all right everyone in this video we are going to be covering what a put is and what a call is and this is going to be very basic uh there might be some Advanced uh explanations that I will give you but as far as knowing you know what a put and what a call is is you know common knowledge most people know about this but if you don't this video is for you so let's go ahead and jump in we are on the article what are options and how do they work so we've put all
these articles together for you guys so you can learn and so you can understand and what I keep stressing to everybody when they are watching these videos get your notebooks out write down notes and then when you see terminology that you don't understand that you've never heard of before go Google it and then read an article on that explanation of of what that thing is and then whatever it might be and so do by doing this you will start to understand a lot more about what the stock market is and you can go down a
rabbit hole and there's an endless possibility of things to learn not even kidding so let's go ahead and just jump in I'm going to start down here right here at understanding options and then we'll go into the types of options calls and puts okay options contracts involve both the buyer and the seller so I'm already going to jump in here uh there is always somebody on the other side of the contract so for instance if you buy calls on a contra or by if you buy a contract that is a call so betting a stock
is going up there is somebody that sold you that contract and they are in a put so if you're making money on that contract they're losing and it's it's a game of you're just stealing other people's money and they might be stealing money from you okay so that's how this whole game works and so these are flexible financial instruments a call option holder has the right to purchase the underlying asset at a predetermined price within a predetermined time frame and the buyer pays a premium for the rights granted by the contract and these are probably
words you've never heard of look it up and educate yourself uh I would say right now there is a website up called Investopedia that is going to be your best friend over this over the next two weeks month uh just you can look up anything that has to do with the stock market and there's going to be stuff there for you okay put options on the other hand Grant the holder the right to sell the underlying asset and predetermined price and within a predetermined time frame all right there is a bullish buyer and a bearish
seller for each call option and there is a buyer and a seller for each put option options are bought and sold by investors and Traders for a variety of reasons holding a leveraged position and asset at a lower cost than directly purchasing shares at the asset of the asset is one common use investors can also use options to reduce or hedge the risk exposure of their portfolios so let's say for instance that if you owned ABC stock and are concerned about a possible market decline put options on ABC stock with a strike price lower than
its current like market price could be purchased the put option will increase in value if the stock price Falls which can help offset any losses in your stock portfolio all of that stuff will be explained down here in the article that you'll start to understand how all of that works okay let's go in and just see what the difference between a put and a call so let's start with calls a financial contract known as a call option grants it's holder the right but not the obligation to purchase the underlying asset prior to its expiration date
at the strike price that has been predetermined Ben is going to make a video about expiration strike prices uh those are probably also terminology that you just don't know about don't understand Ben's going to explain what all that all that stuff is uh a call options value Rises with the price of the underlying asset uh giving it a possible Delta since a long call option has a limited maximum loss the premium paid for the option but unlimited potential gain it can be used to profit from a bullish outlook on the underlying asset so what do
we learn here calls means you bet on a stock going up now I'm also going to be moving to a marker board um here in a little bit to further explain what you can do with calls and what you can do with puts and it might start to get confusing but I think me visually showing you how puts and calls works I think that will help you understand a little bit easier let's go into puts here put options and contracts to call options Grant the holder the right but not the obligation to sell the underlying
asset before the options expiration date at the strike price put options have a negative Delta because their value Rises when the price of the underlying asset false investors can use a long put option as a form of insurance with a price floor as the Hedge against their positions a long put is a short position in the other underlying asset so what do we learn here if you believe the stock is going down you get into puts all right so I've got my marker board set up here we're going to go over uh calls and we're
gonna go over puts over here Okay so we've got a call let's just say we've got the stock price here it's been trading like this it might be down it might be up uh there could be some news coming out we believe that is going to cause the stock to go up so we would buy calls you know somewhere in here and then okay stock goes up we make money if this stock goes down you lose money big time and another uh situation here is time Decay and if you guys don't know what time Decay
is I would highly recommend that you go watch Ben's video on what time Decay is and how it works because it will bite you in the butt and you won't even realize it uh I'll give you a little small you know explanation because in order for me to explain this I need you to understand what what time Decay is so every single day after the day you purchased your contract every single day your contract is going to lose value no matter what even if the stock trades the same okay so the stock price traded traded
the same but the value of your contract is actually doing that okay well that's weird so even if the stock did just shoot up your contract at the end of your expiration is actually worthless even if the stock went up a billion percent you're gonna be down 100 on your contracts at the end of the expiration okay and I'll talk about why that's useful and so with a put option let's just say you've got a stock price just trading flat whatever and you believe the stock is going to go down so you buy puts on
it and then the stock goes down you make money if the stock goes up you lose money okay so those are the basic fundamentals of a put in a call now there are two different ways you can purchase uh you know calls inputs so here are the two ways you can either Buy and you'll see this in your brokerage by two open all right so you've probably seen that before when you go to open a contract for both the put or a call you buy to open the put and call all right and then there's
another version called uh sell to close sell to close so when you are in a regular call or put option when you want to get out of that contract you sell to close that contract all right now there are some ways you can get around this and I will explain it this this is the part that might get complicated as far as our strategy goes we never do this so you don't even need to worry about this but I do want to explain how this works because it is a good thing to know about so
when you regularly buy to open a contract it's it's pretty simple and straightforward if you buy a call you're betting on the stock to go up all right plain and simple if you buy to open a put contract you're betting on the stock to go down plain and simple okay if you sell to close a call contract without already owning that contract because you can do that some brokerages won't let you but you can actually sell a close a contract without even owning any contracts prior okay when you sell to close a call uh contract
you're actually betting on the stock going down isn't that weird how that works uh it's just the opposite it's like the underworld uh when you sell the clothes a put you're actually betting on the stock going up but here's the catch there are limited gains so you can only make you're capped on your gains you're you're ceiling is capped okay uh but your your losses can be unlimited you can literally you can open your account and be down a million dollars when you put in a hundred dollars uh it it could get really bad really
fast so I I personally would not would not do this okay this is just a bad strategy altogether but here's something that some people do they will buy they will get into regular calls and then they will sell to close calls so they're actually betting on the stock going down they have that unlimited loss here but that call actually protects them from having unlimited loss here's the interesting thing when you sell to close a contract there is no time decay zero time Decay you could sell you could buy it out for three months and then
no matter what happens that stock price it could move like that so when it goes up you know two months later let's just say that's the two month marker this is the three month marker and that's the one month marker okay there's absolutely no time to get here's the value of your contract it's going to be right in line the entire time whereas if you were just buy to open a regular call or put this is what your contract would do it would probably do something like this something like that so you lose value with
your contracts with your calls and puts but the reason why people just buy to open their calls and their puts which is honestly what you should probably do that's not Financial advice by any means but that's what I do um you know you have that time Decay feature which is which really sucks honestly it does suck but your gains are unlimited and your losses are capped you can only lose what you put in so if you put 300 in just understand if I lose this three hundred dollars is not going to kill me it's not
going to break the bank I can just go back uh you know work some some more hours and get that money back okay whereas when you sell the close of position without already owning that so you're not actually just straight up selling it and getting out of the position completely if you sell the clothes position in order to get into a position and you're just holding a new contract that's sell to close with of capped gains and unlimited losses then you you've got to have some sort of hedge on your account you've you know you've
got to have something on the other side that if the if it starts to lose value this contract the other contract's gaining Okay and like I said that's not even a part of our strategy and but I just wanted to let you know because it is important to understand as much as you can about how calls and puts work and everything like that so I hope this explanation wasn't too confusing and I know it was uh because this is a very complicated topic um but yeah when when you do a call you're betting on the
stock going up when you do a put you're betting on stock going down that's really as simple as it gets and just stick to buying to open all right that's all I can say
