Options Trading For Beginners: Complete Guide with Examples

thank you so much for joining me in this

options trading for beginners video this

is your complete guide to options in the

stock markets this includes call options

put options covered calls and cash

secured puts if you want to become a

more powerful investor in the stock

market then watch this video this

knowledge will level you up now for this

video I want to tell you no rush take

your time there's certain parts of this

video that you're going to want to

rewatch and it's most likely going to

take taking more than one sitting for

you to digest all this information

that's going to be normal so please

subscribe and we're going to start with

call

options okay so let's break this down to

the fundamentals so what are

options options are simply contracts

they're options contracts so it's

essentially a deal between you and

another person so I want to show you

this from the perspective of the buyer

so in our example you will be the buyer

of the opt options contract and again

this is a call option now we'll just

pick any stock and in this example we'll

use Yelp stock so the price of Yelp is

at

$35.84 but to keep it simple let's just

round it up and say that Yelp is at $36

a

share so what if I tell you I'll give

you the option to buy Yelp at $38 to

share in the next 30 days and for you to

have that option you pay me 80 sense so

is that a good deal or is that a bad

deal well honestly it's hard to say

because we don't know if the stock price

of Yelp will go up or down in the next

30 days but let's just say that you buy

that contract for 80 C and now you have

the option to buy Yelp at $38 within the

next 30 days so here's how you win the

price of Yelp right now is at

$36 so let's say that within the next 30

days the price price of Yelp hits 42

then in this situation you're going to

make good money because here's what's

going on so the options contract that

you bought was a call option so you paid

for the option to buy a stock at a

certain price within a certain amount of

time now in our example Yelp hits

$42 so you have the option to buy Yelp

at $38 so would you buy Yelp for $38 in

this situation so the answer well it

should be a of course you would because

you could buy it for 38 and then

immediately sell it for the going rates

of $42 and then you end up with a gain

of $4 a share so here's what your profit

would look like you buy Yelp at 38 you

sell it for 42 but you have to remember

that you paid 80 cents to have this

option so you net a profit of

$320 and I want you to know that this is

a real life example you could take a

look for yourself so this is the Robin

Hood platforms all platforms will look

pretty similar to this so you see at the

bottom right where it says trade Yelp

options which I outlined in Red so you

click on that and it takes you to this

so don't I just want to say don't be

intimidated I'm going to walk you

through this and it's going to be very

easy to understand so these are the

options contracts at different price

points if you want the contract to be at

38 then 38 will be your strike price so

as you can see here you're going to see

the options contracts with different

strike prices 35 36 37 38 39 that's just

the limit of my screenshot so you can go

for an options contract with a strike

price at $50 or even at 20 but I'm going

to explain the difference to you in just

a little bit but for right now let's

just focus on you buying the call option

at a $38 strike price and take a look

for yourself that options contract is

selling for

80 so was our example of Yelp going to

$42 in the next 30 days possible well

take a look for yourself so I've

highlighted in red in the top left Yelp

has gone up by almost $7 in the past 30

days now let's go back to the topic of

you winning and making money so Yelp is

at $36 currently you bought the call

option with a strike price at 38 and

that option will cost you

80 so if Yelp goes above

$38.80 in the next 30d days then you're

going to be at a profit so maybe like

who knows Yelp could go up to 40 it can

go up to 42 maybe 50 it could go to 100

I mean that would be unrealistic but

it's not impossible if Yelp skyrockets

then you're going to make so much money

because you're going to have the option

to buy it at

38 so if you buy the call option then

you want Yelp to go up as much as

possible as fast as possible because if

you think about it's very

straightforward if Yelp goes to $100

you can buy it for 38 and then sell it

immediately for 100 so I just want to

point out that that's the happy scenario

where everything works out and you make

a lot of money but we have to talk about

the flip side of the coin we have to

talk about how you can lose money and

how you can get absolutely destroyed so

the danger is that you have a limited

amount of time before your contract

expires and in that time if the stock if

the price of the stock doesn't do what

you want it to do in that set amount of

time then you're going to end up with a

worthless contract so I have to show

this to you so here's how the unhappy

scenario plays out Yelp is at $36 right

now you bought the call option to have

the option to buy Yelp at

$38 in the next 30 days if Yelp is at

$38 or below then your contract is

worthless so I want to demonstrate the

good and bad scenarios for you there are

four scenarios so so here's scenario

number one Yelp is at $36 a share

currently you have the option to buy it

at 38 within the next 30 days and let's

just say that the stock price it goes

down to

$30 in this scenario your contract is

terrible it's worthless why would you

use your contract to buy Yelp at 38s

when you could just buy it on the open

market for 30 and remember you paid 80

cents for that contract so you wasted

your money and you lose so here's

scenario number two Yelp is at 36 you

have the option to buy it at 38 within

the next 30 days and let's just say that

the stock price it goes up to

37 in this situation it's the same it's

the same thing why would you use your

contract to buy Yelp at 38 when you can

buy it on the open market for 37 so yes

the price of Yelp stock it did go up it

went up from 36 to 37 however it didn't

go up enough because it's still below

the strike price on the contract so you

wasted 80 cents to buy that

contract I the stock went up but not

enough and you still lose moving on to

scenario number three so Yelp is at 36

you have the option to buy it at $38

within the next 30 days and let's just

say that Yelp goes up to

$38.50 so in this scenario you can buy

Yelp for $38 and you could sell it for

$38 50 so that is a gain of 50 so

congratulations however you still lose

money because you paid 80 for the

contract so your true cost basis it's

$38.80 and you can sell it for

$38.50 so you still lose but at least

it's not a total loss so here's scenario

number four so Yelp is at 36 you have

the option to buy it at 38 within the

next 30 days Yelp goes above your cost

basis of

$38.80 and then you're going to be at a

profit and the more it goes up the more

money that you'll make so basically in

this situation you want the price to

Skyrocket for example the best news

would be Google decides to acquire Yelp

for $60 a share and Yelp stock it

skyrockets in price within your 30 days

now here's the thing I want to tell you

this because this is so important with

call options or options contracts in

general you can buy and sell them just

like a stock so in our example if Yelp

goes to $60 a share you don't literally

have to buy Yelp for $38 and then sell

it for 60 you can just sell the options

contract

itself but if Yelp is at 60 and you want

to buy Yelp for 38 and just hold on to

it you can exercise the option and buy

it for 38 and just hold on to the stock

and then your options contract it'll

disappear from your account account and

then you'll end up with the Yelp stock

now let's go back to the options screen

so I want to explain this whole option

chain to you that's what they call this

so you can buy call options at different

strike prices so let me tell you what is

going on here okay I want to ask you a

question it's pop quiz time so I'm going

to give you two offers you tell me which

one sounds better to you Yelp is

currently at $36 so here's my first

offer in the next 30 days I'll give you

the op option to buy Yelp at 38 and my

second offer in the next 30 days I'll

give you the option to buy Yelp at 39 so

which one sounds better to you of course

option number one sounds more appealing

because I would rather have the option

to buy Yelp at 38 instead of 39

therefore the contract at 38 a $38

strike price is more appealing okay but

here's the thing these circumstances

they're factored into the price of the

option contract now I want you to

compare the contract at 38 versus 39 the

contract at 38 is selling for 80 the

contract at 39 is selling for

55 so if you want to buy a contract with

a higher strike price the contract will

be cheaper that's because it's less

probable that Yelp will hit 39 compared

to 38 so in this case they need to offer

you a cheaper price so take a look at

the $37 strike price that's trading for

$115 that contract it's more expensive

because it's not that far-fetched that

Yelp will go from 36 to 37 within the

next 30 days now I want to teach you

about the duration of the options

contract so if you're thinking that this

thing this whole thing everything that

we're talking about if you think that it

sounds risky because well you don't know

what's going to happen in the next 30

days with the ELP stock if that's how

you think then I would say you're

absolutely correct I would agree with

you because 30 days is not a lot of time

but what if I told you the Yelp is at

$36 I'll give you the option to buy it

at 38 but I'll give you that option for

7 months so that scenario it would be

more appealing to you because you have

more time for Yelp to go up however

those favorable conditions they're taken

into consideration therefore if you want

more time on your contract and you're

going to pay for it so take a look for

yourself I circled at the top your

ability to choose the expiration dates

of the contract so we're using the same

strike price at 38 for a contract that

expires in 7 months this contract is

going to cost you

$3.90 so compare that to the contract

that expires in 30 days that's going for

80 cents if the expiration date of the

contract is sooner then the contract

will be cheaper if the expiration date

is farther out then the contract will be

more expensive now I must clarify this

one last thing because it's very

important options contracts are for 100

shares so if you buy one options

contract of Yelp at a $38 strike price

then you're buying the option to buy 100

shares of Yelp at

$38 and the contract price it's quoted

at 80 cents right so that's 80 cents a

share but you have to remember that

you're dealing with 100 share increments

so if the options contract says 8 0 then

the options contract will cost you

$80 so if you buy five options contracts

it's going to cost you $400 now I hope

that this has helped you to better

understand call options now in this next

segment we're going to proceed to

covered calls so covered calls we're

still going to be dealing with call

options but we're going to be taking it

one step further and this will help you

to decrease your risk and generate

passive

income so I'm going to explain to you

why stock market investors love covered

calls and then I'm going to show you how

to do it if you think that covered calls

are complicated they're not I'm going to

break it down for you nice and easy and

then you're going to become a much

better investor in the stock markets and

I just want to say that personally I'm a

big fan of covered calls because it

gives me a steady stream of income now

let me tell you the good and the bad of

covered calls so the good thing about a

covered call is that you will be paid

income now this could be weekly income

it could be monthly income annual income

it's your choice you get to decide you

make money by selling the call option so

I want to be very clear about this in

this scenario you cannot lose money by

selling the call option so you can lose

money on your stock but you cannot lose

money on the sale of the call option it

is guaranteed money even if you're a

beginner you will make money by selling

the call option

but there's a tradeoff the bad thing is

when you sell the call option you are

limiting your upside potential if your

stock goes up so don't worry I'm going

to draw this out for you I'm going to be

very clear about this I'm going to show

you the math now I want to clarify this

for you in the previous examples we were

dealing with call options and you are

the buyer we're still going to be

dealing with call options but in these

examples you will be the seller there

are three scenarios where you sell call

options scenario number one you buy a

call option and then you sell it

scenario number two you sell a call

option and scenario number three you buy

a stock and then you sell the call

option this is a covered call so let me

explain to you a covered call and how

you make guaranteed income and we're

going to use a real life example a real

stock the real price the real call

option prices I thought that this would

be best because I want to show you that

this entire conversation is legit we're

going to be dealing with Intel stock

ticker symbol

INTC at the time of making this video

Intel is at $32 a share a little bit

over but we'll call it 32 to make it

easy and we're going to use the intel

Call option that expires in about 2

months and that call option with a $34

strike price is selling for

$11.50

so again what I'm showing you is a real

life example so these are actual numbers

keep that in mind that's important

because you're going to see how much

money you can make and it gets kind of

wild okay so here's the situation let's

say that you buy Intel at 32 and I give

you an offer so I Brian want the option

to buy Intel from you at $34 within the

next two months so if you're going to

give me that option if you're going to

give me that option then you're not

going to give me that option for free so

you're going to tell me okay Brian if

you want that option then it's going to

cost you a $150 and I tell you that okay

you got yourself a deal let's do it so I

pay you $150 to have that option to buy

Intel from you at $34 within the next

two months so in other words you sold me

a $34 call option that expires in two

months for $150 okay so why would I do

this why would you do this let's work

out four scenarios and I'll show you the

math so scenario number one the share

price of Intel goes down so you bought

Intel at $32 a share and let's say that

in two months Intel Falls in price by $2

it goes from $32 to30 so in this

scenario I'm not going to use the call

option that you sold me because why

would I buy Intel from you at $34 four

when I could just buy it on the open

market for 30 so in this scenario you

sold me a contract that turned out to be

worthless for me okay so for you Intel

Falls from 32 to 30 you lose $2 on the

stock right but you made $150 by selling

me the call option so you hedged and

you're only down 50 instead of $2 so

it's a good thing that well in this

scenario that you sold me the call

option moving on to scenario number

the share price of Intel does nothing so

you bought Intel at 32 after 2 months

it's the same nothing happened it's

still at 32 in this scenario you didn't

make money you didn't lose money on the

stock the price stayed the same but you

sold me the call option to buy Intel

from you at 34 and I paid you $150 to

have that option but I'm not going to

exercise that option because I'm not

going to buy Intel from you at 34

because I could just buy it on the open

market for 32 so in this scenario

congratulations to you your stock did

nothing and you made $150 and let me

tell you making a $150 in this type of

transaction in two months is not bad

because

a150 divided by 32 which is what you

paid for Intel that's a gain of

4.6% so you made a gain of 4.6% in 2

months so if you annualize that that's a

rate of return of 28% and again again

these are real numbers so this is how

awesome options are and the results get

even better in the next scenarios so I'm

going to show you scenario number three

Intel goes up by a little so you bought

Intel at 32 let's say that Intel goes up

from 32 to

33 in this scenario you made money on

the stock because Intel went up from 32

to 33 Additionally you sold me the call

option to buy Intel from you at 34

but the share price of Intel is at 33 so

I'm not going to exercise my option

because even though the stock price went

up I would rather buy Intel in the open

market for 33 rather than buy it from

you for 34 so this is an awesome

scenario for you because you made $150

by selling me the call option and your

stock went up by a dollar so you're up

$2.50 in 2 months that's a 7.8% gain in

2 months annual realiz that's a rate of

return of

46.8% scenario number four the price of

Intel shoots up so you bought Intel at

32 Intel shoots up let's just say from

32 to 40 so you have to remember that

you sold me the option to buy Intel from

you at 34 within the next 2 months and

it shot up to 40 so you know what I'm

going to do you know what I'm going to

do with the call option that you sold me

I'm going to use it I'm going to

exercise it I'm going to buy Intel from

you at 34 and I'm going to sell it on

the open market for 40 so even though

the price of Intel shot up to 40 you are

forced to sell it to me for 34 so that

was the contract that was the deal I

paid you $150 for that option so you

bought Intel at 32 you sell it to me for

34 so you make $2 of gain on the stock

and I paid you $150 to buy that call

option from you so you make a $150 there

you walk away with a gain of 350 in

total that's an 11% gain in 2 months

annualized that's a rate of return of

66% that's pretty awesome now with that

being said I want to ask you a question

and just think about this honestly would

you be upset if this happened to you

because you made an 11% gain in 2 months

but if you never sold that call option

then your stock would have went up from

32 to 40 and you would have an $8 gain

on the stock but you did a covered call

and you made a total gain of$ 350 so you

sold yourself short you still made money

but you would have made more money if

you never sold me the call

option but of course you didn't ex you

didn't expect the share price to go up

so high so quickly so I guess it's just

a matter of your point of view whether

you'd be kicking yourself or not over

the situation but that is the risk of

writing a covered call again you cannot

lose money by selling the call option

the downside is that you are limiting

your upside potential okay so I hope

that you're still following along I hope

that this is all clicking but I have to

show you two very important variables

with covered calls the strike price and

the duration but first if you're finding

this helpful please give this video a

thumbs up I'm just trying to be helpful

if you can help me with a like I'd

appreciate it so much and thank you very

much I appreciate it now let's modify

the variables and see how the numbers

work out let's change the duration of

the contract which is the expiration

date of the call option so the $34 call

option two months out is selling for

$11.50 but what if we changed the

duration to 6 months out now I want you

to know this the more time the call

option has the more expensive the call

option will be and that means that you

as the seller would collect more money

so let's look at the call options on

Intel 6 months out instead of 2 months

and here are the prices for the call

options 6 months out as you can see the

$34 call option 6 months out is selling

for

$261 so if you sell that call option

then you you would receive

$261 but here's the thing you may be

thinking okay but you can sell the $34

call option two months out and make

$150 so over the next 6 months months

why not just sell the $34 call option

for $150 every two months that way

you'll make $150 $150 a150 and then

after 6 months you'll end up with

$4.50 so that sounds better than selling

a single call option 6 months out and

making

$261 right so that would be true if 2

months from now the $34 call option we

still selling for the same price at $150

and then two month months after that if

the call option was still selling for

$150 so in that scenario yes you would

make more money by selling a two-month

option and then another two-month option

and then another two-month option

instead of selling a six-month option

however the price of the call option is

constantly

changing if the stock price of Intel

Falls from 32 to 28 the $34 call call

option 2 months out would probably sell

for around 50 or even less so that's the

risk that you're taking by going with a

shorter call option if you lock yourself

into a longer call option then you know

how much you're going to make in 6

months if you go with shorter time

frames then you don't know how much that

$34 call option will be selling for when

the time comes you may get a better

price you may get a worse price so

that's the risk now let's change change

another variable let's change the strike

price so you can sell the $34 call

option 2 months out and make

a150 or we can change the strike price

to 38 and sell that option for 50 if you

go with a higher strike price then

you're giving yourself more upside

potential to make money on the stock in

the event that your stock goes up so

just think about it you're guaranteed 50

cents in two months time if intel shoots

up to

38 sure you're going to make less money

by selling the call option because

you're only going to make 50 cents

instead of $150 but you're going to make

more money from the stock going up

because if intel shoots up to 38 you're

going to be forced to sell Intel at

$38 but if you sold the $34 call option

then you would be forced to sell Intel

at 34 but you probably realize the

downside if you bought Intel at 32 and

it did a whole bunch of nothing let's

just say that after 2 months it stayed

at

32 well if you sold the $34 call option

then you could have made a $150 instead

if you sell the $38 call option then

you're only going to make 50s so that's

the Dilemma so for the call option the

closer the strike price is to the

current price the more expensive the

call option becomes the farther the

strike price the cheaper it becomes okay

now let me show you how to write a

covered call in order to write a covered

call you need to buy the stock first and

then sell the call option so do not buy

a crappy stock because you don't want to

make money by selling the call options

but lose money on the stock so that's

like dropping quarters to pick up

pennies so find a good stock that you

think will go up and if you remember

with options you're dealing with 100

share increments so in this Intel

example in order to do a covered call

you need to buy 100 shares of Intel

first and then you sell the call option

so let's just say that you already own

100 shares of Intel in this scenario you

would just place a single order sell to

open one contract select the expiration

dates and the strike price the price of

the option and that's it piece of cake

very easy if you have 500 shares of

Intel and you want to write covered

calls on all 500 shares then it's going

to look like this sell five call options

and just so you know you don't have to

write covered calls on all your stock if

you have 500 shares of Intel you can

write one contract you can write three

contracts whatever you want and you're

going to notice that it says

$750 that's how much money that you're

going to make from selling five covered

calls so here's the math the $34 call

option is selling for $150 so that's a

$150 a share multiply that by 100 shares

and that's $150 for each call option

contract multiply that by five call

options that you're selling and you make

$750 150 a contract times five contracts

equals

$750 so as I said to you before you need

to buy the stock first and then sell the

call option but I want you to know that

many brokerage accounts will allow you

to buy the stock and sell the call

option at the same time so it'll be

simultaneous so it would look like this

you're completing two actions at the

same time by the stock sell the option

now let me finish by telling you what

happens after you write the covered call

as soon as you sell the call option you

receive that money immediately so if you

sold the $34 call option two months out

for $150 which would equate to

$150 then you would receive that $150 in

your accounts immediately so it's

automatic it's going to appear in your

account it's going to appear there like

magic so you don't have to do anything

now after 2 months let's say the price

of Intel ends up at 35 which is above

your $34 strike price then you would be

forced to sell your Intel stock at 34

and your Intel shares would be sold

automatically you don't have to do

anything they take care of it for you if

the price of Intel ends up below 34 for

then the call option that you sold

expires worthless and it's automatically

eliminated so you don't need to do

anything your brokerage account takes

care of everything for you and you have

to remember that you got paid Upfront

for selling the call option now I want

to give you these last tips the premium

is a fancy way to say the price of the

options contract so if the $34 call

option is selling for $150 then $150

would be the premium

if you're selling the option the more

premium the better because as the seller

you want to get paid more money for

writing the contract in terms of how

options are priced I want to explain

this to you in a nutshell more time on

the contract means more premium the

closer to the strike price means more

premium the more volatile a stock is

means more premium so regarding

volatility this makes sense because just

think about it if a stock is going up or

down like crazy

then you deserve to be compensated more

for locking yourself into a contract at

a certain price because who knows what's

going to happen to the stock within your

duration so when you're looking to write

covered calls make sure that the deal

makes sense because you have to remember

the downside is that you're limiting

your upside potential during the

contract's duration so if the risk is

not worth the reward then don't do it I

know that the appeal of guarantee income

is great but if it's not worth it just

don't do it use your best judgment I

trust you and if you want to find good

covered calls it's like shopping you

have to shop around for good

deals sometimes there won't be any good

deals other times there will be a lot of

good deals so usually there are a lot of

good deals on a lot of good stocks just

use your best judgments and you'll get

the hang of it I hope that this has been

helpful and I want to tell you this if

you need to rewatch certain parts please

do so because that is normal and that

that is expected I'm just happy that

you're taking the time to improve

yourself and learn this to become a

better investor because this is going to

be a game Cher and it's going to give

you more opportunities to make more

money we are now moving on to put

options and put options will be the well

you can think of it as the complete

opposit of call options but I'm going to

break this down for you nice and easy I

will explain to you what are put options

how you can make a lot of money with put

options and how you can lose a lot of

money with put options as

well so let's start from scratch what is

a put option A put option is a contract

between a buyer and a seller so let's

pretend that I'm the seller and you are

the buyer so in other words I am selling

the put option and you are buying the

put option now let's choose a stock DAV

Buster stock ticker symbol is pla y play

dve Busters is currently trading at

$44.96 but to make it easier let's just

say it's $45 a share and I want to make

a deal with you what if I told you

within the next month I will give you

the option to sell David Buster stock to

me for $40 and I'll buy it from you so

you don't have to sell it to me but you

can if you want to that is your option

but I'm not going to give you that

option for free if you want that option

you'll have to pay

me45 and let's just say that you agree

you'll pay me 45 to have that option so

ultimately you bought the David Busters

$40 put option with a one Monon exper

for 45 so it sounds fancy but it's very

straight forward but you have to

remember that right now David Busters is

at $45 a share so you're not going to go

buy it for 45 and then sell to me for 40

because if you did that then you would

lose money you would lose $5 a share so

you wouldn't do that so the question is

how do you make money so you want David

Buster stock to crash within the next

month if DAV Buster's stock Falls to

let's just say $30 a share then you

would be so happy because if David

Busters Falls to 30 a share then you can

buy David Busters on the open market for

30 and then you could immediately sell

it to me for 40 and then you would make

a gain of $10 a share and you have to

remember that you paid 45 to have this

option Therefore your true profit would

be

$955 so that would be an awesome rate of

return because with

45 you made

$955 and I want you to know that this is

a real life example those are real

numbers take a look for yourself this is

the options chain for David Busters

ticker symbol p y we go about one month

outs we open that up and you get this so

don't be intimidated this is very easy

to read so we're looking at the $40 put

option that's selling for

45 you refer to the ask at 45 cents

because if you're trying to buy the put

option the seller is asking for 45 so

you look at the ask now let me give you

a different example to show you how you

lose money so let's just say that you

bought the same put op you bought the

$40 put option expiring in one month if

David Busters does not fall below $40 in

a month then your contract will be

worthless so to demonstrate David

Busters is at $45 a share let's just say

that the stock Falls to

41 then in this situation your contract

would be worthless because why would you

exercise your option to sell it to me

for 40 when you can sell it on the open

market for 41 so if the stock does not

fall below your strike price before the

expiration then you wasted your money on

buying the put option so in this example

you paid 45 cents for nothing and wasted

your money now I need to tell you about

the duration of the contract and I'll

teach it to you like this I'm going to

give you two offers and you tell me

which one sounds better to you offer

number one you can sell David Buster

stock to me at $40 within the next month

offer number two you can sell DAV Buster

stock to me at $40 within the next 5

months so you tell me which offer sounds

better to you and it's going to be offer

number two offer number two sounds

better because you have more time for

Dave and Buster's stock to fall below

40 however this favorable Condition it's

taken into consideration and I'll show

you so take a look for yourself here are

the options contract tracks on Dave and

Busters for the put option one month out

the $40 put option is selling for

4 now I want to show you the same $40

put option but 5 months out so we open

that up and we see this the same $40 put

option is selling for

$2.40 which is a big difference compared

to

45 so regarding the duration the more

time on the contract the more valuable

the contract is so the more expensive of

it is time equals money so you can check

the same $40 put option that expires in

a week and you're going to see that the

contract will be cheaper you can check

the same $40 put option that expires a

year and a half from now and that will

be much more expensive now I want to

tell you about the strike price I'm

going to give you two offers again and

you tell me which one sounds better to

you offer number one within the next

month you can sell me your DAV and

Buster stock for 40 offer number two

within the next month you can sell me

your David Buster stock for 45 so which

offer sounds better to you so in this

situation of course offer number two is

going to be better for you because you

would rather have the option to sell me

DAV Buster stock at a higher

price however this is also taken into

consideration so take a look for

yourself this is the put option one

month out the $40 put option is selling

for 45

the $45 put option is selling for

$11.90 the higher the strike price the

more valuable the put option is so

compare that to the $35 put option which

is selling for

15 therefore a higher strike price is

more expensive and a lower strike price

is less expensive now I want to remind

you that with options you're dealing

with 100 share increments so if you buy

the dve Busters $40 put option for 45

then you are buying the option to sell

100 shares of D Busters at $40 a share

and that put option will cost you

$45 because that put option costs 45

cents a share multiplied by 100 shares

equals

$45 so if you want to buy the Dave

Busters $40 put option expiring one

month out for

45 this is how you do it

the stock symbol for David Busters is p

a y buy to open because you're buying a

puts you're buying one contract you

choose the expiration dates you choose

the strike price and you're buying a put

the price of the contract is 45 but

remember you're dealing with 100 share

increments so it costs $45 to buy the

put option now if you want to buy 10 put

options you would just change a number

of contracts to 10 and that would come

out to $450 in total that's because each

contract costs $45 and you're buying 10

of them last thing I want to tell you is

this let's say that you buy the dve

Busters $4 put option and the stock

Falls to 30 you don't literally have to

go out and buy 100 shares at 30 and then

use your put option to sell your 100

shares at 40 you can just sell the put

option itself as if you were selling a

stock and this is what it would look

like sell to close if Daven Busters

Falls to 30 a share the $40 put option

would trade for around $10 so you would

type in the price that you want for the

put option no different than selling a

stock and you would make

$11,000 per put option that's because

you make $10 a share multiplied by 100

shares which equals $1,000

and remember you bought the put option

for 45 so the put option cost you

$45 and now you can sell it for 1,000 so

you probably realize two things number

one if things work out well then you can

make a lot of money but number two if

the stock price doesn't cooperate with

you in your given time then you lose now

this is very important what I showed you

is the most basic way to utilize a put

option but this is not the only purpose

of a put option now in our next segments

I'm going to show you how to use put

options to decrease your risk and

generate passive income so you can do

this with cash secured

puts let's say there's a stock at $10 a

share and you think that it's a good buy

at 10 but you can create a situation

where you can buy that stock for N9 and

if it turns out that you can't buy it

for nine then you will get paid some

money so essentially with a cash secured

put you can buy the stock at a discount

and if you can't then you're going to

walk away with some money now if you

think that sounds too good to be true

it's not I'm going to show you the good

and the bad with cash secured puts so

personally I believe that the pros

outweigh the cons but I'm going to show

you both sides of the story and you can

be the judge so we're using a real life

example let's use ticker symbol s i

which is serious the satellite radio

company so Sirius is currently at $4.89

a share and let's say that you think

that it's a good buy at $489 a share so

you can buy the stock at $4.89 and just

hope that it goes up so that's one way

to make money but another option is that

you can do a cash secured put so here's

what happens essentially you sell a put

option by doing so you lock yourself

into an agreement as follows

Sirius is at $489 a share within one

month if Sirius Falls to 450 or below

you will buy Sirius for

$450 and it doesn't matter if Sirius

goes to $450 $449 $4 or $3 if Sirius

Falls to $450 or below you will buy

Sirius for

$450 but within one month if Sirius does

not fall to 450 or below then you will

not buy it however regardless of which

scenario occurs you will be paid 32

cents for agreeing to this therefore

regardless of whether you end up buying

serus for 450 or not you will be

compensated

32 now I'm going to walk you through

three scenarios and you'll see how this

plays out for you and you'll see the

pros and cons of a cash secured put and

keep in mind that these are real numbers

so you're going to see how how much

money that you can make but first let me

show this to you so that you know that

these examples are legit these are real

numbers so we're using Sirius S II which

is at $4.89 a share here's the options

chain for serious and we're going to use

the options that are expiring in less

than one month it's in 22 days but we'll

just call it one month to keep it simple

and here are the prices on those one

month options contracts so take a look

at the 450 put option those are selling

for 32 so keep this in mind that we're

using real numbers in our examples

scenario number one Siri stock stays

above 450 now remember the deal siries

at 489 if Siri Falls to 450 or below in

one month then you are obligated to buy

Siri at 450 but if it doesn't go to 450

or below over the next month then you

will not buy Siri in this scenario Siri

stays above 450 so Sirius could go up it

could go up from the current price of

$489 to $6 or Siri could do nothing from

$489 and stay at $489 Siri could go down

a little bit from 489 to

451 regardless in any of these events

the price remains above 450 therefore in

this scenario you do not end up buying

Seri stock but you still get paid

32 so if you think about it you did

really well nothing happens you didn't

end up buying anything or doing anything

and you made 32 cents but what was the

risk here the risk was that you could

end up buying Siri for

450 and what was the reward

32 so if you make 32 cents by risking

450 that is a return on investment of

7.1% in one month that is an annualized

rate of return of

85% and remember these are real numbers

scenario number two Sirus stock Falls to

450 or below so let's say that after 1

month Sirius Falls to

440 in this situation you are obligated

to buy Siri for

450 and because you buy Siri for 450 and

it's Fallen to 440 you are down 10 cents

however you have to remember that you

were paid 32 cents to take on this deal

so in reality you bought Siri for $450

but if you factor in the 32 cents that

you were paid then you really bought

Siri for

418 and if the price of Siri is at440

then you're actually at a profit of

22 but I want you to put this into

perspective because remember when you

saw Siri at489 you like the stock and

you thought that it was a good buy at

$4.89 but by going with a cash secured

put you bought Siri for

418 so you got a much better deal on the

stock you got in at a 15% discount and

remember we're dealing with real numbers

so this is why a lot of investors love

cash secured puts because they pick a

stock that they want to buy and they get

to buy the stock at a discount and if

not then they're going to walk away with

some money so it's a win-win situation

but I want to tell you the danger of a

cash secured put I want to show you the

nightmare scenario so here's scenario

number three Siri stock plummets so Siri

at 489 and remember the deal if Siri

Falls to 450 or below you are forced to

buy it at

450 in one month if Siri plummets to $1

you will be forced to buy Siri for $450

50 so yes you did get paid 32 for making

this deal so your true purchase price is

418 but still the stock fell to $1 this

means that you are down

$318 which means that you're down

76% so here's my recommendation if

you're thinking about doing a cash

secured put I would recommend doing it

on a stock that you think is already a

good buy but you have to put things into

perspective so if you thought that Siri

was a good buy at $489 and you bought it

at $489 if it falls to $1 then you would

be down

79% if you do the cash secured put then

you would be down

76% so even though this is a nightmare

scenario with a cash secured put it's

not like you would have been spared or

done any better if you bought the stock

outright but I want you to still be

aware of the danger now let me show you

how to execute a cash secured put so it

doesn't matter which brokerage account

that you're using they'll all be similar

you go to trade options and then you'll

see an order screen that looks similar

to this in order to create a cach

secured put you will place a single

order and then you choose the ticker

symbol of the associated stock in our

example we're using Sirius ticker symbol

Si I we're going to be selling the put

option therefore we select sell to open

you choose how many put options that you

want to sell in our example we're

selling one contract but remember one

contract is equivalent to 100 shares of

stock you'll select which put option

you're selling in our example it's the

put option expiring on August 18th so

this was the put option expiring 22 days

out you select the strike price in our

example we used the

$4.50 strike price

and of course we are selling a put

option so we select put I would

recommend doing a limit order because if

you do a market order you could end up

selling the put option for a bad price

and fill in how much you want to sell

the put option for in our example 32

cents was the going rate so I'm just

going to use 32 cents and remember one

put option equals 100 shares a stock

that's why you'll receive $32 for

selling one put option because if you

sell one put option you receive 32 cents

per share and 32 cents multiplied by 100

shares equals

$32 and time and force I filled in day

this means that if the order doesn't

fill today then it's going to cancel

itself automatically you can switch this

to good till canell but that's up to you

so I told you it's very easy and

straightforward to execute a cash

secured put in a separate video we'll

cover how to shop around for good deals

on cash secured puts so this is

something that you'll get better at with

experience now I want to tell you this

if you made it this far then I know I

know for a fact that you are serious

about becoming a better investor so I

encourage you to please check out our

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nice day happy investing