 Hey everyone, welcome to another trading lesson from Navigation Trading. If you like these videos, be sure to click the red subscribe button and we'll keep on putting out this valuable content for you guys. But let us know if you like it. In this lesson, I want to talk to you about calls versus puts and what's the difference. So the chart that I'm showing right here is SPX, so it's the S&P 500 Index. And I want to look at both calls and puts from the long and short side to give you an idea of what the difference is. So if we go to the Analyze tab, the first thing I have checked on down below is a long call. And I did these options right at about the 30 Delta. So what you'll notice on this long call is that I've set this price slice right at the break-even point at expiration, which is annotated by this dotted vertical line. And so the first thing you'll notice is that you've got about a 70% probability of losing money on this trade and about a 30% probability of making money at expiration. So not very good probabilities, right? And the reason is because when you buy options, that time decay is working against you. So if we go down to our date down here, the date of this recording is 3, 6, 18. I'm showing these options in an expiration cycle of about 45 days out. So on April 20th is when they would expire. Well, what if we took this position through a theoretical time warp and just clicked on the days going up and up and up? Well, look what happens to that pink line. That's our profit line on the day that we're displaying below. So as you can see, as we get closer and closer to expiration, that keeps going down, down, down, down, and down. And you can see if price stayed relatively stable, if it stayed in the same spot, by the time you got to expiration on 4.20, you would have lost your entire investment. In this case, one contract controls 100 shares. We're looking at an index here. So the bottom line is one contract is worth $2,170. And you would have lost that entire amount had you kept it all the way until expiration and price just stayed level. So what you'll see is price would have had to have moved all the way up past 28, 16, 75 basically. That's when you just start making money. And if you watch this box as I hover over, you can see how much you would have made had it cross that line and continued higher. So the probabilities of buying, in this case, a 30 delta call are very low when it comes to profiting. So that's a long call. Let's take a look at a long put. So it works very similar except the opposite. If you buy a put, you want the price of the symbol to go down. So I moved my price slice over here to the break-even point on the put now. And what you'll see is it's relatively similar. We've got just over a 71% chance that this trade is going to lose money, a little over a 28% chance that it'll actually make money at expiration. So same thing. If we move through time, you can see that profit line just continues to go down, down, down. And if we don't cross over that break-even point, at some point pretty quickly, we have a pretty good chance of losing and a decent chance of losing the whole amount. In this case, the puts are actually worth a little bit more. So you would have had to pay $3,350. And if it continues all the way to expiration without you getting across that break-even point, you would have lost the entire amount, $3,350. So we are typically not buyers of out-of-the-money puts or calls. Now there are very specific times that it can be a profitable trade around earnings and different things, which I'm not going to get into. It's beyond the scope of this class. We do a whole course on earnings trades and how to profit from those. And buying directional options is one of those strategies. But as it relates to just general trading on ETFs and in general markets, typically buying out-of-the-money options is not a very good idea. So the next point is, what if we don't buy those? What if we take the opposite position and we actually sell those same calls? So we're selling around the 30 delta calls. So we're selling the out-of-the-money options. First one we'll look at is selling the out-of-the-money call, moving my price slides back to break-even. Now what you'll notice is that we've got over a 70% chance of making money on this trade and a little under 30% chance of losing. So when you sell options, the key to remember is that now you have that time decay working in your favor. So if we take a look and we use the theoretical calendar down here and we move through time, now look what happens to that profit line. It continues to move up, up, up, up. And if price stays in our range, meaning if it doesn't have a huge move up and break out of that upside, which again I said it had over 70% chance of staying below this line between now and expiration, if it continues to stay there, you will collect and keep all of the credit that you sold it for. So if you go all the way to expiration on 4.20, you can see the total amount of credit you initially collected on this position was $2,100. And assuming it stays in this range, you will keep that entire $2,100. So as long as it stays below your short strike, in this case it's the $2,795. So as long as it stays below $2,795, you'll keep the whole amount between $2,795 and the breakeven point of about $2,816. You'll still keep a portion of that. As you can see as I scroll my mouse along, you can see what that amount would be. And anything below $2,795 down to no matter what. So even if it crashed down to the downside, you're still going to keep that $2,100. So the key is here when you're selling options, you're putting the probabilities on your side. Time decay is working in your favor. The downside is that your upside profit is capped. So we're capped at a total profit of $2,100. But that's what we want to do. We want to put the probabilities on our side, cap the amount of profit, and put that time decay in our favor. So in most of our strategies that we teach at Navigation Trading, we are net sellers of options. And this is the only way to have that consistent, successful trading profits over time. All right, so let's jump over to the put. If we're selling the put, we can move our breakeven slice over to the breakeven point here. And same thing. So now on a put, remember, their puts are typically worth more. And so what you'll see is the total credit collected here is $32.70. So assuming price stays above our short put strike, which is the $26.55, then we will collect that entire $3,270 if we held it all the way to expiration. So again, as we go through time, that profit line continues to move up, and we continue to make that money until we go all the way to expiration. If price is above that short strike, we keep the entire amount, in this case $3,270. So the key thing to remember is again, when you sell options, time decay is working in your favor. You can set it up so that you have a very high probability of success. And when you're buying options, you need a very sharp move in your direction in a very short period of time. So not only do you have to be right on direction, but you have to be right on the timing of that trade to make a profit. And one last point about puts and calls just to recap, when you buy a call, you want the stock to go up. When you buy a put, you want the stock to go down. When you sell a call, you want the price to stay down, to steady. And when you sell a put, you want price to stay steady to higher. So that's the basis of puts and calls. I hope this was helpful. If you'd like to learn more about how we've taught over 10,000 members how to trade options for consistent income, just go to our site, navigationtrading.com, click on the big orange button and we'll give you immediate access to our flagship course, Trading Options for Income. We'll also give you the navigation trading implied volatility indicator that you see on our charts, along with the watch list that we use to trade the most profitable symbols day in and day out. All this is yours. For more information on cost, just go to our site, navigationtrading.com, and we look forward to seeing you on the inside.