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Stock Options Explained

1302 ratings | 39434 views
Correction: At 4:20, the graph in the top left-hand corner is slightly off; for total return, the curve should not intercept at (30,0), but rather should be shifted slightly to the left so that the bend in the line occurs at (30,-2). Sorry for the blunder. Option Pricing Factors: - Underlying stock price (higher = higher call premium, lower put premium) - Underlying stock price volatility [expected] (higher = higher option premium) - Underlying stock dividends (higher = lower call premium, higher put premium) - Option's strike price (higher = lower call premium, higher put premium) - Time until expiration (longer = higher option premium) - Interest rates (higher = higher call premium, lower put premium) Intro/Outro Music: https://www.bensound.com/royalty-free-music Episode Music: http://freemusicarchive.org/music/Podington_Bear/ DISCLAIMER: This channel is for education purposes only and is not affiliated with any financial institution. Richard Coffin is not registered to provide investment advice and as such does not provide recommendations on The Plain Bagel - those looking for investment advice should seek out a registered professional. Richard is not responsible for investment actions taken by viewers.
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Text Comments (90)
The Plain Bagel (4 months ago)
Happy Friday everyone! Have you ever used stock options, or do you prefer sticking to traditional investments? Let me know!
Shawn Harry (7 days ago)
Traditional investments for sure
raaj rajan (23 days ago)
plain investing
Uilium Powell (2 days ago)
Very useful information
Dan Wright (3 days ago)
I had a put option on the dia on election night. Market down 900 points. Placed a sell order and by the time the market opened it had recovered. Why does it seem like after hours is where all the money is made? Since then I have discontinued buying these out of discouragement. I'm thinking I would like to try again. Put option on the dia. Any tips would be appreciated as I'm just doing this on my smart phone. I was looking at two weeks out buying at 239-237. Still very new to this options narrative.
Times of BE 🔘 (5 days ago)
This used to a game for rich when they had 'excess money' for fun and not genuine investment option.
Barnaby Graham (7 days ago)
your hand gestures are noticeably forced
The Plain Bagel (6 days ago)
Barnaby Graham I’ve actually been trying to tame my hand gestures haha
David Huang (7 days ago)
Now I can become a member of wallstreetbets
ori kop (9 days ago)
Can someone explain to me what benefits options have compared to stocks. I Thank all the helpers
Darcy Fitzpatrick (9 days ago)
Options sound like gambling to me.
The Plain Bagel (9 days ago)
Darcy Fitzpatrick they certainly are to some degree; if used in a certain way though they can be a powerful hedging tool, though the benefits they provide are temporary
Mohamed Ali (10 days ago)
Let’s be honest. It’s all a sophisticated gambling
Danny Tu (10 days ago)
still confused af
Andy Bogdanov (11 days ago)
Ok. Now explain it to me like I’m 5
No Hope Equals no fear (15 days ago)
Pretty dumb... how much is the premium you have to pay?
TOC359 (16 days ago)
Wouldn't it just be easier to play BLACKJACK ???
The Plain Bagel (15 days ago)
The way some people use options, probably! But if used in combination with stocks the can actually reduce the risk of your positions
Xin Xiang (18 days ago)
I don't understand why the put option chart at 4:27 go through the ($30, $0) point. If the stock price remain the same, you still pay the premium, right?
The Plain Bagel (17 days ago)
Whoops, that was a mistake with the animation, I'll add a card highlighting that the line should not intercept there. Thanks for pointing that out!
Lawrence L. (18 days ago)
Teaching the theory and general concept of trading is easy, but very very few people can actually trade the market successfully fruitfully for abundant compounding profits,
The Plain Bagel (17 days ago)
Certainly, that's why I stick to the former (Y)
Fuck, I should've read that section at the end on A Random Walk down Wall Street. Off to read it.
Bobby Bobby (18 days ago)
no matter how many options tutorials I watch, I still get so lost.
Shawn Harry (7 days ago)
Yes I agree
NathanRyanAllen (9 days ago)
It's really easy, people just make it hard. You are buying the right to purchase something at a set price (strike) by a specific date. That's it.
El Moist Taco (15 days ago)
Uptin Sinclaire That made sense, thank you. What confused me in the video was all the graphs
Uptin Sinclaire (16 days ago)
Not a pro by any means but here's my grasp on it. If you want to invest in a company you buy stock in that company so you basically own a small part of it. If the company's value increases so does the value of your stock. Generally slowly and steadily it increases over time assuming the company does well. Now let's assume that this is too slow and too boring for you or you think the value of a company is about to drop. Options give you a way to make a bet on your assumption that the stock will drop. They're all basically different ways of gambling. For the $2 call option your betting that the $30 stock will go up more than $2. Scenario one it goes up $4 so you just made $2. Scenario 2 it goes up $2 you didn't gain anything. Scenario 3 it goes up less than $2 or even drops. You only lose $2 because you don't use the put. The difference between buying the actual stock that started at $30 is that the most you can lose is $2. If you bought the $30 stock and it dropped to $5, you just lost $25. So you're basically betting for the cost of $2 that the $30 stock will go above $32 before your option expires. For a put it's basically the opposite. For the cost of the option say $2 you're betting that the $30 stock will drop more than $2. Most likely these investments are made in large multiples I'm assuming since nobody goes to the trouble just to make a measly $2. So you might buy 100 $2 options or 1,000 maybe 50,000. Did that make any sense? Or am I lost too?
From what I get it so far, as an average joe stock traders, go for buying put options, it has less risk than others. So start by educating yourself about buying put options only atm.
Colma B (19 days ago)
Voodoo gambling
Uptin Sinclaire (16 days ago)
You're putting out money in hopes that something you believe will happen and it isn't for a good or service. You could lose the money you had you could get the same amount back or you could make money. So yeah it is gambling. The real question is how risky is it and what can you do to minimize the risk. You can lower the risk by researching a company and waiting longer for a return.
Colma B (18 days ago)
Lawrence L. You’re entitled to your opinion
Lawrence L. (18 days ago)
The market is only truly 100% gambling...if you choose to approach it in such a stupid, naive, amateur way, -- think about it,
Zach Borts (19 days ago)
Investing is more like Vegas gambling then actual investing.
Uptin Sinclaire (16 days ago)
Real investing is researching a company and buying stock in it and waiting. Options are a way to gamble on different scenarios probably in a shorter term.
Waluigi McSpermDump (17 days ago)
This isnt investing.
sunnohh (21 days ago)
Good video, no falsehoods. I would have made it clear that european style options are typically only index options, and more so; index options are always european. Just a licensed practitioner.
Felipe Behrens (21 days ago)
Options are an easy way for you to loose all you money....
jooky87 (22 days ago)
Great video, I finally understand calls and puts
The Plain Bagel (21 days ago)
jooky87 glad you found it helpful!
Great information.
MetraMan09 (27 days ago)
brb i'm going 100x long in bitmex
Juan Sebastian Arango (27 days ago)
Check out the iron condor strategy, is linked to this and I just got taught on it. Pretty sick!
James McGowan (29 days ago)
Very muscular neck! You need to upload a work out vid 😉
The Plain Bagel (28 days ago)
A very niche compliment...thanks!
Zonkey (1 month ago)
You are so underrated omg.
The Plain Bagel (1 month ago)
Haha thanks!
Victor Espino (1 month ago)
Currently taking a class on selling options. Great stuff here, you nailed it exactly and I learned something too lol
Farhanking7864 (1 month ago)
this might be one of the best videos ive ever watched
rotagbhd (1 month ago)
No mention of buying the option back.
Le Thanh Dat (1 month ago)
Love your video 👍
James Draper (1 month ago)
Very well made videos, this channel should take off
The Plain Bagel (1 month ago)
Thank you that's very kind!
Does It Really Matter (1 month ago)
I just don't get why anyone is dumb enough to sell an option
Victor Espino (1 month ago)
For monthly income. When the stock is moving sideways you can buy and also sell at the same time, buy and sell a call and also buy and sell a put on the other side and you can make great income. There are income strategies and also growth strategies which can be months long.
dablaire89 (2 months ago)
how about warrants?
The Plain Bagel (2 months ago)
I'll add it to my list of topics to cover :)
Yong Wai Pua (3 months ago)
This is a really impressive explanation. Thank you for doing this lovely video.
The Plain Bagel (2 months ago)
I use Adobe Premiere (CS6 I believe is the version).
Yong Wai Pua (2 months ago)
They are really helpful. Could I know what software did you use to produce this?
The Plain Bagel (3 months ago)
Thanks for the kind words!
TranscendentalMental (4 months ago)
Nicely done, still dont understand the more complicated techniques but I have good understanding on long calls/puts and thats enough for me at the moment.
The Plain Bagel (4 months ago)
For most people understanding the basics is certainly sufficient, glad I could help!
Vagabond Verstraetes (4 months ago)
Keep up the great work!
The Plain Bagel (4 months ago)
DUDEVMAX (4 months ago)
You need 50 million subscribers atleast
The Plain Bagel (4 months ago)
T series got nothing on this
DUDEVMAX (4 months ago)
Marry me plain bagel seriously Marry me I wasn't able to understand this for a really big while I am in love with you
The Plain Bagel (4 months ago)
Hahaha glad I could help!
Classick (4 months ago)
Thanks so much for making this. Keep up the great work.
The Plain Bagel (4 months ago)
Glad you find them useful!
dablaire89 (4 months ago)
can you make a video on stop losses, like when to lock in profits and enter at lower position. Maybe it's too specific and active trading/market timing is not ideal for your general audience compared to other topics but just an idea :)
The Plain Bagel (4 months ago)
I can certainly cover the different types of market orders, but yeah I'll probably avoid the specific active strategies people use with them. I've added it to the list of topics to cover, thanks for the idea! :)
Investing Book Summaries (4 months ago)
Another great video, well done!
The Plain Bagel (4 months ago)
Thank you!
Went to college for 3 full years and finished earlier because of my mindset but not once did a college professor explain options the way you did! You should keep crushing the game brother!
David Valle (18 days ago)
+sunnohh 99% of people who comment things like that, went to either a shitty university or to a degree which has nothing to do with economics. This is so basic that even in non-related degrees can explain it to you. Something tells me that US students put themselves in debt and get a mediocre education in the best facilities.
sunnohh (21 days ago)
+Victor Espino Did your school not offer a financial markets class? This was all covered in mine...
Victor Espino (1 month ago)
Yea I college they explained how to calculate everything by hand, which kinda took away from the application of the point of options..
The Plain Bagel (4 months ago)
Thanks dude! Appreciate the encouraging words!
mmcali11 (4 months ago)
I once tried buying a call option. I thought it would just expire worthless but for reasons I still don’t understand the option ended up being exercised. I don’t use options anymore lol
Victor Espino (1 month ago)
Don't, you need training. Dont recommend people just doing it on their own. Way to complicated
Kevin Street (4 months ago)
Thanks for the new video! I think this one will just be for educational purposes, though.
The Plain Bagel (4 months ago)
Fair enough! I imagine for many it will be treated the same
Dan (4 months ago)
Great vid as always. Question. I am new to options. If options done right (i.e. hedge by buying put &calls) is it safer than traditional swing trade?
Dan (4 months ago)
+The Plain Bagel yes please! Go through it using a example. Options are bit tricky for beginners like me although I am pretty good with math 🤔🤔
The Plain Bagel (4 months ago)
Dan H it all depends but my first thought would be that options would be safer because, again, you’re paying an upfront fee for limited downside risk. But I’ll look more into it and answer this next Q&A vid :)
dablaire89 (4 months ago)
wooohhoooo I've been waiting for this type of video especially for weed stocks
Momentum (4 months ago)
The Plain Bagel (4 months ago)
Damn you actually beat me too...

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