 Welcome to the Options Beginner series. The Options Beginner series is your entry point to learning everything about options which is the most fascinating instrument in financial markets. We'll start with call options. Call options are the logical starting point for learning options. You may have tried to learn options before but you might have experienced a lot of jargon and that's because options are a little complex but we're going to break this down in very simple terms and explain options very clearly using a real world example. And then finally we're going to go into a trading platform and look at Apple options and compare what you've learned in theory to the actual live trading platform. Let's first look at a brief history of options. Options are a very practical instrument that humans required at various points or at various situations. The first known usage of options was in Greece around 300 BC by an olive speculator. So the way it worked was the olive speculator felt that the olive season was going to be very good. The upcoming olive season was going to be very good. On the other side the olive farmers who are always uncertain about how the season is going to be and from their perspective they'd like to have some certainty as to what money they can get for this upcoming harvest. So this speculator issued contracts to all the olive farmers that he would buy their harvest for a certain amount. And then as the months went by sure enough the olive speculator was right in his judgment and it was a spectacular season. If the olive speculator had contracts for let's say $10 and the season was so good that he could get $15 then he pocketed the balance $5. So this was an example of an option that was used by this olive speculator. Both sides were happy because the farmers were guaranteed a certain amount which would give them peace of mind for that particular season and the speculator obviously made a profit. So fundamentally an option is an instrument that was invented to manage price risk at some point in the future. There's got to be some kind of price uncertainty in the future and then you can create an instrument like an option around it. Now obviously we're going to get into all the details as we go along but there's also no usage of options in the Netherlands in the 1600s and if you've heard of the Tulip bubble it was one of the largest bubbles at that time and options were used then, options were used in England in the 18th century then in the 19th century futures markets started developing in the US and finally options as an instrument by itself started trading on the CBOE which is the Chicago Board of Options Exchange in 1973. Options are mathematical and they're based on something called the Black-Scholes model. Then put options started trading in 1977 on the CBOE and then by 1990 options started to trade on several securities mostly all the big stocks and the indices. Today options are traded on hundreds of securities, ETFs, gold, futures and they are also traded around the world. Although options are not as big as futures of forex markets options are becoming one of the most popular type of instruments and they are also one of the fastest growing. Now Black-Scholes were awarded the Nobel Prize in 1997 for their invention so what we have to take away from this is that options are an invention. They are a mathematical set of formulas that these two mathematicians came up with and so even though it's considered a financial instrument it's really a mathematical instrument and we'll be getting into this as we go along. So let's look at these mathematical underpinnings of options and what really are their implications for what we call the options market today. So first of all options are a separate instrument from the stock itself and the stock or the asset is called an underlying asset. So think of the olive farmer. The olive is the underlying asset or the olive season or the price of olives for that season is the underlying asset but the contract that was created between the speculator and the farmers is an options contract. So the options contract is separate from the underlying asset. Now in this case it was the olive harvest but it could be stocks it could be bonds it could be foreign exchange it could be anything. So options require an underlying asset. If there's no underlying asset there cannot be any options. Additionally there must be price uncertainty. So which means either prices are moving constantly prices are volatile prices are changing prices are uncertain things like that. There has to be price uncertainty around this underlying asset otherwise you cannot have an option and this is why options are called derivatives because the value of the option is derived from the uncertainty and the movement of the underlying asset. So now let's look at some details. All options must have an expiry date. So think of the olive farmers and the speculator. Could the speculator have produced this contract two years later or three years later and demanded to be executed on his contract. Obviously not the farmers are not going to honor that contract because that contract was for that specific season. So in this case the expiry of the contract was probably six months maybe whatever the expiry date of the harvest was. Similarly even in option markets in the financial markets we have an expiry date in the US one options contract is equal to 100 shares of the underlying asset and the reason they have this relationship is so that contracts can be standardized 100 shares and therefore when it comes time to settle these contracts things are very standardized there's no confusion there's no half a share or half a contract things like that. Options are what you call leveraged instruments and we'll come to this later. They have a mathematical base as we've said a couple of times and so there is a learning curve. Now you can imagine these mathematicians they want Nobel prizes for their formula. So you can imagine this is not simple stuff this is complex stuff but fortunately we don't have to worry about all that formulas. We are going to be looking at the practical side of options. So don't worry that these are complex mathematical formulas we don't have to deal with them. They're called options for a reason. They have a lot of flexibility and they have a lot of variety and you're going to find that this is the most attractive feature of options and which is what makes it the most fascinating instrument in the financial markets. So hopefully this has given you some kind of a base on options and in the next part of this course we're going to jump into some of the details we're going to compare options versus stocks and we're going to see what the differences are and so on and so forth so I look forward to seeing you then.