Call Options Trading for Beginners in 9 min Put and Call Options Explained
CALL OPTIONS TRADING FOR BEGINNERS IN 9 MIN.â€“ PUT AND CALL OPTIONS EXPLAINED Hello and welcome once again to MBABULLSHIT.COM.Our topic for this tutorial is â€œUnderstanding Call Optionsâ€�. Remember that you can alwaysgo back to MBABULLSHIT.COM. Let's get down to it! In order to first understand â€œcall optionsâ€�,I'd like to start with a story. Let's say there was a man who was interested ina share of stock. The stock is now worth $100 in the market and he might want to buy itin the next 5 years for also $100. However, he's afraid that it might be more expensivein the future and might cost him more than $100. So what should he doéSuddenly he remembers that he knows a rich
lady and that he can pay her $1 to make acontract with her. In the contract, she guarantees that she will sell him the stock for only$100 any time in the next 5 years if she wants. He's not forced to do it, but he can doit if he wants to do it. They write that agreement down in this contract. She guarantees thatshe will sell him the stock for only $100 even if the stock price goes up to $200 or$300. Let's say that this man is allowed to sellthis contract to somebody else who can use it. Maybe he changes his mind and he doesn'twant this contract anymore. He doesn't need this contract anymore. Maybe he can sell itto somebody else like to me.
Question: What is this contract now calledéIt is called an â€œOptionâ€� contract. This man now has the choice, the right, orthe option to buy this stock from her for the next 5 years for $100 even if the pricegoes up. Specifically, this contract is called a â€œcall optionâ€�. It is the man's optionto buy a share of stock at a give price ($100) for a certain amount of time. In our example,it's 5 years. Now, the lady here is called the â€œissuerâ€� of the option. She earns$1 because the guy paid her $1 in order to motivate her to agree to the contract; butshe also bears the risk in exchange for the $1.This is very important. Don't be confused
with the buying and selling of the optioncontract, which was what happened right now, versus the buying and selling of the stock,which is possible in the future if the man wants to use the contract. Don't confusethose 2 things. Another thing, when I said that the man mightuse the option contract to buy a share of stock, in MBABULLSHIT language, we say â€œexerciseâ€�the option. So if an MBABULSHITTER says, â€œOh! I exercise my option!â€� he sounds so intelligentor whatever with all that bullshit. He's just saying that he used the option contractto buy a share of stock, or to sell it, depending on what kind of option it is. More on thatlater. If you use or take advantage of the
option contract, then that means you exercisedthe option contract. If the option is good for 5 years, then wecan say that the date at the end of the 5 years is called the â€œexpiration dateâ€�.It's a the carton of milk, or food that expires. So we say that the option expiresin 5 years. Very important. I said that this man can useor can exercise the option any time in 5 years, but actually in Europe, it's a special case.In Europe, you cannot use it any time in the next 5 years or before its expiration date.In Europe, you must exercise or use the option only on the expiration date itself. Be veryclear about that.
The other thing is we kept on talking about$100 that the man might buy the stock from the lady. This $100 is called the â€œstrikeâ€�price in MBABULLSHIT language. Don't' confuse that with â€œoptionâ€� price, whichis simply the $1 that he paid the lady in order for the lady to agree to the optioncontract with him. Lastly, take note that in real life, the manand the woman (the old lady) do not deal directly. Instead, options are traded in what we callthe â€œoptions exchangeâ€�. Remember that. Now that you understand that, you're readyfor our next tutorial on â€œPut Optionsâ€�. If you haven't watched that tutorial, please watchit. If you've already watched both tutorials