How to Trade Options on Robinhood for Beginners in 2020 | Comprehensive Guide by InTheMoney

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Intro to Calls
1) What do calls give you the right to do?
Calls give you the right (but not the obligation) to buy 100 shares of the underlying stock at that call’s strike price. This process is called “exercising” your call option.
2) What is a strike price?
A strike price is the price that you can buy 100 shares when exercising your call option. Options are separated by strike and expiration date.
3) What is Premium?
Premium can be thought of as the option’s price tag. It is written as the price per share of the 100 shares the contract controls. So, to figure out how much you’d actually pay to buy an option, you must multiply the premium by 100.
4) What is ITM, ATM, and OTM?
ITM describes calls whose strike price is below the current share price. ATM: strike=share price, OTM: strike is greater than share price. I say ITM is “good” because you can potentially exercise them for a profit. This idea is what drives the value behind call options, although it doesn’t necessarily dictate them as “good”. In later sections this will be discussed further.
5) What is an underlying?
The underlying is the stock on which options are traded. If you have calls on AMD, AMD is the underlying and changes to AMD’s share price will affect the value of your option.

1)What is EV and IV?
EV is value given to an option’s premium based on time to expiration and implied volatility. These two things work together. IV is the value of the option based on the money you would receive if you exercised it. This is why you rarely exercise; the value you get through exercising is already built into the option’s premium.
2) Why do OTM options not have IV?
OTM can not be exercised for any gain, so there is no IV built into their premiums. OTM premium is composed entirely of EV.
3) With more TTM do calls have more or less premium?
More time means more time to get ITM (or deeper ITM). This is good for calls, and is reflected through higher premium.
4) How is Imp. Vol. correlated with premium?
They are positively correlated.

Implied Volatility
1) Why is volatility good for options?
Your risk is limited to the amount you paid when trading options. However, your upside is uncapped. This means with high volatility, you have a higher potential to make money with the same amount of risk.
2) How is premium correlated with Imp. Vol.?
It is positively correlated. Higher Imp. Vol. means higher premium.
3) Why is it called Implied Volatility?
It is called this because the expected volatility of the stock is extracted from the options’ premiums. It is the hype behind the option that is represented as a more expensive option. In other words, the future anticipated volatility of the stock is implied by the option’s premium.

Option Stats
1) What is the bid and the ask?
The bid is the highest price buyers are willing to buy at, the ask is the lowest price sellers are willing to sell at. To get in and out immediately, you must buy at the ask and sell at the bid.
2) What is the bid-ask spread?
It is the difference between the bid and the ask and is what you give up to get in and out of a trade immediately.
3) What does RH show as the option’s price?
RH show’s the middle of the bid-ask as the option’s price. Even though Robinhood displays a price, people may not be buying or selling anywhere near that price. You ALWAYS want to make sure to check the bid-ask for this reason.
4) What is volume and OI?
Volume is the number of contracts traded that day. The higher the volume, the tighter the bid-ask. Volume is highest ATM and in options that expire in the front (next) month. OI is the number of contracts in existence, which will fluctuate.
5) What are the Greeks?
They are metrics that gauge the impact of what affects option’s premiums (like stock price and implied volatility). I’m running out of characters so I’m not gonna type them all lol


InTheMoney says:

If you get caught up on anything, just ask in the comments and I will clarify. Please check below for corrections that may answer your question(s).
Please let me know if you feel I have made any mistakes.

-At 17:05, I make a mistake. I double counted IV. When you exercise, you lose extrinsic value. (Nice catch, Hulldragon!)

-OTM options are not inherently "bad," I just refer to them as such because they can not be exercised for any value. While I personally generally do not trade OTM options, I am not advising you to do the same. None of the content in this video should be interpreted as advice. It is solely meant for educational purposes.

-When discussing the bid-ask, I say the difference goes to the exchange. This is not true. It typically goes to the market maker, which is generally a large financial institution. Don't worry about this too much.

– You can also think of your breakeven as: the share price where you would have a 0 P/L if you were to exercise. This is synonymous with saying the share price where you would have a 0 P/L at expiration without exercising. This is because at expiration, the value of your contract is whatever you could exercise it for.

Johnny Minter says:

When buying an call do you sell and collect credit from it? Or do you let it Expire and get credit?

ceezmoney1 says:

Great video. One of the best ive seen yet.

Ramón says:

What an amazing video. I was wondering if you have a video where you explain selling calls and puts? Wouldn't selling a put be the same as buying a call then? Thank you so much and keep up the great work.

Bang Thumper says:

I owe you an apology. I’m +- double your age and when I first started your video and saw how young you were, I thought he hasn’t been trading long enough to know and understand at a level to educate someone, however, I stand corrected. Thank you Professor for a great video. I hope you accept my apology.

Chad Weisz says:

Love the vids, quick question, if I buy a call with robinhood, and it expires in the money, but I do not have buying power at expiration do you know what robinhood will do with the contract?

Matt says:

Great video! I just bought my first call and it's in the money but I'm terrified that when I go to sell it, i will be on the hook to sell the shares through assignment. If I bought the call I am not liable to assignment correct? I only bought a contract that a seller who may or may not have the shares is offering to sell their shares correct? So when I sell that contract the supplier of shares remain with the sellers correct? So I should just never initiate a sell order or else that would be a naked call, atleast that's what I have figured out through research.

Sonny Le says:

Subcribed, thank you 👏

love Eight says:

Your did great for this video. I learned a lot. Very good. Thanks. I will surely watch it again.

Valbregas Ibe says:

In the money is my guy

James Ahern says:

How would you sell
That for 48 for a profit when you need it to get to 50
For a break even ?

dirkman says:

I’m crushing MSFT calls. It’s literally printing me money. Thanks

JuiceGang Gaming says:

Who's here after the crazy week Tesla had? Or month I should say

Josh Gourley says:

Such a solid video man all of your stuff has been great for me. I have a question if you could answer it:

I bought a call option and it’s expiring soon in the money, however, I don’t have the money in my account to purchase 100 shares. Is Robinhood going to sell it for me and pay me the eps or am I going to be on the hook for the 100 shares?

Thanks in advance !

MillionsByNefu says:

Very good informative video great job I support your channel

Chet Henry says:

Very detailed YTC on options trading. Really appreciate the real-time trade example is awesome. Thank you

Fronk 2.0 says:

will you always be able to sell your option ? will someone always buy it ?

hulldragon says:

Around 17:05 you start the example of buying and immediately exercising the call. You conclude the example saying there would be a $124 loss. That does not seem correct. You shouldn't be looking at the difference between IV and EV. It's the difference between cost of the option and IV. In the example you paid $274 to buy the call then exercised to make $75 so $199 loss, not $124. You double-counted the $75 IV. Isn't the loss from buying and immediately exercising always just the EV itself?

Alex Martinez says:

I made 500% on Amazon’s earnings though. Just like options are risky, so are earnings. I don’t see why he doesn’t recommend it? If they hit there’s so much upside potential but if they miss, you’re still only capped at whatever you put in as your max loss.

Kaye Moran says:

Finally I found someone who explained it with sense and easy to learn. Thanks

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