This is a truly fantastic question. The reality of options trading is that it's made very complicated. On purpose. If it was simple everyone would be doing it right? As an x university professor I really understand this. most, who had spent years getting their phds, well they use the most complex words, makes things hard to understand. This is the game we play. Simple is a diploma, complicate things, it's a degree or a masters.
So with that preamble out of the way, let me explain options trading in a straight forward way.
#1: buy a call
Ok so, you believe this stock is going to the moon in the near future like $Rocket Lab USA, Inc.(RKLB)$ I brought it at an average price of $4.60, but I also brought calls in it with an excise price of $5 with a two year timeframe. Why, because I didn't have the money to buy 100 more rocket lab shares, but I did have the money to buy the right to buy 400 more shares two years from when I purchased the options.
So let's simplify. Do you buy some land outright. Because you know it's going up. But you can't afford it right now, because it's early days, so you just put a deposit down on it. Actually you put a 10% deposit down on two properties. To buy the land outright, let's say will cost you $500k. But you just need a 10% deposit to secure two properties and it will cost you $100k for both. But in two years well you need $900k to secure both.
But if, and this is the huge IF. 6 months from your initial investment the property's Have gone from $500k to $750k... well you can sell one of your land deposits to someone else. And use the proceeds to purchase what you originally wanted.
I'm not doing numbers here, just explaining the concept. I buy call, long calls, as long as I can go, because I believe within two years I can sell half of them and with the proceeds I can excise the other half and buy more stock. But rklb calls are so expensive that's not a good move going forward.
Next
Selling puts
Hmmm, you buy calls cause you are betting on a winner, sell puts because you are betting on a loser. Personally that doesn't work for me. But buying calls or selling puts limits your losses to the amount you put in.
From my limited experience, covered calls are dumb, selling calls dumber, buying puts dumb and dumber. I'm obviously simplifying stuff. But as a beginner, 8 months in, I'm just buying calls in stocks I love. So I can get more for free at a future date.
I am the emotional investor. As always I look at the nonsense, and trust logic And knowledge. Buying calls, at the right price makes sense to me. Nothing else matters x@TigerWire
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