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Here we go, July 21st, week three of the old options bootcamp. This week we're going to talk about risk, reward, placing the trades, managing risk, order entry rules, all kinds of, all kinds of good stuff, okay? Why would I need to learn options, right? If I can just trade the stock, absolutely, absolutely. And if that is what you want to do by all means, please do that and no hard feelings whatsoever, okay? No hard feelings whatsoever, but to say that, to say the only reason I trade the stock is because one, maybe I don't understand options and that's fine. That's why we're here. The second being I don't need to, okay, cool, that's your choice. But the fact that assuming or insinuating there's no edge or there's no advantage to it is completely and totally false, okay? And in the assumption that trading options is only if you have a small account, no, no, by all means not the case whatsoever. You trade options when you're looking for a bigger percent gain and in order to hedge your risk and your exposure, okay? Because when you buy stock, you're fully exposed in almost every situation possible, especially short, but on the long side, you can hedge it as well. So continue through that. Let's take a trade, okay? In KLA, all right? Had I purchased stock at $40 a share on the said date right here, okay? Going into first green day, this is one of my favorite setups. Had I bought the stock at the close at $40, sold it at the close the next day, it would have been a 35% increase on my position, okay? So whatever amount of money I invested into it, I would have had a 35% increase on that money, okay? Now, let's say I bought at the money options that same day. That same day, had I bought at the money calls, at the money $40 calls, how would that trade have turned out? The next day, first green day, those $40 calls were 206, the prior day, and at the close on July 8th, they were 1409. In other words, a 584% increase, okay? 584% increase. That is insane. Look at the amount of volume that happened on these calls too. 20,000 contracts, more than 20,000 contracts traded. That's really liquid in terms of contracts for options, okay? Extremely liquid. To say that I don't need to do this because I have a giant account size and that's the justification for it, I don't see it. I don't see it because that's the argument is that 35% increase is better than a fully hedged position that has the potential of making 584%. On a rare occasion, does the stock ever make a 584% increase, but a 35% increase in stock all of a sudden increases 584% using calls or options to say that matter. Higher Delta is going to be stuff that's 25 cents to 50 cents. These are the higher risk situations, higher returns, okay? They will cost more money. These premiums will cost more money. This is not always fast and true with high return, high risk, okay? You can play in the money strikes and it'd be lower risk and lower return, all right? Again, this is not, it's such a moving target that it's so hard to define set rules for when Delta is this, we do this, when Delta is that, we do this, when options this, we do that. It is such a moving target that it becomes so hard to tell you that there's only one way that this works. No, there's a million ways to eat this cake, okay? A million and one, maybe even more, maybe a million, too. So let's talk about some risk examples. A high risk situation, this is my definition of a high risk situation and most others, is 50% max loss or 100% profit target. Basically, if my options cost me 1,000 bucks, I don't want to lose more than 500 and I want to make 1,000 bucks. Lower risk, okay? Lower risk is 30% max loss and looking to make anywhere between 50 to 60%. So those are two situations kind of that will help you judge on how much money you need to go into the trade with that you can afford to lose, all right? In order to make a decent profit and make it actually worth your time. These are candles. Per $1 move, 380 to 381, there is going to be in theory a 25 cent increase in your call options because the delta at that given time was 25 cents. So if you remember the definition we gave earlier, it is the per contract increase or decrease per $1 move in the underlying stock. So when the stock goes from 380 to 381, many people will go, well, how do I know my options are gonna be worth when it goes from 38 to 381? How do I know? Like it's just like magic or do I need to like message somebody? No, no, just look at delta, okay? 25 cents, all right? 25 cents, the stock goes from 380, your goal, okay? Your goal here is to sell it at 384 because that's resistance, all right? This is the trade idea. We wanna buy it at 380, we wanna sell it at 384. The target is 384. So what are we potentially going to make here? Well, we're potentially going to buy options at four bucks because that's what the bid ask is right now. Let's say it's like four or say it's like 390 by four, right? So we're gonna buy on the ask in the worst case scenario. We don't wanna do that, but if we did that, okay? If we did that, we would buy it at four and if it goes to 384, how do we do the quick math in our head? Okay, well, let's just do four, shazam. So in a perfect world, and there's no increase in volatility and delta doesn't change and everything stays constant, the option would go from four bucks to five bucks, all right? And many people are gonna go, well, I can make four points over here or I can make a point over here. That doesn't seem like a very good deal. Okay, well, you do the percent change from 380 to 384 and then do it from four to five and tell me what's bigger. I mean, just simple mathematics there, all right? So if there's any confusion on delta, just reference this slide about 14 other times, okay? Before sending me a message on delta, all right? Again, it's not that important, but I'm just gonna tell it to you that way that you have an idea on what to expect, all right? On what to expect. So before I get a thousand messages on delta, as you're watching this, before you hit enter and you message me about what delta is or how to use it, watch this slide, just rewind it four, five, six times, whatever you need, 20 times, ever how many it takes until it sinks in, okay? Ever how many it takes, put in that work, all right? So let's take a look here at what an option versus the underlying stock looks like, all right? In a real world example, real world example. Again, remember, this is the perfect world, right? The perfect world where all things work equal, everybody has equal rights, there's no kind of discrimination, there's no gray areas, this is how the world is. Nah, no, not always gonna be that way, okay? This is a real world example, all right? Let's take Netflix today, for example, all right, today. If I want to buy into support at 500 and 495, okay? The trade plan right out of the gate is whatever I do, whatever I do, I have to be willing, willing to lose half of the contract value. So at 500, right? At 500, this big-ass candle here, right? This big-ass candle here is also this big-ass red candle here from seven down to four, all right? That's that candle, all right? The opening candle was this candle right here, that candle right there, which is this big green candle, which where it goes from, see, this is where the bid ask is really wide at the open. So that means that somebody filled way down here like 320 and the last price was seven bucks in like a span of five minutes, right? Cause it's a five minute chart. So, I mean, that's a chat room alert if there ever was one in small caps, but not in options. This is usually just due to liquidity. And so that is kind of the art of filling in between is you can fill in between in these really widespread situations. And then all of a sudden the bid and the ask will tighten up and you'll be able to sell at a much higher price and the stock could have absolutely went, look, the stock went freaking nowhere, right? It went nowhere, but the euphoria of buying, thinking that seeing this wick, look, when it tanks, it goes red and then all of a sudden it gets bought up really big. And so people are like, oh hell yeah, here we go, five, 10, it's a cup, cause look, it's the five, 10 strike, five, 10 strike, five, 10. So five, 10 strike, okay? It's the five, 10, C, five, 10. That means calls, five, 10 calls. July 24th calls, five, 10 strike. That's what the, all this other shit, forget all that. Doesn't mean anything. Thank you so much for watching our video. 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