Can someone explain options to me?

Yeah frick that. I’m not being responsible for someone trading options

Typically you will want to sell your options rather than excersis them. If you do not have the cash to excercise the option, a brokerage firm may step in and sell it for you.

With options there are two things you have to get right. Direction and timing. It is difficult to get those two things right at the same time consistently.

If you aren’t very familar with technical analysis of stocks and indexes, you should before trading option, IMO.

Wow, there's a lot to learn...I would start with basic options pricing (Black-Scholes Equation), which is basically a differential equation that delivers the fair market value of the option based on 'greeks,' which measure value sensitivity of the underlying asset with respect to to various parameters. The greeks can also give a sense of how the general population views the future of a security (implied volatility). I am sure I butchered some of this, as it has been a while since I practiced any kind of options trading/strategy, but just know there are tons of sharks swimming around waiting for fish that dont know what they are doing. The market is incredibly smart and efficient.

Black-Scholes Model

Greeks

After many many years of investing, 90% of money made in options are made by the sellers of options, 10% from the buyers of options. Odds are extremely stacked against the buyers.
Selling options is like owning the Casino. Buying options is like a gambler at the Casino. Which would you rather do?

Thanks guys. I’m not necessarily going to trade options, just like to know how things work. For instance with the margin trading. I knew once I learned what it was that it wasn’t for me. But I’m still glad I learned how it works. That’s the mindset I’m going into options with.

Ok so if I buy a Put/Call I can sell my option anytime before the expiration date to close my position. As long as it’s the same exact option. Of course I would only do this if it was in the money. Is it the same way if I sell to open? I just buy the same option that I sold to close? Or once I sell an option it’s out of my hands and the only way I make money is if the buyer doesn’t exercise the option?

quote:

---

Ok so if I buy a Put/Call I can sell my option anytime before the expiration date to close my position. As long as it’s the same exact option. Of course I would only do this if it was in the money. Is it the same way if I sell to open? I just buy the same option that I sold to close? Or once I sell an option it’s out of my hands and the only way I make money is if the buyer doesn’t exercise the option?

---

I'm not endorsing this site or its owner: Option Alpha
But I will say that it has tons of free resources, and if you're serious (and not playing), you can learn a lot. And yes, you can make above average returns, without needing to get a PhD. in math to do it.

To answer your question, if you sell an option, you can buy to close at any time prior to expiration. I've been a premium seller for years. I generally only buy options when they're part of a defined risk strategy. In other words, if I sell a call at a given strike price, I might buy a protective call above that strike, just in case the market/security moves against me. That limits my risk, but also lessens my profit.

My trades are based around higher than normal implied volatility (IV), because that's when option premiums tend to be higher, and also high probability of success... represented by the delta of a particular strike. Market direction doesn't particularly matter to me. What I care about most is volatility. If you really want to roll the dice and buy options, you should limit that gamble to when implied volatility is relatively low (meaning cheaper premiums).

Whether it's Option Alpha, Tasty Trade or some other resource that offers easy to understand, fundamental explanations, learn before you try to trade - just as you would before driving a car.

I watched part of Options Action the other day. Of the four trades I saw, none was based on selling premium or net shorting. All involved buying options or doing debit spreads. A review of a past trade (a debit spread expiring in June) showed that it had already lost around 50% of its value. Even in periods of high IV, they'll promote being net buyers of premium. I'd be ashamed of myself telling someone to do that over and over.

I don't see how CNBC gets away with this. Course, Jim "50/50" Cramer is one of their most popular talking heads, so maybe it's par for the course there. Why don't they ever show their win rates or maximum drawdowns??? Why no mention of CAGR or Sharpe Ratio???

If I was going to speculate by being a net premium buyer, I'd probably lean toward what Jon and Pete Najarian do: look for unusual options activity and jump on those longs for short term trades. You could put maybe 5-10% of a trading account toward that and do OK. I don't know. But I really think that the characters on Options Action put their crappiest strategies on that show and save the good stuff, that makes more consistent money, for their subscribers.

quote:

---

Never talk over your audience.

---

True. Very true. Sometimes when I'd watch CNBC, even though Bill Griffeth and Sue Herera were there too, I'd forget that it wasn't the old Financial News Network (FNN). FNN did fantastic educational segments featuring John Bollinger (Bollinger Bands) and old Ira Epstein (futures), among others. It wasn't perfect, but you could learn something useful if you paid attention. If nothing else, you might develop a thirst for REAL investing knowledge.

Now it's all about putting on entertaining dog & pony sideshows and drawing the most eyeballs to the stage, which equals more ad dollars. So the top rated (by eyeballs) and most featured personality on CNBC is a guy who is more carnival barker than anything else (and has been beaten by two different monkeys, Mr. Adam Monk and Leonard the Wonder Monkey, in investment showdowns). I think that alone proves your point.

The OP hasn't come back. But if he does, or if anyone else takes an interest, hopefully he'll search out legitimate options trading educational resources... and avoid CNBC like the plague. There's a lot (good and bad) on YouTube. There's Tasty Trade Network on Roku and I guess AppleTV. If you're a T.D. Ameritrade/ThinkorSwim client, there's Trader TV.

Whether one gets into it or not, one CAN LEARN - course, I realize that you already know this stuff. Glad to see that you're still around. I've always enjoyed reading your analytical posts. I also come here a lot less now, but sometimes I'll read a thread where people are arguing about which dog turd penny weed stock they should employ the old buy & hope strategy on. I'm tempted to chime in and suggest that they at least consider something as simple as credit spreads on liquid securities with relatively high volatility (rich premiums), and potentially (with probabilities) make MUCH higher and consistent returns over time... with defined risk. But then I think, nah... leave it alone and go on about your business.

Anyway, always good talking to you.