What's going on you bunch of beautiful chickens, welcome back to freaking, trace trades. We've got a different video here for you here today. This is uh, something that's been heavily requested by a few people. I've been getting some dms asking about options and that sort of stuff, so i wanted to kind of i know, there's a lot of freaking videos out there talking about options, but i'm gon na try and find a way to make this different than the other stuff Online you wan na watch this that's cool, if not that's cool, but nonetheless this is what we're gon na be talking about here.

So i'm gon na be talking about buying and selling long calls and long puts, and i've also drawn up here, a moon and uh in that moon you've got m-o-o-n which, which stands for moon. I think that's, i think, that's what it means so we're going over a couple different things here right i want to talk about the greeks. I want to talk about implied volatility iv in the money at the money out the money, expiries and strategy. Now, there's this very basic rundown on options trading and i do encourage people to take a little more time to really truly understand what these are.

If you want to play the derivatives market right, that's very very important is uh managing risk understanding the concept. If you don't understand the risk, you don't have uh, you know an understanding of the concept practice with a paper account right, it's totally totally okay. To do that before you put real money on the line, so that's what we're gon na go over here i'll go over my strategy, the things that i would say as tips from my lessons learned, because i have made money playing options: i've lost money making uh You know plays on options so i'll pass along some experience. That's what i'm trying to do here so without further ado.

What is up everybody? I want to trace right here. We can talk fast and don't give class. I like to purchase myself, i'm not a financial advisor for experts, so they're gon na say the great assault man. If i knew how to edit that out, i wouldn't do it.

Let's get into the video, so we're gon na start off here with the greeks. Now i think the best way that i can explain to you what the greeks are. It's not the gods right, you can think of it as the gods of the options chain. Essentially, what this tells you is how much money you make on any sort of options play now, i'm using weeble as an example.

You can find this in pretty much any brokerage account it's going to tell you what these levels are, but you can see them right here: delta, gamma and theta right now, we're going to come back here to the actual greeks themselves. What i've got drawn up for you - and i put it in the most simplified way that i possibly can so you can think of gamma, essentially as the change in delta per one dollar move. Now, let's think about that here, really quick right, so we've got gamma over here on the right of delta and it's a smaller overall number right so in a one dollar move, for instance, on the moderna 420 strike, calls that would expire on 10 september 2021. You would see a one cent change in the delta with a one dollar move, but what does that actually mean? Well, it makes more sense if you come over here to the delta and you think about what the delta actually means and the delta is.

The change in the options. Price or intrinsic value per one dollar move, meaning that options or derivatives have a compounding effect and how much money you make any time that it makes a dollar move to the upside, because the delta goes up by the value of the gamma. So, let's just think about this logically for a second right, if we've got delta on the 420 strike, and we've got gamma on the 420 strike of one cent and 45 cents and you've got 100 shares in a one contract of 420 strike. Well, what do you got here? 11.95 times 100 shares, since one contract is worth 100 shares on the calls right.

You've got a 45 move using that same sort of methodology of multiply k, multiplying by 100. You got a 45 dollar swing to the upside, with a one dollar move, meaning that if you bought this right and the stock goes up, one dollar, you would make 45 on that contract worth uh. 11 195 right and it goes up by one dollar. Since you multiply that by 100 for every dollar moved to the upside, so you actually makes a pretty decent amount of cash, and you can use this to get an idea of how much money you actually make on any sort of move on a given stock.

Now, inversely, you have to also think about the risk associated, which is where theta comes into play. Theta will tell you the change in the options intrinsic value every passing day, and you can see here that the 420 dollar strike for moderna you've got a dollar 38. Is what you are losing in value with each passing day now? This is on 10 september, keep in mind that expiration and how deep out the money or how deep in the money or at the money you play stuff, is going to change. How much theta, gamma and delta will change as well, typically, a shorter expiration and a further deep out the money call or put option it's gon na have more inherent risk and more overall theta.

So, on this 420 strike, you would lose about 138 using that 100 times multiplication table for every passing day. If the stock price were to do absolutely nothing, so you can actually calculate out. You know pretty much to a t what your risk is on playing any sort of call or point in this overall chain, so coming back to this overall piece that i've got right here on the greeks, gamma delta theta. The last thing i want to say about this and i'll get into this more when we get to expirations is further out expirations and further out the money calls or puts is going to have more theta you're, going to lose more intrinsic value with each passing day.

Typically right, there's there's obviously different scenarios for every single call option or put that you play, but the further out the money and the closer the expiration, the more inherent risk right, but the more you make gamma and delta will also pay more handsomely for those sort Of moves that you're playing as it continues to compound as it runs in the money and yada yada yada. You get the whole deal here right. So that's what we've got here for the greeks. You got ta watch that again come back to it, but that's the most simple way that i can put that to you.

What i would consider to be one of the most important things is implied volatility, and this is i'm going to put it to an analogy right. So if you're looking at implied volatility here uh, you would find this on weeble in this column right here now, as the market is closed, this is a monday. You can't see the actual implied volatility, but this essentially is your way of getting an idea of how much the options market makers are expecting the underlying stock to move in any given day. So, for example, let's say that um you know, market maker has an implied volatility, i'm a derna of 70.

That would mean that they're expecting that stock to move 70 to the up or the downside in the next one year. Now that's important because essentially what you're trying to do is find options that are priced cheaper than options. Market makers aren't are anticipating right. So if, let's just say, this is at 50 percent, but you think modern has got a 70 or 80 or 90 upside move or downside move over the next year.

That means that these options are underpriced, it'd be the same as finding a value play in the stock market and, as that iv goes up, 150 200 250. The options are gon na be priced more heavily. An example of this is, if you look at amc right, let's look at the amc calls versus amc puts. You can see that these are pretty heavily priced 202.84 cents or 284 bucks for the 44, 247, 220 195 and that's just on the weekly expirations right.

So there's a lot of heavily implied volatility on the stock, essentially saying market makers think this is going to have a lot of up or downside potential over the next one year. Obviously, i think it's upside potential, but nonetheless you get the point that i'm trying to say so where this comes into the equation is high iv means a more expensive options: contract a low iv equals less expensive options contracts, and if you want to play these sort Of plays right, what you're trying to do is beat the market makers. You are anticipating that there's going to be more volatility to the upper downside than they are prepared for an example of this is amc. The the ivs on them were very, very, very low.

On the calls back before the major run-up in june, so people were able to make huge leverage, stupid amounts of money because they didn't see it coming right. So that's what this essentially does this. If the iv is high right, this is my personal. Take you do what you got to do if iv is high, that increases the favorability of you to just place stock in that overall scenario, because of the fact that you're getting kind of a better deal for the underlying stock, already anticipating, let's say a market maker, Thinks it's going to move 200 to the upside or downside in a year.

The risk is lower right because options do lose value with each passing day and if they're wrong. Let's say they have a 200 implied volatility, but it's actually 50. 70. 80.

You lose money right, so that's something to really pay attention to iv or implied volatility is essentially what an options market maker thinks the up or downside of a stock. It goes both ways right is going to do over the next year. It's an implied volatility and the options price themselves. It applies to calls it applies to puts.

It applies to all that sort of stuff. So, with that being said, we're gon na talk about just some terms. That way, you can come up with your own sort of plan and strategy. I'm gon na say this again.

This is my plan of strategy. This is something that i do, but you need to come up with that for yourself. All that i ask is that you take this process. This is my thoughts right.

What i think about it and challenge your own thoughts and come up with a point right so in the money at the money out the money. What do these things mean now? I've drawn this out in a pretty simple context and i'll show you this on weeble next, so in the money essentially means that, for a put, the current price is beneath the strike price and for a call it means. The current price is above the strike price right, so i'm going to show you this on weeble here, really quick, we've got amc pulled up. Currently, the stock is at 44.2 cents.

That's where it closed on the last trading day, meaning that this 33 dollar strike is in the money. The current price is above the strike price right on the same way. If you look at the puts, is currently closed at 44.2 cents and in the money put a long put would be 49 since we closed at 44.. That is an in the money.

Put position, long put position long call position right. These are what, in the money mean and something that you're going to notice, is that the strike price or the premium that you're paying for that contract increases in value the more deep in the money you run and that's because there's less inherent risk. We'll talk about that more as we get into the video, but in the money is probably the least risky uh way to trade, the derivatives market, because you're getting closer and closer to the actual value of the stock right. So, let's just assume that you were to buy 100 shares of amc and 44 that mean you're, dropping 400 bucks versus if you're to buy this contract it's 1120 and the deeper in the money.

You go the more close you're getting to actually buying less leveraged uh money on the stock. Essentially, it's just a less exposure way to leverage a little more money is to play in the money. If that's, what you're interested in at the money means the price is trading roughly at the strike price. Since we closed at 44, 44 would be at the money 45 dollars very close to at the money.

I would call 44 at the money right. That's moderate risk. Moderate return: you can see that it's not extremely ridiculous, expensive stuff here 284 dollars versus if you're to buy 144 you've got 4 400 bucks rocking right. It's pretty decent value for your buck, but then you've got out the money, which is the most risky, most returned sort of setup and i'll go over.

What i personally do with all three of these, because i have played all three of these right. What i would do with all three of these so out the money means the current price is beneath the strike price for a call, and the current price is above the strike price for a put. So if you look at the call options chain here, close at 44, a 50 strike would be considered out the money and what you'll notice is that the premium is cheaper. It's 140 for one contract versus buying 100 shares of 44 bucks, which would cost you 4.

400, this is the most risky, though, because the theta is going to be higher and the delta gamma as it runs in the money, is going to pay more handsomely. So that's something to watch for on the flip side. To put and out the money put would be 35 versus the 44 strike price, and you can see that these are actually priced a lot differently and that's because options, market makers see less opportunity for downside in and of itself. That's exactly what it means, because you can look at the actual call chain versus the put chain and you can run all the way up to 55 and it's still 95 cents versus a put a point here: 18 cents.

There's not a lot of demand! There's not as much demand for the put options chain on amc stock. That's something to watch for right! That's something important to consider is how are these things priced, how it's what's worth playing? Yadda yadda, yadda yadda. Now, that's just one example. I can show you with uh bbig, for example: bbig you can see the put chain.

This isn't out the money. Put it six dollars, 30 cents versus a call at 10 is 85 cents, so the puts are actually cheaper. You'd probably make more money on the move. As it continues to run in the money, but this also means there's less implied volatility on that overall put uh.

You know exactly what i'm saying. So that's what in the money at the money out the money stands for, and these are the pros and cons right out. The money is the cheapest options. It's got the highest potential and you just go down the line in terms of risk and reward moderate price.

Moderate potential most expensive lease potential and then you've got out the money you know so on and so forth. This is the volatile stuff right out. The money is where you really really want to be careful about not blowing up an account. You know exactly what you're doing so.

That brings me into expiries and then we'll finish this off with my personal strategy, and you guys can go on your way and do with that information, what you will so short term. This has the most inherent risk. Now an example of this, for me, would be if you were to look at, for example, plug power. The 10 september 2021 strikes uh.

Let's just say that i want to play a call on it right. I want to buy the 29 strike. It cost me 12 cents a share which is uh 12 bucks right, it's a very, very cheap contract. I could pick up a lot of them if i wanted right, but i think things to consider what's the iv on this, it's obviously decently low options.

Market makers aren't anticipating a huge, huge vault to move over the next one year, just based on the way that these are priced. And if you think that the options market makers are wrong, that there's going to be more implied volatility than is currently priced into the options right, it's a pretty solid opportunity, but it has a lot of inherent risk, typically with a short-term expiration. Uh strike like this. You would want to be in and out of that, that uh option very quickly when you go profitable when you see a rejection, when you see that uh, the the goal line that you want has been met, take profits right, it's great for uh, quick in and Out sort of place most inherent risk, most potential payout best for short term scalps or daily flips.

If i'm trading short term calls or puts i'm in and out of them right, i'd get out of very very, very quickly and that's what i would consider a weekly expiration. It's just a way to leverage a day trade. Essentially, if you're a day trader, you want to get into that sort of thing. That's what you're looking at short-term explorations get the most bang for your buck, but it does have the most inherent risk right.

So that's something that you have to come up with. This is just my personal strategy: midterm moderate inherent risk, moderate potential payout best for swing trades. You could consider this something like maybe a monthly or two month out, call or put position now. This is not going to have as much data you're not going to lose as much value with each passing day right, but it also has less overall payout unless you get something.

That's really not pricing. Well, you get squeeze play or you get uh like a great earnings report like if the market makers don't think there's a good earnings report. It'll be priced. That way, you make good money right.

That would be something like if you look at plug power and you go out to first october 8 october 15 october, maybe even 22 october, you play a call at let's say: 29, maybe 26, maybe 23., we'll just use 30 as an example right. So i buy the 30 strikes for 22 october. It runs up to 30, maybe 32. 35 36.

You make some pretty good money and the nice thing about an out the money caller and out the money put in a short term midterm long term expiration. Is it doesn't need to run from out the money to in the money? For you to make money, you can run up a dollar right, let's say you buy a 30 strike and it's currently trading at 27 runs up to 28. You made money, you can you can cash out, but in an instance of a midterm, you've got more opportunity for it to actually run in the money and pay out the filthy, freaking, stupid delta and gamma. That would come from doing such a thing.

So i think it's great for mid-term uh swing trading opportunities. Maybe you want to hold something for three days five days a week, maybe even two weeks, but still my concept stays the same and we're gon na get into this more as we get into my personal strategy, when you get profitable, don't let options burn you. It's very very important to be consistent over getting a grand slam, because that's going to make you profitable over time, which is way more important overall. And that brings me into the last piece before i get into my five tips in my front of what i've learned over the over the time that i've played call options and puts long term right.

Leaps they've got the least inherent risk they're best for wall street sleepers, essentially meaning that the ivs are predicting less up or downside than you believe will exist. So i talked about this briefly back here when i was mentioning implied volatility, which is market maker's prediction of upper downside under security over a one year period of time. Let's say that you're looking at plug power and, hypothetically speaking, plug power's, implied volatility on the uh. We're gon na play a leap here, we're gon na look at 18 march 2022.

The implied volatility here is uh 67 right. Let's take that you think 67 for a one year, time frame up or downside is under price right. You think it's going to have more volatility than that. You think it's going to go from 26 bucks to 52 60 65..

This is perfect for you, because it's priced that way. You know that the theta is going to be outweighed by the amount of money you'd make from the gamma and the delta, and you would make actually way more money than you would by buying the underlying stock. Now that doesn't mean you shouldn't buy underlying stock. I'm just telling you what this means.

This is what's great about a leap calm. Now this takes a lot of research and if you're going to buy a leap, call or leap put, i really do recommend you dig into fundamentals, because that's not really trading anymore. It's just more of a way to leverage your investment, the first two midterm short term. That's more trading long term leaps, either calls or puts a buy to open, sell the close call or put that's more investing.

So that's something to keep in the back of your mind. It all comes down to your strategy. Personally, i don't really play long-term leaps, but i'm more of a trader than i am an investor, so keep that in the back of your mind, moving forward as we go into this so last thing, i want to talk about five overall tips: strategy, mine personally, you Guys just have to find a system that works for you, where i think i can help is share. My experiences.

The ways that i've made money, the ways that i've lost money, because i've lost money playing options and you can lose money losing playing options and most people do and that's an absolute fact. In fact, most day, traders most, you know, swing traders, whatever only one percent by the statistics are profitable, and this is my speculation. This is what i think i think most of them are not because of emotions right it's hard to rain on emotions. People want to look for the grand slam, that's going to make their account.

Have that 500 gain or whatever may be, but most people don't have that right. That's risky! It's lucky, there's a lot of the xyz variables here that play into that. So what i've found has helped me with my emotions, with my state of mind, to help get things where i want them to go. Is this identify the least priced and moves low ivs in the derivatives market? This means you predict upcoming volatility.

Before it happens, it's gon na be a squeeze play. It's gon na be a great earnings call. This can be a lot of different things. It could be amc before a huge run-up.

It could be gamestop, it could be any stock out there find those right. You want to find those value plays same as you would for a great fundamental company that you think is going to do something awesome. You also want to identify your risk management tolerance and build a system of rules to follow. There's nothing more important than sticking to a set of rules, and sometimes that means sticking to a set of rules.

You miss out on opportunity. It does, but having that set of rules is going to keep you grounded because more often than not the rules will save. You, instead of hurting you now there's going to be times where, like let's say, you've got a stop loss, i'm never going to take a loss more than 20 on options, trade, if you were to hold it through 20, sometimes you're gon na make money, but sometimes You're not, and more often than not when you get a bad entry on a caller on a put, you do lose money, so it really is important to stick true to whatever rules you decide to follow, because that means profitability over time. You also want to manage size options have no mercy, they've got none, and i i mean it when i say that i know i've gotten into trades before right, where i took too much size and you're sitting on the computer screen like this.

The entire time you're like oh, what's this doing what's this doing, is this thing? Is it gon na? Oh man, no, i'm down ten percent twenty percent - thirty percent - oh yada, yada, yada, yada, yada right, but you're, never gon na be in that situation. If you don't take too much size, the beautiful thing about options is, you can make leveraged gains in your portfolio with less money right. Think of it. That way, i can take a 300 if my portfolio, for example, is 10 000.

I can take 300 bucks and i can make that 600, which is a 5 to 10 return on my portfolio right, but it would take a lot more money in stock to make that same move. So you don't want to yolo trade. You don't want to put too much money in any sort of call any sort of put, because then you're sitting on your screen with the chance of blowing up your account size matters right, have a strategy? Have a plan don't go into it and think this is going to be the one that's going to double my entire account right. Look at it as an as a trait look at that as a a one day at a time slow grind to wherever you want to go in life right, it's a business, it's emotionless and if you can make it that way by managing size, you're going to Be okay right! That's very important! You also don't want to get greedy, be consistent over hoping for a grand slam.

I mentioned this before, but i've done that right, i've flat out done it. I've had trades that have lost me. Ten thousand fifteen thousand dollars because i didn't take profits when i should have, and i think any options trader out there could tell you that's happened right now. You have to be able to see that in front of you, especially with short-term expirations.

Don't let that be! You don't be greedy, look at the nickels and look at the dimes as over time, adding up in your account. If you get a 10 gain on your portfolio eight times you double it, you double it. You do that 12 times you triple it right! Consistency over grand slams every single time and sometimes being consistent, cashing out early. That means you're gon na you leave profit on the table, but guess what them keep that extra profit, because that means you're going to be consistent over time.

You know the strategy, you know what you got to do in order to make money in the long haul, which is way more important than any one given plate. The last thing i've got for you is hold for as short as possible, because the longer your exposure, the greater your risk, accept that you will leave room off the top on any of your trades you're. Never ever ever going to be able to top tick any of these trades, and if you do very seldom and few between is that ever going to happen, that's not an expectation right expectation should not be i'm gon na get the maximum possible return out of this Trade, because that's not life, it's just not right, but consistency can bring you that top it can't over time. You're gon na get that, maybe maybe you made uh 500, but at the max it was a thousand.

So now, with that extra 500 bucks, you make another trade and you make another 700 bucks. 600 bucks. Well guess what you just made more money! You got that back right, you didn't lose it anyways! You get my point here hold for as short as possible. You're, fighting theta you're fighting time decay, you're fighting risk in the market, uncertainty in the market, things that are outside of your control.

You want to take that opportunity, that's in front of you and seize it before. Something else does right and it can happen. It can definitely 100 happen, so i know this is kind of uh a longer video. I hope you guys pulled some value from this uh.

I wanted to throw this together, because i am starting that 100k challenge that i put out here on my channel tomorrow tomorrow or wednesday. As long as the cash is settled in my my, i think or swim account, but nonetheless hope you guys pull some value from that. I'm going to be starting that up here tomorrow, youtube is going to get a weekly update from me in terms of how that's going it'll be probably on saturday or sunday i'll. Let you guys know what my p l is.

I'm going to show you my winning trades, my losing trades yada yada, one light taps. Always titan is sleeping on the computer right here, but i'll pick him up. So you guys can say hi he's been a little bastard today, oh good cat. This is the most calm you've been.

I think he was mad that i i was uh. I was gone for so long, i'm sorry buddy, but anyways catch you on the next one, much love lights as always, and peace.