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The strike price of a call option is what you can buy each of those 100 shares for, not what you can buy all of them for
I made a mistake when talking about puts: puts do not have infinite profit potential since a stock’s price can not be less than zero. It is capped.
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In this video, we take a look at the very basics of how to trade equity options on Robinhood for people using the app for investing. If you use a different brokerage, this video will still explain options well enough to be applicable for you. This is geared toward beginners, and will help you get a broader picture of how options work. Please suggest ideas for future videos! PLEASE SEE BELOW FOR SOME SMALL CORRECTIONS.
01:02 – Basics of call options
03:35 – Summary of OTM, ATM, ITM
04:45 – Option premium
07:40 – Breakeven
09:54 – Expiration & Theta
13:48 – Implied Volatility
17:45 – Long call max P/L
19:55 – Options profit calculator
24:30 – Buying puts
26:40 – Long put max P/L
27:40 – Buying OTM vs ITM
Options are a type of financial derivative, meaning that their value is derived from another security (in this case, stocks). An option’s value is contingent on time until expiration, volatility of the underlying stock, and closeness/deepness of being ITM. Stock options can provide amazing (and sometimes devastating) leverage, so please use carefully. Options can also be used as a hedging tool.
There are many strategies that options can be used for such as vertical spreads, calendar spreads, Iron condors, Jaded Lizards, etc. Each strategy has a unique goal and can be altered and tweaked to a very fine degree.
Options are provided by most brokerages, and usually require approval from the brokerage. In Robinhood, you can apply for options trading in settings. In order to enter more complicated trades like the ones mentioned above, you need to be approved for options level 3 in settings. Options level 2 will allow you to simply buy calls and puts. Most strategies involve both buying and selling short calls and puts. To be approved, you must apply in the Robinhood app settings.