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1/ Options 101 - Put Options

Yesterday, I posted Part 1 of Options 101, covering call options. I can’t leave my Bears hanging (the market has done enough of that!), so it only feels right that I cover put options next.

Here’s Options 101 - Put Options!
2/ First off, make sure you are familiar with the basics. Check out my first thread below to get a quick primer (or refresher!) on the topic.
3/ The easiest way to think of a put option is that it is an insurance policy.

Imagine you own a house that is worth $1M. You live in California, so you worry about earthquakes.

You decide to buy an insurance policy. So you call up your rich friend, Paul.

You offer him a deal.
4/ You will pay him for an insurance policy on the house with $1M of coverage. You’ll pay $50K for the policy, which will expire in December 2025.

Paul accepts.

Congratulations, you’ve just purchased a put option!

Strike = $1M
Expiration = December 2025
Premium = $50K
5/ You’re not as worried about an earthquake now. You’re covered!

One of two scenarios now plays out:
1️⃣ - No Earthquake = 🏠 Fine
2️⃣ - Earthquake = 🏠 Damaged
6/ In scenario 1, you don’t “exercise” your option. The house is fine. You’re only out the $50K premium - worth it for the peace of mind!

In scenario 2, you exercise your option. The house is damaged. Paul pays you $500K for the damages. You’re happy you bought the insurance.
7/ So to summarize the 101 series...

Call Option = Bullish Bet
Put Option = Bearish Bet

Why buy options?
▪️Speculate on price movements
▪️Hedge long or short exposure

More to come on the nuances of options - pricing, selling/writing - in Options 102 and 103!

Stay tuned...
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Sahil Bloom
@SahilBloom
1/ Options 101 - Call Options

Over the last few months, with the rise of Robinhood and the day trading boom, options trading has been featured prominently in the news (for better or for worse).

But what is an option and how does it work?

Here’s Options 101 - Call Options!
2/ In simple terms, an option is a contract.

It gives the buyer the right, but not the obligation, to buy (a “call”) or sell (a “put”) an asset.

It specifies the price at which the asset can be bought or sold (“strike”) as well as a date this must occur before (“expiration”).
3/ The buyer of the option has to pay to have that right to buy or sell. The “premium” is the price they pay for the option.

Let’s use a simple example to illustrate how this works. In this thread, we will cover the call option.

(Don’t worry, Bears, I’ll cover the put soon!)
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Sahil Bloom
@SahilBloom
1/ Gold Standard 101

With the accelerating pace of money printing globally, interest in gold has boomed. If you’re following along, you’ve probably heard or read about the “Gold Standard” system.

But what is a “Gold Standard” and how does it work?

Here’s Gold Standard 101!
2/ In simple terms, the Gold Standard is a monetary system where paper currency has a value tied directly to gold.

Under this system, paper currency is a claim on gold at a set exchange rate.

So if I had a $100 bill, I could go to a bank and redeem it for a quantity of gold.
3/ The basic appeal here is that the system restricts the creation of new money. The physical quantity of gold is a limiter on paper money creation.

You can trust in your paper currency, as it is backed by hard money.

Let’s look at a simple society to illustrate how it works...
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Sahil Bloom
@SahilBloom
1/ Bonds & Yields 102

This week, I posted a thread laying out the basics of bonds and yields - Bonds & Yields 101.

I got a lot of questions on more advanced topics - yield to maturity, negative yields - so I'll continue with the series.

Here's Bonds & Yields 102!
2/ First off, make sure you follow the basics. Check out my thread - Bonds & Yields 101 - to get a quick primer on the topic.
3/ Let's talk about Yield to Maturity.

In Bonds & Yields 101, we covered the concept of Yield in its most basic form: Current Yield.

Current Yield is just the return an investor would earn if she purchased a bond and held it for a year.

Current Yield = Annual Coupon / Price
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