# Options Trading For Beginners: Ultimate Guide with Examples (2026)

## Метаданные

- **Канал:** Ryan Scribner
- **YouTube:** https://www.youtube.com/watch?v=2Ii5Hl98s9E
- **Дата:** 27.04.2026
- **Длительность:** 37:21
- **Просмотры:** 1,419
- **Источник:** https://ekstraktznaniy.ru/video/49506

## Описание

In this options trading for beginner's guide, we'll be covering everything you need to know to learn the basics about these financial contracts. This includes what options are, call and put options, how to paper trade options, real options trading examples using Robinhood, how options make money and more. Options involve risk and are not suitable for all investors. 
Robinhood (Free Stock): https://ryanoscribner.com/robinhood
Moomoo (Paper Trade Options): https://ryanoscribner.com/moomoo
Correction: Stock options are "at the money" when the share price = strike price

00:00:00 Options Trading For Beginners
00:01:58 Course Overview
00:03:04 What Are Options?
00:06:54 Call Options 101
00:12:06 Put Options 101
00:16:23 How Options Make Money
00:19:20 Real Options Examples
00:25:10 Paper Trading Options
00:31:12 Why Options Exist 
00:32:26 Speculation 101
00:33:26 Hedging With Options
00:35:12 Generating Income With Options

Robinhood Full Tutorial: https://youtu.be/JDV1SS9m_xY
Robinhood Op

## Транскрипт

### Options Trading For Beginners []

Let's say you have $500 to invest. Would you rather buy 10 shares of a stock with that or be in control of 200 shares with that same investment? If the stock jumped 10%, you would have a $50 return on the 10 shares you owned. But if you controlled 200 shares, you could be looking at a $500 return, if not more. That's the potential with trading options contracts. But the truth is, this can happen, too. That was Guff, the Wall Street Bets legend, and you just saw him lose over $40,000 in a single refresh of his trading app. Not only are options extremely complicated, at least on the surface, that is, they are one of the riskiest investment vehicles that exist. That's why my goal with this video is to give you a complete beginner's course to options trading. We'll be covering the basic terminology, how these financial contracts work, real world examples, how you can potentially make money when assets go up or down in value, and more. But most importantly, my goal with this video is for you to understand the risks involved here. And that brings us to a very important point here, guys. Options trading is not for everyone. These financial contracts are designed for experienced investors who understand the risk involved. And while I'm not a financial adviser, my goal with this video is for you to understand exactly why these risks are present. At the very least, understanding these financial contracts will give you a better idea whether or not this is something you want to explore in more depth. And if you have a tendency to be a risk-taker, be extremely careful with options. Now, it would be virtually impossible to cover everything that you need to know about options trading in one single video, guys. So, this is going to be the first tier of many. And if you're looking for more options trading content, make sure you subscribe and then leave me a comment down below about what you're looking for specifically. And there's going to be a table of contents down below. But let me quickly cover an overview of what you can expect from this video. I'm going to start with

### Course Overview [1:58]

a simple overview of options contracts and how you've more than likely encountered them already in your day-to-day life. Then we're going to tie this real world example in with equity options or financial contracts for stocks. After that, we're going to talk about call options, which is what people use to place a bet on the value of an underlying asset going up. From there, we're going to jump into put options, which can potentially allow you to make money when the value of a stock or an entire market declines. After that, we'll cover how options contracts actually make money, looking at the two different types of value that they have. From there, we're going to take a look at some real options contracts using the brokerage platform that I personally like best for this. And then we'll take a look at options paper trading without risking any real money. After that, we're going to talk about the core use cases for options contracts because there are three primary groups that utilize them. Speculators, hedggers, and income investors. I promise you that by the end of this video, you'll know exactly how options work, and it won't be complicated. So, if you're excited about that, guys, please drop a like on this video. Let's start out by covering

### What Are Options? [3:04]

a very simple explanation of what options are. And whether you realize it or not, you've probably encountered them in your day-to-day life already. One of the most common places is real estate transactions. So, let's say you're looking to buy a new house. But in order to do that, you have to sell your current house. So, you find your dream home that's a little bit bigger for your growing family, and you make an offer with what's called home sale contingency. If the seller accepts your offer, you have the right to buy that home within a certain time frame, usually 30 to 60 days, so long as you're able to sell your house. But if you're unable to sell your house, you basically pay a fee to walk away from the deal, usually a few thousand. This would be in the form of a non-refundable deposit, and this is actually a type of options contract. This gives you the right, but not the obligation to buy the house during a certain time frame for a much smaller sum of money upfront. Now, home prices are typically more slow and steady appreciation. But let's say, for example, the value of the home went up by $100,000 while you had the contract in place. You'd still be able to buy the house for the previously agreed upon price. So, not only are you reserving your ability to buy it, you're also reserving your price. And if the market somehow plunged during that same time frame, well, your house probably wouldn't sell and you could walk away from the deal and just surrender your deposit. But let's now tie this previous example in with stock or equity options now or financial contracts related to stocks. At the most basic level, options are a financial contract that give the holder the right but not the obligation to buy or sell an asset in the future at a price determined today. Whatever the contract controls is called the underlying asset. So in the real estate transaction, it was a house. But in the world of stocks, it's actually 100 shares of the company. But it's not just individual stocks. There's also index options that let you bet on the performance of an entire market index like the S& P 500. Now, because the value of these financial contracts are entirely derived by something else, the underlying asset, they are referred to as derivatives. Now, in the previous example, there was a non-refundable deposit put down for the ability to buy that house if their current house sold. Well, this is just like the option premium or the amount of money that you pay for the right to buy or sell, and you don't get this money back. You can sell the option contract to someone else, though, and depending on multiple factors, the value of the option premium could be higher or lower than what you've paid. But how much you're able to buy or sell for will be determined by the strike price, which is just like the offer price in that previous real estate transaction example. Regardless of what happens in the market, you have the right to either buy or sell at a predetermined price depending on the type of options contract that you have. Now, as I'm sure you can imagine, the prices of stocks move around a lot more than the price of real estate. So, the ability to control your buy or sell price for this particular asset can be extremely valuable. And in the previous example, you had a 30 to 60-day window where your current house had to be sold and you could then exercise your right to buy the new house. With stock or equity options, you don't have to sell anything in order to exercise your right, but there is a specific window of time that you do have to keep in mind. Every options contract has an expiration date, which is the date that the option is no longer good and it becomes completely worthless. Well, that is just like the date that the non-refundable deposit gets handed over to the home seller in the previous example if you're not able to make a deal happen in that time frame. So, that's what equity or stock options are, but there are multiple different types of them with the two most common being call and put options. A call option gives you the

### Call Options 101 [6:54]

right, but not the obligation, to buy something at a fixed price before a certain date. You're basically putting down a non-refundable deposit for something that you might want to buy in the future. And that something in this case is 100 shares of a stock. However, you can sell the option to somebody else before expiration. And that deposit or option premium could be more or less than what you paid depending on multiple factors. So, let's say you're looking at a stock that's currently trading at $100 per share, and you think the value will be higher in the future. You decide that you want to be able to buy the stock for $100 later on. So, you buy a call option with a strike price of $100 and an expiration date that's about one month away. In order to do that, the non-refundable deposit or option premium required is going to be $5. But since each one of these equity options contracts represents 100 shares, you actually have to multiply that option premium by 100. So you would effectively be putting down a $500 non-refundable deposit to have the right but not the obligation to buy 100 shares of the stock at $100 any time before contract expiration. Now, let's take a look at this chart and assume that the following played out over the next 10 trading days. Also, guys, quick note here. The stock market is only open Monday through Friday, excluding holidays, but we're just going to ignore that here for simplification. On the first two trading days, the stock drops from $100 to $95. That would likely lead to the option premium becoming less valuable because you could just go out into the open market and buy shares for $95. Right now, your option contract is out of the money. The right to buy at $100 wouldn't be of much value. So, let's say the option premium drops from $5 down to $3. So, at this point, you have two choices. You either sell the option to somebody else for $300, locking in that $200 loss, or you could simply hold on and see what happens. So, let's say you decide to hold and over the following three trading days, the stock now climbs to $105 per share. Well, this would now be your break even point for the call option because you have to add the strike price and the option premium together. Explained simply, you paid $5 for the right to buy shares at 100. So, at $15 a share, you could exercise the option, profit $5 per share, and effectively get your money back. In this scenario, your options contract is at the money. But let's say you decide to hold on and the stock continues to move in your favor and over the next few trading days it reaches $120 per share. Well, at this point, your contract would be in the money. You could exercise the option and buy shares at $100 each. Even though the current market price is $120, your profit would be $20 per share or $2,000 across the 100 shares that your contract represents. But since you paid a $5 option premium or $500 across all 100 shares, your net profit here would be $15 per share or a total of 1,500. But here's a very important detail. In order to actually exercise that option, you would need to have the money available to buy a 100 shares at $100, which would require $10,000. So most options traders don't actually exercise their options and instead they sell them to somebody else. But keep in mind here guys, this is just one scenario here in an oversimplified example and it's very possible that this happens instead. In the second scenario here, the value of the stock drops over 10 trading days. And for call options, the lower the price of the underlying asset, the less valuable the right to buy at $100 per share becomes because again, remember, you can just go out and buy shares on the open market for much cheaper. And the closer the contract is to expiration, the less valuable it becomes, too, because there's less time for the stock to turn around. So, if you held on to that same $100 call option until day 10 in scenario two, here's what might happen as a result. The market value of the stock is $85 and you only have a limited amount of time before the contract expires. You paid $5 for the right to buy at $100 per share. But now the option premium is only 50 because the market just doesn't expect the underlying stock to rally in such a short time frame. So this leaves you with two choices. You can either hold on to your option contract, which will likely expire worthless, locking in a 100% loss, or you can sell it for 10 cents on the dollar, and get $50 back for what you paid $500 for. And this is exactly why losing 100% of your money invested is very possible with options contracts. If the price moves in the wrong direction, the contract can become nearly worthless or completely worthless in a very short time frame. So, that's the gist here of call options. They're used to place a bullish bet on a stock or index, which means that you potentially make money from the value of that asset going up. But put options, on

### Put Options 101 [12:06]

the other hand, allow you to place a bearish bet, which means that you potentially make money from the value of the asset declining. A put option gives you the right but not the obligation to sell something at a fixed price before a certain date. And this type of option can be a little bit more confusing. But let me give you a simple analogy. Let's say you're selling your house for $300,000 and you know that it will take 60 days to close, but you're worried about the value of the housing market dropping in the meantime. So, someone comes along and they say that they will guarantee to buy your house at $300,000 anytime in the next 60 days in exchange for a $5,000 non-refundable deposit. Then, if the market takes a nose dive and the house is only worth, say, $250,000, you could still exercise that option and they would be required to buy it for $300,000 so long as the contract hasn't expired. On the other hand, if the housing market doesn't drop or even goes up during that same time frame, you could just let the option expire. Now, as mentioned, the housing market doesn't generally have big price swings like this. But you know what does? The stock market. So, having the right to sell a stock at a fixed price could be extremely valuable if the price of a stock or entire market drops. Now, just like with call options, each put option contract is going to represent 100 underlying shares. Let's say you're looking at the same stock as before, trading for $100 per share, and you think the value will be much lower in the future. So, you purchase a put option with a strike price of $100 in an expiration date that's roughly one month away. This gives you the right, but not the obligation, to sell that stock for $100 per share any time before contract expiration. regardless of the share performance. And in order to have that right, you pay an option premium here of $5 or 500 total across all 100 shares. Let's start with the last chart we looked at in scenario two. On the second trading day, the value of the stock has declined to $95. This would put your option contract at the money because you could sell the stock for $100 even though it's only trading $4. 95 and pocket that $5 difference. And that $5 difference is what you paid for the option premium which puts you at the break even point. After that, on the third trading day, the stock rallies but continues the downward trajectory thereafter. By day 10, the stock is trading at $85 per share, which makes the ability to sell at $100 per share even more valuable. Your put option contract is in the money, and you could either exercise that option contract or sell it to somebody else for a higher option premium. And just like with call options, guys, most people are not going to exercise put options. So let's say now that the option premium is worth $20. You could sell the option contract that you paid $5 for to somebody else and make 15 in the process. So in this example, you would have generated a $1,500 net profit from a $500 investment or a 300% ROI. But of course, let's talk about what would have happened in scenario one, where the price of the stock went up instead of going down. In this example, your put option would move from out of the money to at the money by the second trading day when the stock hit $95. However, if the share price continued to climb thereafter, your put option would move further and further out of the money. By the 10th trading day, the stock is trading at $120 per share. And the ability to sell at $100 wouldn't have much value because you could just sell for $120 into the open market. And in addition, your option contract now has a lot less time before expiration. So, someone offering to buy it would have to expect that the underlying price of the stock would drop below $100 in just a few short weeks. This would lead to a much lower option premium, say 25. So, you could either get $25 back from your $500 investment or ride it out and lose 100% upon expiration. And again, guys, these are very simplified examples here, but it does help to get the basics down of how these types of options contracts actually work. But now, I want to dive a

### How Options Make Money [16:23]

little bit deeper into how options actually make money. And real quick, if you've gotten any value out of this video so far, make sure you drop a like and subscribe. There are two factors that come into play here when it comes to the value that options have, and that is the intrinsic value and the exttrinsic value. The combination of these two is what determines the option premium. So, let's break this down. Now, the intrinsic value, also called the real value, represents the actual profit if you exercised the option right away. So, let's say you have a call option with a $100 strike price, and the underlying stock is trading at $120. The intrinsic value would be the share price minus the strike price, or 120 minus 100, giving this contract $20 of intrinsic value. Now, looking at a put option, let's say you have a $100 strike price and the underlying stock is currently trading at $90 per share. In this case, the intrinsic value would actually be the strike price minus the share price or 100 minus 90, giving this contract $10 in intrinsic value. However, if your contract is out of the money, it effectively has no intrinsic value. For example, if you have a call option with a $125 strike price and the current share price for the underlying asset is 120, there would be zero intrinsic or real value. But that doesn't necessarily mean that the option contract would be valueless. And that's because of the second factor here, which is exttrinsic value. Simply put, the extrinsic value of an options contract is the extra premium that people are willing to pay for it. And they that premium based on the time before expiration, the volatility of the stock, and the overall chance for this contract to become profitable. So, let's say you have a call option that's expiring in one month with a strike price of $100 and the underlying stock is trading at 120. Hypothetically speaking, the option premium for this contract would be $25. $20 of that value would be the intrinsic value or the potential profit generated if you exercised that option immediately. And that remaining $5 would be the extrinsic value or the premium that someone is willing to pay in hopes that it becomes more profitable before expiration. And this right here is one of the most important things that you have to understand about options contracts. The extrinsic value shrinks over time referred to as the time decay. Simply put, the premium someone is willing to pay or their hope diminishes the closer you get to contract expiration. So even if the price of the underlying stock doesn't move and the intrinsic value doesn't change, the value of the option is still going to decline because time is running out. You can think of it like this. Intrinsic value is what the contract is worth today. And exttrinsic value represents what it could be worth tomorrow. All

### Real Options Examples [19:20]

right, guys. So now it's time for the fun part. We're going to jump into one of my favorite platforms for options trading and look at some real options contracts, and that is Robin Hood. And as an added bonus here, you can even get a free fractional share worth up to $200 when you open a new account using my link below or visiting ryanoscriber. com/roinhood. I also have a full tutorial on how to open up an account with them and get started. So, I'll put a card in the corner for later, but let's jump into my demo Robin Hood account now and take a look at some actual options. So, here we are over in my Robin Hood app. And the first thing we're going to do here is click on the search bar and type in the name of the symbol we are looking to view options for. So we're going to go ahead and look at options for Intel. So I'm going to type in the name here. And this isn't an investment recommendation or anything like that. This is strictly for example purposes only. So we're going to select Intel at the top here. And this is going to bring us to a page here where we can view the performance of the stock. and we can see it just jumped up about 27% in the last week in relation to some news surrounding a potential partnership with Tesla. But in order to view options, we're going to click here on the trade button at the bottom and we're going to select trade options. And this brings us over to the options strategy builder. Now, you can use this to actually get a strategy in mind whether you think the stock is going up, going down, uh going to be volatile, or also just remain flat. But for our purposes here, we're not going to do anything with the options builder. And instead, we're going to look at these dates here at the top. So, we can see multiple dates here listed May 1st, May 8th, May 15th. And if we keep on scrolling here, it's going to be further and further out into the future ending at January 21st of 2028. Well, these are going to be different expiration dates for options contracts. So, we're going to go ahead and select one here, the January 15th of 2027. And now this brings us to the option chain where we can view the potential option contracts available. At the top you have the option for buying or selling. So you can toggle between those two. And then on the right here you can look at call options or put options depending on if you are bullish or bearish on the stock. Now real quick I just want to take a look at the performance of the stock today because that's going to dictate what's going on here with these prices. So, if I click on the X once again and look at the daily chart, Intel is up about 4% today. So, that's going to make call options more valuable and put options less valuable just so we have some context there. So, we're going to go back to where we were clicking on trade options and looking at the um January 2027. So, for example, looking at the $85 call, we can see the current premium is 2150 and it's up 13. 5% today. And these options could be exercised, but if you actually look at the cost here, when you factor in the option premium, your break even price would be 10633. So the stock would actually have to climb to that level for you to break even in regards to both the strike price and the option premium. But if we actually click here on that $85 call, we can get more details about this here. And then if we want to see what the actual cost would be, we can click here on the buy button. And you can see here that you have to again multiply the option premium by 100. So you would need 2,160 and it's constantly changing here based on the bid and ask price which is what real buyers and sellers are looking to basically sell their option for and then receive for their option contract. So if you actually wanted to buy this, you would need to have that amount of money available to buy one contract. But of course, we're not going to actually put this through here. We're going to click on the X. And now let's take a peek at some put options. So the put options are going to be down today because the stock went up. So for example, looking at the $90 put option, we can see the option premium is 2135 and the break even is 68. 92. So if Intel fell to that price, you could break even on this contract. And if it fell below that, that's when you would likely start to turn a profit with this particular contract. But if we click on that put option here, we can see a similar screen here with additional details. And if we click on the buy button, we can see the cost would be similar in the, you know, $2,100 range for this option contract. Um, so yeah, you do need to have a decent amount of money available to buy options contracts. But real quick, I'm just going to show you some contracts that are closer to expiration and how that option premium would be lower. So, if we look at the May 1st here, scrolling down quite a bit, um you can see where some of these are now, you know, 25 cents, 31 cents, 37, looking at like the 71 through $73 puts. And that's because these are just not likely to become profitable. looking at something like the uh $70 put for example that dropped in value 50% today alone just from the stock going up because the market sees a very small likelihood that Intel drops to you know $6981 before May 1st because it's currently trading at $86. So these options are very unlikely to become profitable or ones that can be exercised and that's why the price is reflected as such. And if we take a look at some call options now, we can see even greater price changes for some of these options that are closer to expiration. And that's not to say that these are a better investment or anything like that. It just shows that there's going to be greater price swings when these options are closer to contract expiration. But that's the gist of how you would analyze options and look at some potential contracts here using the Robin Hood app. All right, guys. So, that's it for Robin Hood. But there's actually one

### Paper Trading Options [25:10]

additional app I want to show you here when it comes to options trading and that is Mumu. The big differentiator with them is that they offer a paper trading simulator where you can practice trading options without risking any real money. This is something I would highly recommend, probably above and beyond anything else in this video because it allows you to test the waters here and ultimately determine if options trading is or isn't for you. In addition, Mumu also has a free bonus offer for my audience, which is currently free shares of Nvidia. So, check them out linked down below or visit ryionoscriber. com/moomu. I also have a full mumu tutorial that walks you through everything that I'll put in the corner. But with that said, guys, let's jump into my Mumu account now and practice paper trading options. So, here we are now over in my Mumu trading app that I use for demo purposes. And we're going to look at some paper trading of options contracts. So, down here in the bottom right, we can see the button here that says paper trade. And this is going to bring you over to the paper trading section of the app where you have $1 million of pretend money that you can invest with. And the cool thing is this is going to update just like the actual stock market for both uh stocks, options, ETFs, and everything like that. So, it's going to be as if you're actually placing these trades. It's just the only difference is you're not risking any real money and you can still see what the real performance would have been from your trades. So, we're going to click here on the trade options button and then we're going to type in the name here for an option that we're looking to trade. And in this case, we're going to look at an index option looking at the S& P 500. So, one of the most popular versions of that ETF is the Vanguard S& P 500 ETF, VO. So, I'm going to type that in. And we can see that listed here at the top. And then we can click here on options. And then it says it's about to redirect to a quote page. Uh, do not use real accounts for orders. So, we're going to click here on go. And then here we are looking at the options chain for the Vanguard S& P 500 ETF. Now, I will say that um the Mumu trading app is a little bit more advanced. So, if you are brand new to options, this might be a bit overwhelming, but you could just take some time here to familiarize yourself with the app. and it is a great practicing environment here. But let's go ahead and cover some of the basics. So, by default, if we scroll down, we're looking at all options. So, both calls and puts, but you can just select here if you're looking for just call options or just put options. So, let's take a look at just call options. And then we can see here on the left hand side, it mentions the strike. And so, this is currently showing us options that are expiring 4 days from now. If we click on that, it's going to close that. And then as we scroll down, this is showing us how far away the expiration date is for these various contracts. So, for example, it goes all the way out into December 15th of 2028. And you can click on that to open up the options that are available in that date range. But for now, we're just going to close that. And we're going to look at the uh July 17th, 2026 options that expire in 81 days. So, if I go ahead and open that up, we can see the current activity here. And the only options that have changed really in price are actually around the 710 or 715. And then some of these that are a little bit lower here as well. But let's just go ahead and select this 715 strike price here for the uh call options. And then we can go ahead and enter the quantity we are looking to buy here. So this is going to end up costing an option premium of $1. 79. So it's going to be that figure times 100. And then if we're actually looking to buy this, we're going to click here on the paper trade button. It's going to bring us to the order ticket screen here. And it shows us that the actual cost here would be $179 or that option premium here times 100. And by default, it is set to a limit order, which is what I would honestly recommend because that basically means you're specifying the exact price or better you're looking for your order to fill at with options trading. If you use a market order, especially with options that don't have a lot of volume, your order could be filled within a very wide range of the bid and the ask price or the spread. So, by specifying the exact price or better, you just have better control over your order execution. But, we're going to buy, we're going to purchase one contract, and then if everything looks good, we're going to click on the buy button here at the bottom. And it shows that the order was submitted. And now it says the order was updated. So, if we click here on filled or cancelled, the order was in fact filled. So, we just purchased a call option contract on the S& P 500 at a $715 strike price. And guys, taking a look here at the call option listed in my portfolio. The 26 below the VO represents the year of expiration. The 07 is the month and the 17 is the day. So, this is the July 17th, 2026 expiration with a strike price here of 715. And then our cost here below um where it shows current /cost that's what we paid and then the current price is the current market value. And if we want to keep track of the price of VO we're just going to click on the back button and then we can just go ahead and search for that. So clicking on the markets tab we can click on the search icon and then type in V. And clicking on this page here we can see that we are at 65602. So, the market would have to go up a little bit here for this option contract to move into the money. But again, guys, this is just strictly for demonstration purposes, not an option that I would expect to go into the money or anything like that. It was merely just to show you how to exercise a paper trade here with an options contract. And then if we navigate back over here to the discover page, this is also where you'll find paper trade listed in case it's not in the bottom right. That typically just shows you your last visited screen. And if we click on paper trade and then select portfolio. Once again, this is where you can view the status and keep track of your paper trades here with your options contracts. So that's what options are, the two most common types and some real world examples. But what about the why side of the equation? Let's now cover why people trade

### Why Options Exist [31:12]

options. And there's three core use cases for options contracts. That is hedging, speculating, and generating income. For starters, speculators are like the people who jumped on the gold mining bandwagon during the California gold rush. They invested their time, money, and resources in hopes of a high return from the mining industry despite the high risk involved. In modern times, speculators in the options market are betting on price changes that could potentially result in profits and nothing more. The second group, hedggers, are basically using options as an insurance policy. This group is either looking to protect the price of an asset that they already own from going too low or protect the price of an asset that they're looking to buy from going too high. Basically, they use options contracts to ensure themselves against price changes. And the option premium paid is the price for that insurance policy. The last group here, those who are looking to generate income, are usually sellers of options contracts. And the most common strategy here is selling covered calls. This is where you agree to sell a stock at a certain price within a certain time frame and in return you collect the option premium. Let's go through a quick

### Speculation 101 [32:26]

example of each. Starting with the speculator. The speculator has been following the semiconductor industry closely and they believe that the demand for chips has significantly outpaced expectations for a financial quarter. So they narrow down on one company specifically, John's Semiconductors, who was reporting earnings at the end of the week. The speculator believes that Jon's Semiconductors is going to beat earnings expectations, which could result in a big price move. So, they buy call options on the stock that expire shortly after they report earnings. And when John Semiconductors reports earnings, the stock is either going to go up a lot, go down a lot, or remain relatively flat. If the price of the stock goes down or remains flat, the option contract will lose significant value and potentially become nearly or completely worthless. But if the price of the stock goes up, this could potentially lead to a big payday for the speculator if the contract moves into the money. Now, let's talk about how a hedger might use

### Hedging With Options [33:26]

options contracts instead. Now, hedging is a financial term that means reducing risk by purchasing a secondary investment to protect yourself if the first one goes wrong. The hedger has also been following the semiconductor industry, but instead of buying call options on John's semiconductors, they own the stock or equity in the company instead. The investor is looking to make money by owning part of the business, but they're actually a bit worried about the upcoming earnings report. That's because the semiconductor industry has been redot leading to soaring valuations and corresponding share prices. The hedger still believes in John semiconductors for the long term, but they're looking to buy an insurance policy against a big drop in the price. So, they buy put options that expire shortly after the company reports earnings as an insurance policy against the shares they already own. If John's semiconductors goes up after reporting earnings, then this hedger would make money from the shares that they already own and the option would expire worthless. But if John's semiconductor's shares take a plunge, that's when the insurance policy kicks in. So earnings day comes around and the company reports solid results. But because the industry became too optimistic, it was priced for perfection and the share price drops. As a result, the put options move into the money and the potential gains there either partially or fully offset whatever losses resulted from the equity that this investor owns. These hedgers and speculators are the two primary groups in the options market and this is what gives the market liquidity. Explained simply, they create the market for these options contracts and allow for others to be able to buy and sell with relative ease. But the final group

### Generating Income With Options [35:12]

is looking to do something else with options contracts and that is to generate income. This investor owns a significant number of shares of John's semiconductors. They've owned the stock for a number of years and they have a price in mind that they would be willing to sell for and they're looking to make some extra money. So instead of buying options, they actually sell call options and effectively become the one writing the insurance policy for somebody else. They own 10,000 shares and they would be willing to sell if the price hit $15. So they sell 100 call options that expire on the third Friday in June. In return, they receive the option premium, which is how they generate income in the process. Now, if John's semiconductor stock goes up, the option could be exercised and they would be required to sell. But that's why they specified a price that they would be willing to sell for. But if the price stays below $15 for the life of the contract, they get to keep their shares and keep the extra money that was generated from the option premium. And keep in mind, guys, these are oversimplified examples here, but those are the three main use cases for why people trade options contracts. There you have it, guys. That's a full beginner's guide to options trading. I hope this video helped you out on your investing journey. And if you made it to the very end, make sure you hit that subscribe button. And if you're interested in seeing more options trading content, leave me a comment down below with what you're looking for specifically. Keep in mind, guys, that options trading is a high-risk activity that's not suitable for everyone, but you at least have an understanding now of why those risk factors are present. From here, I would recommend continuing to learn and then diving into paper trading without risking any real money. If you find that you are consistently making a profit with paper trading, maybe then you tiptoe into actual options contract trading. And if not, well, then maybe you spared yourself from a painful financial loss. At the end of the day, options trading is not something to rush into. Thanks for watching, guys. You can click below to watch this next video. I think you might enjoy, and I'll see you next time.