Buying a Call Option | Call Option Trading Tutorial | Option Trading for Beginners


– What’s up everybody? It’s Johnathan. And today I want to make a video on how to buy a call option. And this is just going to be a basic, call option tutorial. Now, I was a market maker for five years on the floor of the Chicago
Board Options Exchange I’ve taught hundreds how to trade options. I speak options fluently. So, watch the video, see if it will help, and do me a favor, I make a lot of these videos, so in the comments if
you could just leave, yeah, it helped a lot or way to basic. Once I get that feedback I can start building on this new series of tutorials that I’m going to make. So let’s go the chart. I’m going to present on Thinkorswim and I’m going to walk you through, how to buy a call option. So in front of you, I chose a random stock rig, Transocean. We’re going to look at September,
25 days until expiration. Last trade $11.86. Now, I simplified the options trade because I didn’t want it to be confusing. So all we have is the bid and the ask. So the market makers are willing to buy the 12 strike for 40 cents and they’re willing to
sell it for 41 cents. So, if you wanted to buy
it at the market 10 times it’s going to cost $410. Or you can sell it for 40 cents. Now here, I put the intrinsic and I put the extrinsic. Here’s how I want you to think of this: intrinsic, it’s stock, it’s real. Extrinsic is fluff, it’s premium. For example, If you look
at the nine strike here with 25 days to go until expiration. Nine plus $2.86 equals 11.86. It’s stock. Intrinsic plus the strike is the stock. Over here, the extrinsic
is how much premium is in those options and there’s no premium in the nine strikes option, or a penny a premium. Very, very little. Let’s talk about buying a call option. Now, my advice, how I teach, what I strongly suggest for you as well, is you should trade out
of the money options because if you want to
trade in the money options you might as well just trade stock. We’re going to look at
the out of money options, specifically let’s look at this 13 strike. It’s 11 cent bid, at 12 cents. Now, the great thing about
out of the money options is it’s a relatively
inexpensive way to buy stock. You can buy 10 of these, it’s $120, you could never loose more. If the market or rig gets above $13 in 25 days, you’re going to be long
1,000 shares of rig. You are able to get
long 1,000 shares of rig for a $120 investment. That’s pretty cool. If the market, or if rig, doesn’t trade above 13 by expiration or $12.99, you have an option. You can choose whether
to be long 1,000 shares from 13 or not to be long
1,000 shares from 13. If the stock’s at 12 or
12.50 or 12.80 at expiration you don’t have to do anything. The exchange is going to usecommon sense and understand that if the stocks at 12.80 you do not want to be
long 1,000 shares at 13, but you could also choose to exercise, if you’d like, you’re more than welcome
to be long 1,000 shares from 13 when the stocks treading at 12.50, you would just have to tell your broker to exercise that position
but you don’t have to. So, that’s why you have an option. You have a leveraged option, to get long 1,000 shares at 13 and I would only do that if the stock’s above 13 at expiration. That’s all the call option is. Now the seller is just
taking the opposite bet. The seller, if he sells 10 of these, it’s $110 credit if the
stock’s under $12.99 within 25 days at expiration, that seller gets to keep that $110. So, the seller is going
to make money more often than the buyer in this specific example because right now the seller is winning. The seller is winning because
it’s $1.14 out of the money. If everything went to sleep, if the market went to sleep
and closed for 25 days the person who sold the 10
lot is going to make money, the person who bought the 10
lot is going to loose money. But, if that stock runs
up to 15 by expiration the buyer of the option makes $2, 10 times or $2,000 minus the $120
or the $110 that he paid. There’s great leverage, it’s speculative. But that’s why people use call options. So, this is the start of a
brand new options tutorial. A new playlist, a new series. In the comments below let me know if these are perfect, too basic. You want me to slow it down? Whatever you need. I want to get some feedback so you get the most benefit
out of this new series. Additionally, do me a favor. Like the video, subscribe, share. It all helps and I really appreciate it. Johnathan Rose, active day trader. I look forward to seeing your comments. I’m happy to reply to each one of them. Thanks guys.

34 thoughts on “Buying a Call Option | Call Option Trading Tutorial | Option Trading for Beginners”

  1. Watch the video and let me know — is this video to basic for you, or is this video just right to start building on? The more feedback I get, the more I can make custom videos for you, and the rest of the audience.

    THANKS ALL! Jonathan Rose, owner Active Day Trader

  2. Thanks JR. Keep sharing all these nuggets of valuable info … Intrinsic – Extrinsic info is great. There is always something more to add to any trader toolbox for successful (profitable) trading.

  3. Thanks Jonathan. Still not had time to go over the Swinging for the Fences course so these nuggets are invaluable. Concentrating on the Bonds at the mo!!! Will be a while before I dip my toe into the Options game

  4. For me, maybe a little too basic. But for you, if you want to reach more people, they need the basic of options. Your method, even thought a lot more logical than most, might scare people because options are a different beast.

    But, just my opinion for what it's worth!

  5. I liked the video and would like to hear more: how you decide which strike, whether you buy or sell, how to fix it if you choose the wrong one, etc.

  6. Great JR! not too basic and not too hardcore but just right for option newbie to start absorbing! You'd got to the core within 6:02! But insfoar I haven't seen many option "teacher" that really cover the complete A-Z of each option strategy. Insofar, I've learned that option is a very intriquing and fascinating course; if only they taught (and/or touch base) these in high school I would've had acquire a much more useful skill at an earleir age than struggling now when am nearly half a bloody century old!

  7. BASIC FOR ME. I want to make a right weekly option trade with Unusual Options Activity,It kills me。 I dont have the experience to translate the activities 。

  8. Thanks Jonathan. Maybe could have added that selling the call at higher stolen to convert into a credit spread as a potential exit strategy

  9. Basic concept with
    tangled explanation. Flipping back from shares of stock opposed to number of contracts etc…

  10. Very basic, but very necessary. Knowing how to buy options is the foundation for training. If you can't open the right position how will you manage it? Excited to see what you put out in the next few weeks.

  11. Cool to see how many names I recognize below. Good on you. Funny how I view option chains now vs. when I started with you. Wide array of comments (i.e., too basic to slow down). Spot on for the most part IMHO. For those that need to, watch again and again until you don't pick-up anything new. Always a pleasure.

  12. Would like to see the "mechanics of the Math" when the Buyer exercises the Option, i.e., how the profit is made, does he keep the stock without having to "dig into existing funds" or if price reaches buyers Call Strike do funds pay for the stock…etc..? Thanks getting a little nearer

  13. i would like to just once you execute a call or a put option video so i can just see once a call option in real time done thanks i hope you understand me
    great video by the way

  14. you need to explain what exactly you mean by out of the money and what is the probability of winning the trade and receiving the premium when selling optrions….at expiration….just a thought,thank you

  15. This was a great into video, I’m just learning now, I don’t understand all the terminology yet but this was a great starting out video.

  16. good video. I'm new to options, so just right for me. Considering signing up for your swing for the fences class.

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