Frank Richmond - Options Trading Crash Course

Options Trading Crash Course

The #1 Beginners Guide to Make Money With Trading Options in 7 Days or Less!

By Frank Richmond

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Copyright 2022. All rights reserved. No part of this book may be reproduced or transmitted in any form or any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without the written permission of the author.

Disclaimer
Please note that the information contained within this document is for educational purposes only. Every attempt has been made to provide accurate, up to date, and reliably complete information. No warranties of any kind are expressed or implied. Readers acknowledge that the author is not engaging in the rendering of legal, financial, or professional advice. The content of this book has been derived from various sources. Please consult a licensed professional before attempting any techniques outlined in this book.

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Table of Contents

Before we begin, I would like to give you something back in return exclusive ONLY to my readers - an IMPERATIVE bonus chapter of my options trading book. FOR FREE .

This offer is extremely time limited, so go get it now while its still available:

For the novice, options trading is a daunting concept. Packed with jargon and seeming to need a degree in math to figure it all out, the very idea of learning the basics has put off countless curious traders.

Ive written this book to bridge the gap, taking you from thoroughly confused to fully aware of what options trading entails. Its aimed either at complete beginners who have no idea where to get started or at readers who have dipped their toes in the waters and found themselves floundering.

The book is also aimed at readers who think that options trading is far more risky than its siblingsstocks, bonds, and mutual funds. If you think those are the safer way to go and youve avoided options trading until now, Im here to show you that options are just as fruitful a direction, if not more.

Much as with any other skill in life, options trading gets easier over time. Once youve mastered the basics and are fluent in the language, youll find that it becomes less and less difficult to decipher the possibilities in front of you and pick the best one. In fact, eventually it becomes like learning to use a tool or ride a bikeyou know it so well that you barely need to think about what youre doing.

So, put your feet up, grab a coffee, and prepare to start the process of understanding. Trust me when I tell you that its not nearly so daunting as you might have thought.

Lets start out with a basic overview of what options are. An option is a contract that confers upon you the right to buy or sell an underlying stock at whats known as a specified strike price. It comes with a deadlinea date by which you must buy or sell in order to attain that price.

You are not obligated to buy or sell by that date hence, it is called an option rather than a demand. However, the cost of purchasing that possibility is set at a premium.

There are two contract types on offer: one allows you to buy a stock at a specified price, which is known as a call, and the other allows you to sell a stock at a specified price, which is called a put.

In order to start options trading, you first need to select a broker and open a margin account. Those accounts usually have a minimum starting amount attached to them that is often set at around $5,000.

Those are the basics of options trading, but what does it actually mean and why would you want to do it? That is where the risk comes in because options trading is all about predicting what a certain stock is going to do in the near future.

To illustrate, lets use an example thats easily familiar from everyday life such as buying a car. Youve been saving up for a few months, but youre not quite ready to head to the dealershipexcept, one day, you drive past a local salesroom and spot the hatchback of your dreams.

Because you want to buy that car, you decide to speak with the dealer and negotiate. You work out a deal that will allow you to buy the vehicle from him in two months for the price of $10,000. Because the dealer is agreeing to keep the car for you and fix the price, you will also be paying $300 to secure that option for yourself.

The two months start to pass and one of two things might happen:

• The dealer opens the hood of the vehicle and discovers it has an engine system thats completely one of a kind and was a test by the manufacturer. That makes the car ultra-valuable as a collectors item. Under normal circumstances, the dealer would instantly double its asking pricebut, because he made an agreement with you, he cant. He is obligated to sell that car to you as long as you buy it before the two months are up. Obviously, youre keen to exercise that right, so, you purchase the car for $10,000 and decide to sell it for $20,000doubling your money in the process.
  
• The dealer opens the trunk of the vehicle and discovers that it contains a dead body. Its removed and the car is cleaned but the police investigation causes quite a bit of damage. The value of the vehicle halves and, under normal circumstances, the dealer would slash the asking price to $5,000. However, because you entered into the agreement, the dealer must still sell you that car at the agreed price of $10,000. On the other hand, because you as the buyer are not obligated to make the purchase, you can always decide to walk away and see what the Toyota dealer has in stock instead. You wont have lost because of the $5,000 value, but the dealer will get to keep the $300 you paid to create the opportunity for yourself in the first place.

That, in a nutshell, is how options trading works. As the buyer of an option, you are in exactly the same position as you would be if you had gone out to buy that car. You cannot know what the future will bringand it does have a habit of throwing out the unexpectedbut you can make a decent prediction.

Now, lets zoom in a little bit closer. Though options trading really is as simple as the example we just looked at, there are a few more things you need to know in more detail before we move on.

First, as mentioned above, there are two types of options:

• Calls: They give the right to BUY an asset at a specified price before the time limit expires. Youd do this, for example, if you felt confident that a certain stock was going to continue rising in price for a period of time. The call allows you to purchase that stock at a lower price at a time when it has risen to a much greater value.
  
• Puts: They give the right to SELL an asset at a specified price before the time limit expires. Youd do this, for example, if you felt confident that a certain stock was going to continue dropping in price for a period of time. That would allow you to sell that stock at a higher price at a time when it is worth a whole lot less.
  

Lets translate what we know into a trading example so that you can see how options trading works in the real world. This time, well look at a put because, as you are now aware, the example of purchasing a vehicle was an illustration of a callyou obtained the right to BUY before the deadline.