Stock Market Education: Options Trading Simplified


– Hey it’s Clay Trader at ClayTrader.com. In this video, I want
to talk about options and options are great because
they solve a massive problem that many traders come across
and I’m all about finding solutions to problems and
options are exactly that, a solution to an issue and
problem that many traders face. So let me just kinda illustrate
what’s going on here. First we just have, you know, bunch of little people up here. This represents just traders. Traders in general. And as traders in general,
you know we’re always looking to find well, we think
stocks are gonna go up or we think stocks might go down. So let’s say you’re looking
at a stock that cost 200 dollars and you’re saying you know, I think that stock’s gonna go up. However you’re also
thinking, well the only way I can make money on that is if I what? The traditional way, if you buy shares. But what’s the problem here
that many traders have? Well it’s 200 dollars a share. Unless you have a massive
account, being able to purchase enough shares to make it worth your time becomes very very difficult. Now sure maybe one of these
traders up here is able to do that, to go the traditional
route of buying shares and get involved in the trade. But there’s nothing worse than seeing that your idea was right,
that 200 dollar stock did indeed fall, and that
money could’ve been made. Pretty frustrating, almost
a feeling of helplessness, your hands are cuffed, your accounts just not quite big enough in
order to get down here. But this is where options come into play and why options are very very beneficial. If only there was a way to kind
of pull a maneuver like that and there is. And they’re called options. Options are a way to bypass this step and let you still get involved. So key word here, get involved. With options, you can get
involved with essentially anything in the market. Doesn’t matter the share
price because the way options function, they’re gonna
allow you to get involved, skip over the traditional
step of having to buy shares, and they’re still gonna
allow you to make money off of the play. Remember you recognize
that this 200 dollar stock, you thought you know what? For whatever reason you’re
using, whatever strategy, or whatever your methodology
was of determining you know what I think
this 200 dollar stock is gonna go up, you were right. But the only thing that
was holding you back was your account size just
isn’t enough to buy shares. But you were right and
that’s the important part. And because you were
right, now with options, you could’ve still made money from it. You could’ve got involved with it. And that is the power of options, that is how options function. So what I wanna do is talk
about three real trades that I participated in and
that way it can give you an example of how exactly
options work relative to the actual stock. Now before I get into the
three actual examples, I wanna point out that you’re
gonna notice that the stock price in each example
actually goes down in price. However I’ve done this for
a very specific reason, to show that no matter whether
the stock price goes up or down, options will still
allow you to make money. So a very powerful thing
as it affords you just massive flexibility. Stock price goes up,
great you can make money. Stock price goes down, great, with options the way they function,
you can still make money. So for the first example, I noticed this chart and it was currently trading right around the area of 119.50. And at that time I thought you know what? I think the price is gonna go down. So what I then did was went
and I bought options for two dollars and three cents. Now as it turned out, the
chart led me to a proper conclusion and the stock
did fall down in price, in fact it fell as far as 117.46. And this was a percentage
of one point seven percent on the decline and now
in order to get involved, remember, that’s what options
are allowing us to get involved with. I would’ve needed what
119 dollars and 50 cents. The minimum needed, I
could’ve bought one share. However think about that. Making one point seven percent
on 119 dollars and 50 cents and then you have all
those commissions, I mean, it makes sense. That’s just not a very
rational, not a very logical thing to do because the
commissions are gonna eat away at everything. However, let’s look at the options. By the time everything was said and done, the options had gone as high
as three dollars and 55 cents. And that was a gain of 75 percent. So hopefully you’re starting
to see the difference now. And to get involved, what was the minimum you needed to get involved? 203 dollars. Sure a little bit more than here, but what is that a difference
of about 80 some dollars? So for 80 dollars more to get involved, (chalk tapping) you could’ve had an
opportunity at 75 percent gain on 203 dollars. Not too bad. Again look at it like this, making one point seven percent
on 119 dollars and 50 cents, or making 75 percent on 203 dollars. You know think about that. Options, very powerful and
all you needed was 203 dollars in your account. I really wanna drive that
home because that really shows how options function. For our second example, once again I found a stock
and I thought you know what, that chart looks like it
wants to go down in price. So at the time when I saw it, the stock itself was trading for 146.80. So because I thought
you know what, I think that’s gonna go down and I
went and bought some options. And for these I paid
two dollars and 80 cents for the option. Now by the time everything
was said and done, once again the chart led me and was right, the price did indeed fall. The stock had fallen
all the way to 137.60. And a little side note with this one, I actually alerted it to our chatroom, so you know it kind of, other people had the opportunity at it, so this was an actual chat
room alert too that I issued, but it dropped down to
137.60 so that was a decrease of six point three percent on the fall. Now how much money would you
have needed to get involved? Again if you’re just buying one share, you would’ve needed 146
dollars and 80 cents. So you know making six point
three percent on 146.80, you know maybe you’d finally be able to cover your commissions
depending on your broker, maybe just maybe you would’ve broken even. So again, not very ideal. However, let’s look at the options. So by the time everything
was said and done with the options, those
had gone as high as seven dollars and 30 cents. So looking at things from a
percentage standpoint here, that was 161 percent move. And again the money needed
to get involved, 280 dollars. So sure a little bit more
than that, but let’s see, make six point three percent on 146 or make 161 percent on 280, I think that’s pretty
impressive and also keep in mind that these were all day trades. Meaning it happened in the same day. 75 percent in one day. 161 percent in one day. Actually it was really just a few hours, but for argument’s sake here, just know that this was
all happening in one day. But now that leads to
the question of well, I can’t sit there and day trade stock so I’m not gonna be able to
day trade options either. Fair enough. It works for swing trading
too and that’s where we’re leading for our third example. So again, I noticed this
chart and I thought hey, that price looks like it wants to fall. So at that time the stock
was trading for 115.75. So because I thought the price would fall, I went and bought some options. And for these options, I paid 63 cents. Now by the time all was said and done, the chart had once again had
led me to a profitable decision in thinking you know what it looks like the price is gonna fall. It did fall and the stock itself
fell down as low as 112.78. So this downwards move for the stock was two point five seven percent and again to be the minimum
money to get involved, if we’re just buying one share, was 115 dollars and 75 cents. Let’s take a look at the options. Now this was a one night hold. So I bought one day and then
you know another day passed. And the next day, so a swing trade, we’re not looking to buy and
sell within the same day, the next day, the option
had actually gone up as high as a dollar 76. So this led to an overnight swing trade presenting an opportunity
window of 179 percent. Now the money to get
involved here, 63 dollars. If you don’t have 63 dollars
in your trading account, you probably shouldn’t be trading. So again in this case, it actually cost less, but
yet you had 179 percent versus two point five seven percent. So keep all this in mind, you know this is how options work. Doesn’t really matter anymore. And it doesn’t matter at
all really in terms of the price of the stock
because with options, you’re gonna get involved. Now of course options,
if you are a gambler and don’t have a strategy,
don’t have a plan, can be very risky, there’s
no doubt about that at all. So just wanna give that up front. But it’s very real, it’s very possible to make good sized gains. I’m not saying you’re gonna
make 100 percent every time or anything like that, but just understand that options not only
allow you to get involved, but they can present some
very nice opportunities. I hope you enjoyed this
video but more importantly I hope it’s at least
opened your eyes to seeing just how options can help you
get involved no matter what. There’s gonna be no more
of this you’ve seen a stock that’s trading for 350
dollars and you’re thinking you know what I think that
stock’s gonna go down in price but then having to sit
on the sideline because you can’t get involved. Now with options you can get involved and that’s where the true power is. It’s not necessarily in the gains, while those are certainly nice, but it’s nice because it
allows you to get involved in anything. Remember, down here, all
it took was 63 dollars to get involved into a
stock that was trading for over 150 so think about that. What does it take to get involved? Not very much, and that’s
a very powerful thing and it really opens up your horizons. Opens up the choices
that you have out there in the market. If you’re interested in
learning more about this and how you can put options in your trader toolbelt, I’d
enourage you to check out my course Options Trading Simplified. It goes over everything
necessary to understand options, understand what ones pertain
to different situations. But after the course, you’re
gonna be able to sit there and say you know what? I think this stock is gonna do this and then you’re gonna
be able to transition into the options and know what to do. So as long as you have a viable strategy, a viable formula to think you know what, I think that stock price
is gonna go up or down, then options is something
that should learn because options will
allow you to get involved in your profitable decision. Nothing worse than sitting
there saying, yeah, that stock is gonna go up
and then you see it go up and have to say well too
bad I couldn’t get involved. That exists no more cause with
options you can get involved so stop missing out on those
very profitable opportunities that you would’ve had, you
knew were going to happen, but you just had to sit on the sidelines. Get yourself off the sidelines, start to learn about options.

50 Replies to “Stock Market Education: Options Trading Simplified”

  1. Hey I have a chess sponsored account with Commsec in Australia. Is that a good platform to trade options? If not then please recommend good ones. If Commsec is okay then I will just trade through Commsec. Some advice please anyone…

  2. thanks man! Im learning so much! I've recently come into a little bit of money and am trying to learn how to trade

  3. MIND=BLOWN. I've been trading penny stocks for a while with decent success as far as win rate but I am still under the PDT rule, still have a VERY small account, still only trading occasionally because of T+3. I never considered options because they're so complicated at times blah blah blah but seeing it broken down like this is eye opening.

  4. Hi Clay, i have been digging through your old options videos, as its time for me to learn something new.

    i was confused as because you did not mention the Strike price @ which you bought the options at. Is strike price are little relevant to you while trading option , or which strike price should i choose, should i go for the strike price that is close to the current market price, the stock is trading at?

  5. https://www.youtube.com/watch?v=y_v0LQF4tks Hi, Clay. 🙂 In this video you said that making 100% gains in your account is impossible. This video you give me atleast the impression that you can easily make more than 100% by trading options. Am i missing something? ps. sorry for bad english

  6. Your statements regarding stock price in all three example seem confusing. For example the stock price for "involvement" is 119.50 but at close 117.46. This is a loss of -1.70%. But the option is a gain of 75%. Just clarifying one route leads to a "loss" and the other a "gain". Thx

  7. Hey Clay I know you're a Ohio state alumni and football fan. What happened to them against Clemson lol but by the way. I'm looking to invest into your robotic course. Don't have enough capital for the whole university yet but I will try. I'm pursuing my MBA I'm 18 but I'm debt free right now thank god.

  8. by "options"….you mean "puts" right?….funny how the terms call or put is not used. why would the video not say if you are buying puts or selling calls?

  9. So you bought at $2.03 and sold at $3.55 to get out of the trade for the first example? I thought for options, you can sell at the market price when the trade is over. For instance, even though you bought at $2.03, I thought you could sell at $117.00 since you guessed right.

  10. Ive been watching your videos for days now because I'm in the process of saving to trade; but I really dont understand this one you have to acutually break it down for us beginners and do the math.

  11. more i learn about stocks more it reminds me of sports betting. trading stocks is like betting the spread and trading options is like betting totals.

  12. I'm learning so friggin much this is eye opening and I'm so hooked on the education… where have I been my whole life lol….

  13. hi guys Im new. Can anybody explain to me how he get the percentage?
    I tried by diving start and end, and i end up different number..

  14. Another great video. Quick question if you get into options and the contract ends July 8th and the put was July 1st what happens if your happy with your gains can you close the trade and take profits on July 3rd?

  15. I have a question here… for what I know, option is trading in weekly or monthly basis..but why what you talk about is day trading? (**sorry I'm new)

  16. I am considering buying the course for options trading but please answer me these questions. Is the information you provide on the course the same as what you provide on youtube? Also, would you only direct me to the options course to be a successful options trader? Please answer, I'm seriously considering buying the course.

  17. This really all depends on your strike, exp date, and what happens to volatility. One thing for sure is that time decay is against you.

  18. Hi, Im interested in trading with binary options.
    What is your opinion about binary options and what are the best brokers for traders in europe?

  19. So in your example you said the option cost $2.03. Yet you said the minimum you need to get involved is $203. Why is that? Is it not only $2.03 ?

  20. I may sound a little noobish. But prior to placing a bid on the options market do you have to take a stance on whether the stock is going up or down for the day?

  21. Can stop loss orders be used as well as profit target orders, to get in and out?
    Would you agree that trading options provides the most leverage and overall best bang for the money ?
    Thanks

  22. did I miss something or are these all short sales?? why do you buy shares if you're assuming its going to go down?

  23. For the first example (haven't made it to the second one yet) but the stock goes down… why would you make 1.7% on it… you'd lose that much not make it?

  24. A little over four years after first seeing this video I still love it. Changed my life forever. I've been riding the TSLA rollercoaster ever since 🙂

  25. Sorry Clay, you didn't fully explain the options completely. What is the risk if it goes the opposite way? Which are the full risk of doing it?

  26. Hi, this was a great video. But why do the prices of options have to increase when the stock price actually falls ? Is this a coincidence ? And moreover, this story of making money using options looks too good to be true. Can you present an example where you lost money from an investment in options ?

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