>>62099786
An options contract is an agreement between to parties that assigns the right to buy or sell some thing at a given a price at a given date. Think about that for a moment - look around at some stuff you own, or stuff you want to own, and consider the implications.

Say you're the guy in the pic you provided, with that slick fit, cigs included. It looks awesome and I don't know where the fuck you got it and I could use a smoke. Is it designer? Is it Kohl's? Who fucking knows. I walk up to you and say
>damn daniel that's a bussin fit, I'll give you $20 if I can cop that from you next week at a fair price

I have no idea what your outfit is actually worth, but I'm wiling to pay $20 for the right to buy it later. Maybe it's actually designer shit and I make out like a bandit. Maybe it's Goodwill junk and I refuse. But anyway I gave you $20 for the OPTION to buy this shit, and you sold that to me. We entered into a contractual agreement there, and the premium was $20.

So I'm out $20, and you made $20 on the agreement that you won't sell before next week. capiche?

So, you and I have entered an agreement where I've got the right to buy your fit for a fair price and you've gotta sell it to me if it's fair. But HOLY FUCK dude, you've just been kidnapped by the US gov't, retard. The price for your fit has changed a lot since we entered that agreement, since it's now iconic. That kinda fucks me over since I was hoping to keep it under $200, but it's probably worth thousands now.

Upon meeting after a week as the contract stipulated, I decline to purchase since the price gone through the roof. I'm out $20, and you keep the $20 and outfit.


----


What happened here involved my expected volatility of the price for the fit, and actual volatility. I didn't think this fit would 10x in a week, and thought I'd cop it at roughly the fair value it was at when we first met. But instead, something fucking crazy happened, price mooned, and I don't wanna pay thousands for sweatpants.

>>62099786
Calls = bullish
Puts = bearish
is incorrect.
When you look at options, you are looking at contracts to buy/sell an asset. This is what you've probably heard a million times and it doesn't quite make sense.
If you buy a call, it's bullish: You bought a contract that allows you to buy 100 shares of something at a specified price, by a specified date. That contract, that OPTION to buy at a specific price, can be traded.
If you buy a put, it's bearish: You bought a contract that allows you to sell at a specific price, up to a specific date.
>Cool.
If you sell a call, it's BEARISH: You sold someone else the right to buy 100 shares from you at a specific price. You want price to rise to rise above the strike price, such that the buyer would be silly to sell at strike price instead of market price.
If you sell a put, it's BULLISH: you agreed with someone else to buy 100 of their shares at a specific price. You want price to go up, because then why would they sell to you when they could sell to market or more?

What we did in the first two post wasn't really a traditional options contract, since I don't wtf a 'fair price' for that fit is, and just started rolling with it. Options contracts were actually developed out of similar scenarios though, and it should highlight the 'optionality' you're paying for - the $20 in premium gives you the right to decide whether you want to execute that trade or not.

In modern financial markets, prices of the 'underlying' (the thing being potentially purchased/sold) are known upon entering the agreement. What commands the 'premium' in our original example is the volatility of the underlying - often abbreviated 'IV' (implied volatility). It should be obvious that spending a large premium (ie, that cash you throw away fr the optionality) is a bad move if the underlying asset has extremely stable prices. For example, take Tether USD - it's always $1. Would you give me $20 to buy $100 of tether in a week? Not unless you knew something I didn't.

But then take something like Bitcoin, which tends to be volatile. Says it's $70k today, and you wanna buy one from me in a year. What do I charge you? I can't charge you $0 or $20, since my Bitcoin will probably be worth a different amount than that in the future. In an aggregate of market participants, this uncertainty in pricing the premium is known as the implied volatility, because it's what the market is pricing in there.

>>62099910
*Sorry.
Regarding selling calls, you want market price to drop BELOW the strike price you sold, not rise above it. Because why would someone want to buy at $100 when current market price is $50?

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>>62099910
What this anon is saying is in this table. If you want to buy something and are wiling to pay a premium to lock in current prices at the current IV levels, you're bullish (calls). Ditto for buying puts (bearish). Each position is inverted if you're selling the option contract rather than buying.

Where options get interesting is in the dimensionality and articulation it enables a trader to have. You can combine puts and calls to express things you normally couldn't, like 'I think traders will pay more for premiums on this option contract in the future' - in this case, you'd be longing vol.

Anyway! Time for bed.

>>62099786
You go long or short on an option similar to how you go long or short on stock.

Going long on an option is buying a contract from a seller for a premium.

Going short on an option is to short sell a contract to a buyer for a credit. You are short on the contract and will need to buy one to close, let it expire or get assigned.

>Okay so the only risk in option trading is losing my premium?
For long positions, yes. For short puts, the maximum risk is if the underlying goes to 0 then your loss is the strike price * 100. For short calls, there is no maximum risk as the underlying price can go to infinity.

>>62099786
>Doesnt seem that scary
coincels on here are cowards
selling (naked) is not the best idea, high risk/reward, and you need more money to close the position to stop out
just buy and enjoy the delta poomp

>>62099936
Yeah, this is a trap many retailers fall in to.
You sell a call at $500. That obligates you to sell 100 shares to someone if they choose to exercise their option. Do you have 100 shares to sell at $500 a pop? No? Too bad, you are now contractually indebted to someone for $50,000 and you fucking agreed to it.

So be careful, man.

>>62099899
>>62099906
>>62099919
Nice explanation.
So here you were selling a put? Since you were hoping it go beneath the strike price of 200$, but exploded beyond that and now you lost your premium.
The whole situation was a "short put".
>>62099927
This is an amazing graph
Okay but now I am seeing that when selling "short straddling" I am obligated to own the assets? I have tried something similar on my paper trading account, yet my broker didnt cancel the trade or warn me.

Good night thank you. I bet others who also had questions are happy you made these posts

isn't what polymarkets is doing with bitcoin 5 minute bets, options?

>>62100113
>>62099910
>>62099925
These are really helpful


Fuck who ever coded this shit trying to detect spam. I cant even post normally now.

>>62099786
>call = bullish
>puts = bearish
>clear!
whelp...start over

Options are a hedging instrument and if you don't understand that you will lose all of your money and you will deserve it.

>>62099919
For something as volatile as Bitcoin, what would the premium be (assuming bitcoin is currently at 70k)

>>62099786
Buying a call is giving you the right but not the obligation to buy a stock at an agreed price.

The stock has to rise above the strike plus the premium you pay in order to become profitable for you.

Similarly with buying puts gives you the right but not the obligation to sell a stock at an agreed strike price, but in this case the stock has to fall below the strike plus the premium for it to be profitable for you, and this gives you the right to sell that stock at the agreed strike price.

Selling calls or puts is basically being the underwriter for someone else buying a call or put.

Selling a call means you have to deliver the stock if the buyer executed their right.

Selling a put means you have to buy the stock if the buyer executed their right.

In the call selling scenario you are naked if you do not have the stock before selling the call.

In the put selling scenario you are naked if you do not have the cash to buy the stock before selling the call.

There are advanced strategies you can do other than buying the stock outright if you also want to sell calls, such as calendar spreads.

In the calendar spread option, you would buy the call at an earlier date and sell the call at a later date at the same strike price. The idea being the earlier buy call covers the obligation for the later sell call but you have pin risk forcing you to executing the bought call if you still own the sold call and don't have the underlying stock (because without the call you will not own the stock).

You can also do directional spreads which are similar to calendar spreads but where the strike prices are different.

The idea with spreads is often to benefit from theta, the time decay, meaning the sold option is worth more than the premium on the bought option at a later date.

>>62100224
>In the put selling scenario you are naked if you do not have the cash to buy the stock before selling the call.

This meant to say:
In the put selling scenario you are naked if you do not have the cash to buy the stock before selling the PUT.

>>62100224
>Selling a call means you have to deliver the stock if the buyer executed their right.
>Selling a put means you have to buy the stock if the buyer executed their right.

I like this info too.
WHEN do I know IF the buyer executed their right? At expiration date? What if I were to sell before that date?

Just sell calls and puts willynilly it's literally free money

>>62100247
They could execute it whenever they want to up until the end of trading on the expiry of the contract.

They could even execute it even if it's unprofitable for them, though that is unlikely.

>>62100247
Though you can technically close out the position before they execute it by rebuying the call/put that you sold. This might result in profit or it could result in loss depending on the price to repurchase the contract (e.g you sold a call for 2 and rebuy it later at 4 then you lost money)

>>62100247
Ask about covered calls, fren.

Brother, go to claude ask ask it to explain options to you. If you don't get it, ask it to explain it to you like if you were 12 yo. Everytime you see a term you don't get it, ask for an explanation.

>>62099946
i quit selling after i was almost forced to sell PLTR at $20..... almost
if you have a directional bias, just buy into it, dont wait n cope
i see engagement farmers selling multiple naked ODTEs at a time saying "its ez moneybro" and it blows my mind, gamma pump will royally fuck your ass so hard doing that

>>62099786
Options are basically like margin or futures, never touch it if you’re not an insider.