What is An Option Explained: Selling Options for Income MCD

Come Join us speak on Options and Selling Options. We create the Option market by owning the stock and Selling the Option on it which we call a Premium. Which is our Guaranteed profit. We talk about selling Options on MC Donald's MCD. This is one way to explain Options completely. It is a basic video and this is in no way conclusive. It would take a lot longer video to explain Options fully.Trade Safely.

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[grperez]

You aren't renting your coat/stock really. You are just agreeing to sell it for a specific price within a specific time and receiving a premium for selling that right. There is no rent paid for stocks. If your coat bursts into flames during the life of the contract you lose your coat, and the option buyer loses what they paid to you. During the life of the contract, the option buyer can elect to buy your coat at whatever the strike price is. Rent = weak analogy. "Rent to own" might work better.

[affluence8]

@grperez I explain it that way because I have mentored many students on selling options. There are lots of confusing problems when people learn to trade stocks and sell options. One big one I found is what is an option? If you read the text book answer it goes something like this. " An option is the right to buy a stock at a specific price ... " Thats totally false. That has nothing to do with options. Many brokers also know the text book answer and at the same time they dont know whatthat means

[affluence8]

@affluence8 instead I teach it as. " An option is Control. It is the ability to control a stock with less money. " That's really all an option is. I do a stock market call on Saturdays. You are welcome to join us. Pm me to talk stocks and options. Peace. :)

[affluence8]

reply in a PM

[grperez]

@affluence8 If you were to tell me that I could "rent" my shares, I would expect to be able to let someone else "use" my shares for a period of time and get them back without risk of having to sell them to anyone during that time, all while receiving money for letting them rent it. But this is not the case in covered calls - there is the agreement that the shares may be purchased at the strike price at any time during the life of the option. Like futures, options just establish a set price.

[grperez]

@affluence8 Not to seem unnecessarily rude, but I'm glad you aren't my mentor. The textbook definition of an option is not false at all...its actually completely true and is the reason it is in the textbooks. Yes, the option seller is essentially selling "control" over the shares, but the control is rooted in the terms of the option contract - the strike price and the expiration date.

[affluence8]

Thank you... Ill work on that. Be safe. Trade safely...

[ryker25]

So agree. This explanation is completely incorrect. You can be naked an option without owning the underlying stock. The coat example is also very weak.

[mdkwon]

You dont have to own stock when you write an option stupid. Act like you know.