 Hey everyone, thanks for joining today's video. Today we're gonna be talking about short put options versus long put options and looking at the difference between short puts meaning selling a put option or long puts meaning buying put options. This is gonna be an introductory video as part of a series aimed at helping you understand some of the basics and foundational terminology you'll need to know as you get counter learning about, talking about and eventually trading options strategies. We'll be looking at the difference between buying, also known as going long and selling, also known as going short, as well as the difference between call options and put options. So I have the SPY ETF pulled up in a thinkorswim. This is the one year one day chart as well as some indicators down here. What we're gonna be doing right away is going into the trade tab. I did wanna point out a couple basic things about the options chain before we actually go into selling versus buying. So for today's example, we're gonna be pulling up the seven data expiration SPY option chain for January 2nd, 2024. So a couple of things about the option chain. For thinkorswim, you're gonna see calls on the left and you're gonna see puts on the right. In most trading platforms or options, this is gonna be similar. This is the general user experience, but you can always customize things. In my screen here for this option chain, I have a couple different columns. I'm showing all strikes. The expiration date is in the middle, strike is in the middle, but I have open interest, the delta bid and ask, going from left to right in calls and right to left on puts. As far as options trading goes, volume is something that's gonna be important to look at. So for open interest, you're gonna see numbers here ranging from zeros to in the thousand. So what this is telling you is at any one time for the January 2nd, 475 call option, there are 3581 contracts open at this very time. So that's important because you wanna have liquidity in your options trading. Think about if you're buying and you wanna get out of a contract by selling, it's gonna be a lot easier to do that in the options that are trading in the thousands versus the options that have open interest in the zeros because no one's interested in those options contracts. The delta column, that's gonna be telling you at any given time here what the probability is of that options contract expiring in the money. So if you're gonna be buying an options contract, you want it to expire in the money. If you're gonna be selling an options contract, you are going to want it to expire out of the money. So you can see these ones are out of the money right now. In the dark shaded, in the purple shaded, these are currently in the money. So just to point out one example here, if I were to be looking at the 29 delta, this is 479 strikes January 2nd. Right now there is a 70% chance these will expire out of the money and a 30% chance they will expire in the money. If you're looking at some of the currently in the money options, looking at the 468, there is an 82% chance this will continue to be in the money at expiration date January 2nd. Conversely, an 18% chance this will fall out of the money before the January 2nd expiration date. Bid and ask, if you're clicking on an ask, that is going to bring up a single buy contract. And if you're looking at the bid, clicking on that, bid is equated to selling that options contract. And the difference between the bid price and the ask price is sometimes called the bid ask spread. We wanna be looking at options with a tight bid ask spread so that we're not giving up any of that value back to the market. So let's look at short put options versus long put options. So selling versus buying a put option here. So we're on the put side of the options chain. Let's look at an at the money put option. 474 strike price. Let's look at buying that. That is a 42 delta. So let's take a look at your maximum gain and your maximum loss before we actually graph this out. So your maximum loss here is going to be that 195, $195, that's your premium that you're paying for one of these contracts. Max profit quite a bit higher than that. So we're not gonna send this, but let's also analyze this trade on the analyze tab, the risk profile tab. So before I set things up, the Y axis here, this is gonna be profit and loss in the thousands and the X axis, this is going to be the strike price. So you always wanna have the date at the top here if it's an option expired at the end of the day, the day after your options contract expires because that would be end of day slash beginning of the day, third versus second. Let me just delete this one here. Make sure that your break even is going to be that same day. So right now what we're seeing is a 37, about 37% chance you're gonna break even on this trade with this break even price slice here and also a 63% chance you're going to, you won't break even on this, so you'll lose money. So buying a put option, you are going to be taking a bearish bias on the security. So just things here a bit. I mean you can see as the strike price drops, oops, you could be gaining quite a bit of money. We're looking at the teal line here, so what you'll see at this point, if it would go down to 430, you can see you would be making about $4,200 and you're looking at this box right over here just to show you that. As I move on the X axis, it shows you your profit and loss dynamically. Again, max loss on this as the strike price goes up, you're down $195 and that is it. And the break even for this is actually gonna be the strike price minus what you pay for the premium here. So let's look at what it would look like if you were going to be selling a put option contract. Again, bid is for sell, ask is for buy. Same at the money option here. Let's take a look, 193 premium would be what you collect. So your max profit here conversely is the premium paid since when you're selling options, you're kind of thinking about going about this as the insurance company collecting a premium. But if something goes wrong for you, the insurance company, well, you could be paying out a lot. Your max loss, if you're selling this uncovered would be $47,000 or upwards of that. There are ways to cover this kind of, or hedge against this and we can get to that in different videos in this series but let's take a look at this graphed out here. So everything is set up the same way here. Again, as you go left to right on the strikes, you can see dynamically the profit and loss here in this box, $193, that's your maximum profit but your maximum loss as conversely as the stock drops here as SPY, ETF drops, you're losing quite a bit of money. If it goes down to zero, highly unlikely but that is your max loss of I believe it's $47,000. So selling a put option, you're going to have a bullish bias, you're going to want it to go up, want that ETF or that asset to go up and selling a put option or buying a put options are you're going to have a bearish bias. You want that asset to go down. So please check out our other videos in this series if you wanna know, well, what does it look like to sell a call versus buy a call or sell a put versus buy a call. We go through all that with this link in the description below.