Buying Call Options Tutorial and Close For Profit

Summary

This video tutorial guides beginners on purchasing call options via Robinhood, emphasizing strategies like choosing between short-term and leap options. It showcases实操 on Apple's stock, explaining strike prices and the option chain. The presenter advocates for careful selection based on momentum and RSI, and discusses managing risk by cutting losses at 25%. The video also touches on the volatility around earnings events, suggesting it as an opportune time for call option buying, while warning of potential risks.

Takeaways

• 📈 The video provides a tutorial on buying call options, specifically using the Robin Hood app, but the strategy can be applied on other platforms like Charles Schwab, Fidelity, and Interactive Brokers.
• 🍎 The example used in the video is buying call options for Apple Inc. (AAPL), but the principles can be applied to other stocks.
• ⏰ The decision between short-term and long-term expiration dates for the options is discussed, with 'leap options' defined as those over one year.
• 📊 The video explains how the option chain works, allowing for the selection of different strike prices, each giving control of 100 shares.
• 💲 It details the cost of purchasing a call option, in this case, approximately $715 for the right to buy Apple at $235 per share, expiring on October 18th.
• 🔄 The video emphasizes that the goal of buying call options is to sell them at a higher price for profit, rather than exercising the right to buy the shares.
• 📉 The concept of bid and ask prices in options trading is introduced, which reflects the market dynamics of buyers and sellers.
• 📈 The strategy of buying call options when bullish on a stock's upward movement is highlighted, with an explanation of break-even points and profit potential.
• 📊 Technical analysis, such as momentum and RSI, is discussed as a tool for selecting stocks to buy call options on, with Apple's recent performance used as an example.
• 🚫 The video warns of the risks associated with buying call options, including the potential for complete loss if the option expires out of the money.
• ⏰ The impact of time decay (theta) on option value is explained, noting that options lose value as they approach expiration, which can be accelerated if the stock price doesn't move favorably.

Q & A

What is the main topic of the video?

The main topic of the video is teaching beginners how to buy call options in Robinhood, including strategies and considerations.

Why does the presenter choose Apple as an example in the video?

Apple is used as an example because it's a well-known stock, and the presenter wants to demonstrate the process of buying call options using a familiar company.

What are the two types of expiration dates mentioned for call options?

The two types of expiration dates mentioned are short-term, exemplified by October 18th, and long-term, which can extend to dates like 2025 or 2026 for leap options.

What is the significance of the 'strike price' in call options?

The strike price is the price at which the holder of the call option can buy the underlying stock. It's significant because it determines the break-even point for the option.

How does the presenter suggest determining the number of contracts to buy?

The presenter suggests determining the number of contracts based on the bid and ask price, and considering the amount one is willing to invest or risk.

What is the difference between a market order and a limit order when buying options?

A market order executes immediately at the best available price, while a limit order allows the buyer to set a specific price at which they are willing to buy, potentially getting a better deal.

Why does the presenter mention the importance of the 'Delta' in call options?

Delta measures the sensitivity of the option's price to changes in the price of the underlying asset. It's important for understanding how much the option's value will increase with a $1 increase in the stock price.

What is the 'theta' mentioned in the video, and why is it important for call option buyers?

Theta represents the rate of decline in the value of an option due to the passage of time. It's important for call option buyers because it affects the option's value as it gets closer to expiration.

What is the strategy the presenter uses for managing risk when buying call options?

The presenter uses a strategy of limiting call option exposure to 2% per position to manage risk, and suggests cutting losses if the option value drops by about 25%.

Why does the presenter recommend buying call options before earnings events?

Earnings events can cause significant stock price movements, which can lead to higher option premiums. If the earnings are positive and the stock rises, call options can become more valuable.

What is the 'iron condor' strategy mentioned by the presenter, and how does it relate to call options?

An iron condor is an options strategy that involves selling both call and put options at different strike prices, aiming to profit from limited price movement. It's a strategy opposite to buying call options, which is more speculative and involves higher risk.