Raging Bull: WHAT IS AN OPTION?

Raging Bull: WHAT IS AN OPTION?


– Trading options can be really fun because they can make you a lot of money in a short amount of time. Unfortunately though, the
flip side is also true. Things can go bad pretty quickly. It’s easy to have a
string of losing trades. It’s pretty frustrating financially and emotionally when that happens. I think though a lot of the
mistakes that people make are because they don’t really
understand what an option is and how it works and
when you should use them. My name’s Olivia Marshall
and I’m here to help. So why would you want to trade an option? It’s a cheaper way to profit
from the short term move of a stock and it gives you great leverage for directional moves. So an option’s value is
based on an underlying stock of your choosing. The value of this option will fluctuate depending on what the
underlying stock does. So if it moves up, down, sideways, the value of the option
will move with that. Most stocks out there have options that are available to trade. These options are specific to that stock. So technically an options
contract allows you to control a certain number of shares
for a certain period of time. One contract is equal to 100 shares. There are two basic types
of options, call and a put. You’d buy a call if you’re
bullish on a certain stock and you’d buy a put if you were
bearish on a certain stock. So the cost when you buy shares
is pretty straightforward. It just depends on the share
price and how much you bought. When you buy an option, the
cost is called paying premium. Let’s say a Netflix call
option has a premium of $1. Let’s say you just want
to buy one contract. Remember that one contract
represents 100 shares. So we would have to
multiply the premium by 100. So this Netflix call option is going to cost you $100 to buy. If Netflix makes a move up soon, you’ll be able to sell
your option for a profit. How much you make depends on how big of a move the stock makes and how quickly. The downside of options,
though, is that you can lose your entire investment if
the trade goes against you. Not allowing that to happen
is really just about having a trading plan, sticking to
it and really understanding what these are and how do you use them.

One thought on “Raging Bull: WHAT IS AN OPTION?

  1. Aspiring options traders wonder "What Is An Option?" when they are getting started, and there is no shame in that. Olivia Marshall with Raging Bull explains what a stock option is the most simple terms possible!

    Stock Options Explained Playlist: https://www.youtube.com/playlist?list=PL5b899LLWNmiibbvtGX-QRzA2FcW8RQcw

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