 What's up trade hackers welcome to today's update today's Tuesday April 14th starting with the trade hacker question of the day How is the value of an option calculated now? We don't really get into this that much in the courses just because the platforms do all this calculation for us However, once you want to start diving deep into the numbers into the data of the actual Values of an option. This is important to understand But the reason we don't too much in our courses a we're just we're teaching you how to trade and the platforms do all the Calculation for you, so it's kind of like why do you buy a watch? You know is it so you can take it apart and figure out all the intricacies and how it works Or do you buy a watch to tell you what time it is? We that's the approach that we take you know the platforms do all the work They're highly accurate and reliable and so they just kind of tell us what time it is But if you want to take a quick deep dive into how the value of an option is calculated The easy thing to do is if you go to the trade tab and think or swim and we're looking at SPY as an example These columns you can change and so I've just changed these to Intrinsic and Extrinsic and to do that you just click on it go to option Theoreticals in Greeks and that's where you see Intrinsic and Extrinsic and so what we'll look at today is just as an example look at the calls And what you'll notice is that all the in-the-money options have what is called? Intrinsic value and then all the options have what's called extrinsic value So the intrinsic value and the extrinsic value those together is what gives us the value of each specific option So for example, if we look at this option here the 269 strike What you're going to see is it's got an intrinsic value of 14 and a half plus the Extrinsic value of 10 and a half gives you a little over 25 now the markets open So it's moving around a little bit, but those added together is what gives you the actual Value of the options. So the question is what is an intrinsic and what is extrinsic? Well, if you take the price of the underlying stock So in this case SPY it's trading at about 283 65 and you see the strike that we're looking at is 269 so if you take 283 69 minus 269 That's where you're gonna get the intrinsic value So essentially that's the value that if you were to exercise that option today That is what it's worth and then so what is extrinsic value? Well, that is everything else that is the time value, you know Obviously as options get closer and closer to Expiration the extrinsic value goes away that time decay goes away. It's also the built-in projected volatility and presumed interest rate values, etc So it's it's all those things and so it's the intrinsic value plus the extrinsic value is What gives you the value of the underlying option that you're trading? So take it one step further if I right-click and I buy a call And let's just take this over the analyze screen since we are a lot of us are visual Learners and let me just just show the hypothetical here So this is a risk profile graph of a long call And so what you'll see is and if you keep your eyes on this box right here as I hover my mouse What you'll see is that obviously of the current price. We're at a zero P&L, right? No profit or no loss. We haven't put this up trade on so right when we put it on We'll be at approximately zero percent P&L if I hover over that current price look at the teal box at expiration It's about minus $1038 so that is the extrinsic value the difference between where it's currently trading and where it will be at Expiration that's that time decay component. That's the projected volatility and all that stuff built in to the price of an option So hopefully that helps if you were ever wondering how the value of an option is calculated All right, let's check out what's going on in the markets today Stocks up big S&P's up 75 Dow up 480 Nasdaq up 350 Russell up 20 Still got about an hour and a half left to go in the market But really strong strong market here even in the face of you know what I talked about yesterday the unemployment numbers and Everything else going on with the coronavirus now. We are starting to see that Leveling off of the number of cases and the number of deaths, which is you know presumably what the market is liking about this situation But like I've been saying on this entire rally up. I just I don't think we're out of the woods yet I still think we're gonna see some more downside So one of the things we did today is just layered in a little bit more short delta and keep in mind as I've been talking Over these last couple weeks as we've been seeing this rally and we've been layering the short delta keep in mind We are not overly short as our it's our members. No, we'd like to keep a range of short delta Anywhere from one to one to up to five to one Versus our theta so our short delta if we beta weight that to SPY we we like to get no more than five to one Well right now we're really at about one to one on that range So we could certainly Use even more short delta So I don't want you to think that we're just absolutely loading the boat and betting our mortgages that this thing is gonna go down But we certainly are continuing to position additional short pieces as this thing goes up because I just don't think we are out of the woods yet So that stocks oil making big move almost down 10% today. So even after the halt on Production, you know reducing the supply which you would think would push oil up oil is continuing its slide lower So interesting stuff there bonds down a little bit nady gas down about four and a half percent If you look at some of the stocks of what's going on in some of the main stocks that we look at I mean apples up over five percent Look at Amazon up over five percent I mean this thing is is continuing to now hit new highs if we look at it on a year-to-date Amazons up 20% year-to-date and and so obviously they're benefiting from a lot of people staying at home and ordering as opposed to going out Some of the others. Oh, I mean if you look at Tesla making a big move apparently up over 11 percent Apparently Tesla is okay with this and people all still all have the amount of discretionary income needed to drop a hundred k on a car One of our members genie in our community said yeah, maybe they're just buying their Tesla's and they're sitting in wind parking lot ready to go gamble again You know when casinos up four and a half percent today. So Interesting moves in the face of adversity throughout the market keep in mind earnings are starting to come out So we had a couple of banks announced today JP Morgan so the big banks JP Morgan is down after their announcement Wells Fargo announced this morning and They're down as well Goldman Sachs and Bank of America announced tomorrow morning before the bell and so you're seeing the banks You know kind of feeling some pressure right now if we look at one thing. I wanted to point out here So if we go back to JP Morgan Because they already announced earnings typically in the past in a quote unquote normal market what you'll see is After the announced earnings you're gonna get that implied volatility crush right now. It's here. We get a little bit of a crush That's not a very good example right here, you know implied volatility Goes up up up leading up to earnings and then the implied volatility gets crushed once they announce earnings And so what we're seeing here is you know implied volatility went down a little bit for JP Morgan You see the IV rank dropped a little bit IV percentile dropped a little bit But in no way would I call that an implied volatility crush like we are used to seeing after an earnings announcement So as I talked about last week in a video our normal kind of earnings related strategies We're taking a little step back in a little pause on those at this point because we're not getting that You know, I didn't think we would get that implied volatility crush You can see that there's still a lot of fear in this Uncertainty in this marketplace. I mean the IV percentile is staying above to 89 IV ranks at 36 So it has come down it the IV rank has come down some so the options are definitely Contracting from where they were just a couple weeks ago in the face of this rally But still we're not seeing that crush like you'd see after the uncertainties out of the market Which tells us there's still a lot of uncertainty So if you're gonna trade earnings, I would say be directional You know, if you want to take a shot that it's gonna go up or down and stay super super small You know, that's some of the things that we might be potentially doing but are typically premium selling strategies even iron ducks It's not something that I'm Interested in testing just yet just because of the really uncertain nature of everything going on So hope that helps everybody have a good evening. We'll talk to you tomorrow