Options trading
I am new to options trading. I've watched videos, read articles, had people whiteboard to me, but I'm somehow not able grasp it. (I guess I'm just not a finance person) Could someone explain it here like you're talking to a nine year old? TIA
y tho
They’re really not that hard to get - in a general sense you’re trading based on estimates of potential of future gains or loss of a stock for money(premium) in the short term. ELI9: You’re a candy maker and you know you will have made hundred pieces of candy on October 1st. You want to sell this candy in October to pay rent at your candy factory, but because of Halloween there will be a ton of candy for sale November 1st for cheap, so if you don’t sell it before November 1st at at least $1/candy you’re out of luck. You write a call contract, stating you will sell 100 pieces of candy at a fixed price of $1 on October 1st. I own a candy store and I know for sure that I will need a hundred pieces of candy in October to sell.I buy your call, paying you money then, so that I don’t need to worry about the price on October 1st and can have a fixed estimate for the cost of the inventory today. The price of candy on the open market may be $.75 on October 1st, in which case I ignore your contract, or it might be $1.25 and I saved money. However, I needed a guarantee of having candy, so I’m willing to pay the fixed amount of premium before October.
Imagine a security(stock)and how it will move in a week, in 2 weeks etc. Options are nothing but a derivative built on a Model that brings traders together to basically gamble on how that stock will behave. Since it is a gamble you loose or win at the end unlike a stock where you can recoup some loses. The original proponents of the model won a Nobel prize. It has its loophole and if you are mathematically smart you may be able to figure it out and win all the time.
Don't trade options.
Why so
1) you dont understand derivatives 2) it takes a ton of time to mitigate risk 3) return is low except around earnings which is only quarterly 4) see number 1 again lol
Look up wallstreetbets for the best introduction to options trading
Take training on your brokers website
/r/woosh
Do NOT trade options, you will invariably get burnt up. Rather invest in stocks , you won’t at least time decay to 0
Dumbest thing I’ve heard in a while
Mind explaining why ? Oh wait you trying to sell ETrade ? 😀options are well known to be risky instruments specially for beginners like OP - there is no ambiguity about it
Expecting an explanation here in text is really not gonna help you. So I can point you to some more resources that I have used. First one is Optionalpha.com which has tons of free videos. They have lots of podcasts as well but I would suggest go through the free courses before. Tasty Trade videos on YouTube are good too. There are a few more but these are amazing starters. If you need more dm me.