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Trading Options

Haven’t done this. How’s it work? My scratch notes.

Call

Calls are a bullish contract.

Ex. Call 1 AMD at $48 (strike price)

The call is “In the money” if $48 is less than the current price.

“At the money” if the strike price equals the current price.

“Out of the money” if the strike price is higher than the current price

You want to sell or exercise the contract (meaning buy 100 shares at the price) in the money. If time runs out and you’re out of the money, you lose your investment.

It’s common to have a win rate of less than 50% and to lose up to 8 times in a row, but people continue trading options so the wins are probably worth it!

Part of the value of an option is how in-the-money it is. Owning it means you can buy cheaper than the market price.

Another part of the value is how long until expiry is left, and how volatile the stock is. A volatile option with lots of time has value because the price may go up and the option may go farther into the money, becoming more valuable.

At the same time, the value of the option depreciates as time to expiry goes on, or if the volatility decreases. Notably, the volatility decreases after earnings calls so don’t hold your options over earnings dates!