risk of options and this is one of them right but you have to keep in mind that you do not have to hold a contract to expiration you can sell it further right so if you're in profit a little bit or if your profit loss and you think you're going to lose more you sell it and you move on the reason that you want to do this maybe over buying 100 shares is because again you may not have enough money to do that with 100 shares and because you want to leverage and be exposed to the performance of apple and still make money you got it i'm impressed i don't know what else to say wait that means i could take your monthly salary and put it into out of the money spy call options expiring tomorrow make a lot of money right and that was options trading so go check out alex's channel on youtube he just started it he's going to talk about investing options trading business traveling all sorts of things he's like the magic harry potter that's better looking and more talented than me and i'm really proud of him for turning his portfolio into over a million dollars it's crazy what he's been able to accomplish and i think he'll learn a lot from his channel so go check him out in the meantime go get up those two free stocks with weibo when you deposit a hundred dollars using the link down below you'll get up to 250 worth of free bitcoin using this block by link right here and go track those stocks automatically with the patreon link down below love you thank you so much for watching i'll see you soon peace

Channel: Andrei Jikh

Views: 238,528

Rating: 4.9402165 out of 5

Keywords: options trading, trade options, learn options, options for beginners, how to invest, stock market crash, bitcoin, how to buy bitcoin, cryptocurrency, stock market, robinhood app, best trading app, stocks, passive income, dividends, dividend stocks, investing, investing for beginners, stock options, best stock trading app, andrei jikh, webull, how to buy dogecoin, dogecoin vs bitcoin, coinbase, gemini, dog coin, doge coin, crypto crash, millionaire, fed coin, how to trade options

Id: eCEHzyCTDd8

Length: 22min 23sec (1343 seconds)

Published: Fri Aug 06 2021