 Hey everyone, thanks for joining today's video. Today, we'll be talking about short call options versus long put options and looking at what the difference would be between going short on a call option, meaning selling a call option, versus going long on a put option, meaning buying a put option. This is going to 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 option 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 going to be doing right away is going into the trade tab. I did want to 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 going to be pulling up the seven-day to expiration SPY option chain for January 2nd, 2024. So a couple things about the option chain. For thinkorswim, you're going to see calls on the left, and you're going to see puts on the right. In most trading platforms or options, this is going to 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 and calls and right to left on puts. As far as options trading goes, volume is something that's going to be important to look at. So for open interest, you're going to 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 want to have liquidity in your options trading. Think about if you're buying and you want to get out of a contract by selling. It's going to 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 going to be telling you at any given time here what the probability is of that options contract expiring in the money. So if you're going to be buying an options contract, you want it to expire in the money. If you're going to 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. 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 want to 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 two different trade setups that both have the same bias on the market, a bearish bias, but can be executed in two different rates with two different risk profiles. These two strategies, short call versus long put, or selling the call versus buying a put. So we're looking at SPY here for the January 2nd, 2024 expiration, seven days expiration. Let's look at two comparable options here. So to do that, we're going to look for a put option and a call option with the same delta. So looking on the put side on the right, you see one here with 0.29. Let's see if we can find one on the call option. Yeah, 0.30. So 30 delta and 29 delta, that's close enough. These are the two options we're going to look at for this one. So on the call side, a short call would have that bearish bias. Let's look at that. That would be selling the call, 479 strike 30 delta. So let's take a look and see what that would look like. So maximum loss here, if SPY gets out of control and falls down to 0, that could be infinite, or sorry, in this situation goes up infinitely as I could. That's a big max loss. Max profit, that's going to be the premium that you collect as the premium seller. So think about acting as the insurance agency collecting the premium. That is what you can take away as a profit. But if something unexpected or unlikely happens, you could be out quite a bit of money. So let's analyze this trade real quick. Looking at the Y axis, this is your profit and loss in the thousands. X axis here is going to be the strike price. This price slice is going to be your break even, which is at 477. So having your bearish bias, you want the security, in this case, SPY, to fall or stay below 477. Currently, the situation is trading over just 475. So you see this teal line following along the X axis. That's your maximum gain and also your maximum loss here. As we talked about, SPY could rise infinitely and your loss could fall infinitely. So come back to this in just a second. But let's compare another option here with the same bearish bias. This would be buying a put with 30 delta 472 strike for SPY, January 2nd, 2024. See on this trade, your max profit, well, it's not infinite, but that's quite a bit more than what your max loss is here. 119, that's the premium you're paying, and your max profit has the high upside on this one. So let's actually go over to analyze. And if you look at this risk profile versus the last one here, it's really just kind of the inverse of that, where what you want to happen is you want the strike price to go below 477. And for that to happen, your profit rises really exponentially at this point, but your maximum loss, if the strike price goes above 477, that is tapped at $119. So when you look at your probability of breaking even at this point, so this is looking at buying that put option with a 30 delta, you're going to be looking at 60% probability that you'll remain profitable and 40% that you're going to lose what could be in the situation $119. So since we used two different comparable options, for this trade setup, it's going to be a similar break even, but different things at stake here. So 69%, 70% chance you're going to be profitable. And this trade is going to work out in your favor if you are selling that put option at $120 premium. And in this situation, there's also a 30% chance that you're going to lose money, this strike going above 480 in this situation. So two different risk profiles, really just the inverse of things, right? Limited downside on this, a limited upside on this, unlimited downside, unlimited downside, unlimited upside. So you can see the differences here in going short versus going long. Now as you talked about in one of the other videos, selling an uncovered or non-secured put in many types of accounts, that's illegal because your max loss, you might not have the capital to cover that. You could have an option where you do something called the catch secured put, which we'll look at in another video in the next series. And that is a way to limit your profit, but also limit your loss there for puts. This cash secured put strategy is actually paired with covered calls to be part of what's called the wheel strategy. Here's another link to that video. As you begin to understand the differences in calls and puts and going long and going short, when you're ready, that's a great next video to really start to understand how do you put these together in a longer term, but simple option selling strategy.