Thread by @DrBullShark

What Are Stock Options,
A How To Guide by @DrBullShark

1. The two main types of options are calls and puts.
->Calls give the right (but not the obligation) to buy 100 shares of a stock at a certain price (called strike) by a certain date(expiry)

-> Puts give the holder the right (but not the obligation) to sell a stock at a certain price by a certain date.

2. Buyers do not have an obligation to execute the contract, but writers are required to buy or sell the stock if the option they wrote is exercised against them.

3. An option can be exersized if they go "in the money" A call option is in the money if the market price is higher than the strike price

4. Contract Size: 1 option contract allows the holder to exercise their rights on 100 shares of an underlying stock
Strike Price: The contracted stock price at which an options holder can buy or sell a stock (until the expiry date)

4. Option Premium: The price paid (per share) to own the option contract. So 1 contract costs = 100x premium cost
5. Expiry Date: The date by which the option contract must be exercised - otherwise it expires worthless

6.Important to keep in mind for options is that the probability of future events and time until expiration play important roles in choosing strike prices and expiration dates. When buying options, think about the likelihood of different events that will affect the stock price.

7. If you expect a negative catalyst within a foreseeable timeframe, you might want to buy a put option instead of shorting the stock. If you expect a positive catalyst, you might want to buy a call option instead of purchasing the stock.(leverage)

8. Once again, the potential loss on an option is limited to the premium paid, which means it is way to "bet" on a stock while putting a lower amount of capital at risk.

9. The key to understanding this is the time value of money. Investing in options offers the potential for leverage profits for the buyer. Options enable investors to speculate on price movements in a stock, without actually taking a position in them

10. Another reason for investing options is the opportunity to hedge a position. Hedging involves opening up a position that will limit your losses if the trade doesn't go the way you expect it to.

For example, you could purchase shares of a company and then buy some put options on the same stock. The put options provide the right to sell shares at a guaranteed price before the contract expires. This can limit the amount of money the investor loses on the downside.

11.Another problem with buying options is that there is a limited amount of time for an investment thesis to play out. If the stock doesn't do what was expected before a particular date, then the option expires worthless, causing the buyer to lose the premium that was paid for it

To sum this all up...
-> buying calls means you think stock goes up by certain date
-> buying puts means you think stock goes down by certain date (expiry)

at expiry contracts go worthless if not exercised..

12. NOWW TO GET SPECIFIC...
OPTIONS GREEKS
Greeks, including Delta, Gamma, Theta, Vega and Rho, measure the different factors that affect the price of an option contract. I focus on delta gamma and theta and will delve into them

13. Delta-> Which measures how much an option's price is expected to change per $1 change in the price of the underlying security or index. For example, a Delta of 0.50 means that the option’s price will theoretically move $0.50 for every $1 move in the price of the stock

The Delta will increase (and approach 1.00) as the option gets deeper in the money.
The Delta of in-the-money call options will get closer to 1.00 as expiration approaches.
The Delta of out-of-the-money call options will get closer to 0.0 as expiration approaches.

The Delta will decrease (negative and approach -1.00) as the option gets deeper in the money.
The Delta of in-the-money put options will get closer to -1.00 as expiration approaches.
The Delta of out-of-the-money put options will get closer to 0.0 as expiration approaches.

14. Gamma-> measures the rate of change in an option’s Delta per $1 change in the price of the underlying stock. Since a Delta is only good for a given moment in time, Gamma tells you how much the option’s Delta should change as the price of the stock increases or decreases.

Delta and gamma relationship->
Let's assume the Delta is now 0.55 from the example above. This change in Delta from 0.50 to 0.55 is 0.05—this is the option’s Gamma.
Because Delta can’t exceed 1.00, Gamma decreases as an option gets further in the money and Delta approaches 1.00.

Theta->Theta measures the change in the price of an option premium for a one-day decrease in its time to expiration. to simplify, Theta tells you how much the price of an option should decrease as the option nears expiration. aka price per day to hold a contract.

Since options lose value as expiration approaches, Theta estimates how much value the option will lose, each day, if all other factors remain the same.

15. Implied volatility-> of an option is the theoretical volatility based on the option’s quoted price. The imp. vol. of a stock is an estimate of how its price may change going forward. Implied volatility will affect the greeks although not a greek itself.

16. Volume and open interest are two key metrics that describe the liquidity and activity of options and futures contracts. Volume refers to the number of contracts traded in a given period, and open interest denotes the number of contracts that are active, or not settled.

Volume refers to the number of trades completed each day and is an important measure of strength and interest in a particular trade.
Open interest reflects the number of contracts that are held by traders and investors in active positions, ready to be traded.

If you've made it this far.. congrats you really want to learn options. These are not terms i've created or coined, just general knowledge on options -> keep reading below to see how I personally trade options

17. Rising prices during an uptrend while open interest is also on the rise can mean that new money is coming into the market (reflecting new positions). This could be a sign of bullish sentiment if the increase in open interest is being fueled by long positions.

If, however, open interest is on the decline while prices are rising during an uptrend, that could indicate that money is leaving the marketplace, which would be a bearish sign.

18. BULLSHARK STRATEGY ->
I personally never execute contracts. As a general momentum trader, I trade the stock how I would do with commons, except using premiums on contracts as leverage...
How to do this.. keep reading

19. IF YOU ARE DAY TRADING -> Options that expire the soonest pay the best but have the highest risk.. meaning small moves in the stock cause big moves in the option premium (delta). When looking for small moves in the stock I play IN THE MONEY Options that expire soon (weeklys)

20. IF YOU ARE SWINGING-> Its better to give some time till expiration so theta from day to day won't chunk your position as hard as compared to swinging the weeklys. You are limiting your downside by giving more time on expiry, but also limiting your upside compared to weeklys

There is much much more to options trading
different strategies (selling calls,selling puts, etc.)

What I found works best for me is the day trading strategy.. Buying a call or put for a certain premium, and reselling it back the same day for a higher (hopefully not lower) prem.

Basically ...MOMENTUM TRADE HOW YOU DO USUALLY-> except use calls or puts instead of buying shares(calls) or shorting(puts)...

More time on expiry= less risky on down side but less upside for premiums (on that day)(swingable)
Sooner expiry= More downside risk+ More Upside gains

I had a bunch of requests to do this so here it is... there is sooo much more to this but this is as basic as it gets...

Don't limit yourself, Be Versatile, Adapt... and Conquer

Much Love ALWAYS
-Dr. BULLSHARK