 In this video, we're going to be talking about the four biggest call option buying mistakes that you're probably making as an option trader now if you've been buying call options and you've been finding that your options are expiring worthless or the stocks just not moving in the Right direction or it's not moving in the right direction in the time allotted Which is the expiration date or if you're finding that if you have option profits built up in a position Then all of a sudden you see those profits start to disappear Then you're probably making at least one if not all four of these mistakes as an call option buyer So if you want to learn what these mistakes are and how to improve them and how to up your option trading game Then you're gonna want to stick around and watch this video. So let's go Now here at the smart option seller We help you up your option trading game and take it to the next level So what we're gonna do today as I just talked about We're gonna be talking about the four biggest option buying mistakes Specifically call option buying mistakes that you're probably making so here in our cheat sheet that we usually have In each video are the four mistakes that you're probably making we're gonna take one by one and go over each one and Tell you why the mistake is really detrimental to call option buying So number one, let's just jump right in number one is you got to trade with the trend if you're a call option buyer That means you're bullish on the stock now If the stock isn't moving higher Then there's no reason to be buying call options There's no reason to be to be bullish on a stock if it's not trading higher You have to trade with the trend if the trend is down. Why would you want to be bullish? Okay, the the trend of a stock is very important. We're gonna look at some charts here Let's go to our charts real quick and we're going to talk about If you're bullish, these are the kind of these are the kind of charts that you want to look at now This is a chart of Pepsi. This is a daily chart of Pepsi and As you can see bottom left to top right this this screen here is about two years worth of trading for Pepsi This is a daily bar chart of Pepsi as you can see over time the last two years Pepsi's gone from $144 all the way up to $185 I'll move myself over here a little bit so you can see so PEP Pepsi. That's the chart If you're gonna be a buyer of call options, you want to get the trend the trend is higher for Pepsi Okay, so what you can do is you can see Pepsi goes up and it down and up and down So what you want to do is try to concentrate on buying call options as Pepsi's on a pullback and starts to move higher It's very easy to see here the patterns. Look at this. This this is a perfect pattern now Pepsi pulls back Obviously, so you want to wait until the turnaround and then by as it's moving higher Okay, so if you you know want to look at a chart that's moving you don't want to buy call options on A stock that's moving lower. So let's just look at a different a different Different chart here to see, you know, what you may be doing wrong. Let's look at a chart like PayPal, okay, we'll pull up PayPal here and see what it looks like. Okay So as you can see PayPal's been going lower lower lower over the last two years So if you're a call option buyer You don't want to be buying call options You don't want to try to catch a falling knife as they say in Wall Street meaning that you're trying to pick bottoms You're trying to think that at this stock is not going to go any lower And you're gonna get bullish and you buy a call options only to see the stock keep moving lower on you So number one the number one goal when you are bullish and you're buying call options You want to make sure that you're trading a stock that is uptrending or if it's on a pullback Wait until it starts that next move higher So in the case of PayPal every time that you might try to think that it's hit a bottom It's not gonna go any lower. It just keeps going lower Let's go back to Pepsi Okay This stock is Moving higher. All right. So on a pullback you wait till it makes a bottom You're not gonna catch the very bottom, but at least wait until it's start to move starting to move higher Okay, so and plus you want to you don't want to listen to people that are just giving you tips Hey, you know, I heard the stock's gonna be making a move soon. You know, you want to buy some call options You got to do your own diligence. You got to do your research You got to make sure you're buying into a quality stock that's been in an uptrend and then buying the dips That's that's gonna help your call option call option buying game Tremendously. All right, so let's go back to our list here and look at the second Item on the list is speculating with OTM, which means out of the money strikes When you're looking to buy a call option, which strike do you normally choose a lot of people? I talked to a lot of people eat people email me. I teach a lot of students The first thing they tell me is that they want it They want to buy the cheapest call option on the board. They don't want to spend a lot of money So they'll buy the cheapy options options that cost five or ten dollars Because they think the stock's gonna move really big and if the stock moves really big that cheap call option is gonna explode in value And they're gonna, you know, make a million dollars And so if you've been buying call options for a while you and they've been Expiring worthless on you is a pretty good chance that you're buying the wrong strike You're buying these deep out-of-the-money strikes that have absolutely no chance of Profiting for you. So Let's go to a let's look at our interactive brokers option chain here for a minute and talk about You know what that means buying out-of-the-money options. So here again is our our interactive brokers option chain We got call options on the left here. This is what we're going to Focus on and again, we're looking at Disney. We've been following Disney in our last couple videos So Disney's trading around, you know, 99 dollars and 40 cents right up here So we're looking at let's just round up to a hundred dollars a share that Disney's trade Now you want you're bullish on Disney and you think it's gonna go higher. So you want to buy some call options How do you know which strike to choose and I just want to say for those of you that are just getting into the options game You know buying stock is very easy. You buy a stock at its current price and it's either gonna go up or down You know if you want to get into the options trading game You need to understand that you're gonna be playing with professionals that have a lot more experience than you and really understand What options are doing when you trade with options? You got to deal with strike prices. You got to deal with expiration dates You got to deal with volatility levels There's a lot of things that are much more involved with options trading than just straight-up stock trading So if you want to trade options, you got to really educate yourself on all the all the nuances and characteristics of options So you know how to pick the you know, the best strike the best stock the best expiration date, you know It takes more effort to be Successful with options trading. So I just want to get that out there. So I'm here to help you You know overcome some of those obstacles now. We're looking at Disney here Disney's around, you know, $100 a share which Call option would you typically choose if you're bullish and you just want to try to make a lot of money? Most people here's the strike prices here Most people would go to you know, this the 140 call option which costs six cents per contract Okay, you can see five bit it five cent bid at six cent offer That means you're gonna spend six dollars on one option contract It'll cost you six dollars to control 100 shares of Disney now You have until here's the we're looking at the July options that expire in July 21st 2023. So between now and July 21st 90 days in the head In the future you think that Disney is gonna move from 100 to up to a hundred and forty dollars per share If you hold on to the option until expiration Which most people do because they want to hold on to something they paid for it for three months You might as well hold on to it for three months and that's another mistake that we're gonna talk about a little bit later on So between now and July 21st you think Disney's gonna get up and over a hundred and forty dollars this year That's a $40 move that Disney has to make in the next 90 days And it only cost you six dollars to make that trade now If you hold this option to expiration The only way that you'll make money is if Disney moves from 100 to above 140 in the next 90 days Basically what you're doing is you're speculating you think that you know better than the market and you think you know That Disney's gonna make a $40 move in the next 90 days How do you know that why are you buying something with such a small chance of happening? You know, it's like being at the casino when you're just rolling the dice. You're not making a really informed decision let's let's go to our probability calculator and and talk about The what are the chances of Disney moving that far? So this is the probability calculator that we use and it's a tool that helps us understand What are the chances of a stock moving from point A to point B in the time a lot in time allotted? So we're gonna choose a hundred dollars We're gonna go 90 days in the future and the future volatility of Disney's roughly 30% So we want to know the chances of Disney going up to a hundred and forty dollars in the next 90 days We put in all the numbers here. We click go So you can look at these two boxes bottom right bottom left the bottom left here says there's a 98.8% chance That Disney is going to finish below 140 Conversely you have a 1.19% chance of Disney moving above a 140 you want to take a trade that only has a 1% chance of Profit-ing for you. I know the option only costs six dollars But you do that trade over and over again you bet six dollars here six dollars there You buy a lot of six dollar coefficients You're never gonna make a profit on them because the stock's never gonna move that far now if we go back to our our Option chain here. So what strike should you be concentrating on? You know, which strike would be better for you now? There's only one option buying strategy that I recommend and that's buying deep in the money call options But in this case, we're gonna talk about you want to buy the the option that is Currently at the money meaning the strike price is close to the current price of the stock So Disney's at you know close to a hundred dollars a share You want to concentrate on the 100 strike call option. That's called at the money Now you can choose any strike you want and the delta column here Tells you what are the chance of that option or how much that option contract is going to move when the stock moves? And what it's basically telling you what are your chances of that stock or that option being in the money at expiration? So the at the money's usually have about a 50 Delta This one's got a 55 Delta and it's cost about six dollars per contract 595 bid 610 offer went out yesterday April 21st 2023 so let's just say you can buy that option for six dollars That would be six hundred dollars. It would cost you with the option multiplier It's six hundred dollars versus the six dollars that you want to pay for the 140 So you want to pay six hundred or do you want to pay six dollars now? The chance of Disney moving from its current price of a hundred Above 100 here is a lot better now You always want to understand what your break-even price is when you buy an option So you take the strike price you add the six dollars to it. So that's a hundred and six dollars Disney has to move from 100 to above 106 in the next 90 days in order for you just to break even It's a much better chance than Disney happen to go all the way up to 140 in the next 90 days so we can go back to the option calculator here the probability calculator and let's put in Change the numbers here a hundred and six. Let's see what our probabilities are a hundred and six And we want to know what are the chances of Disney moving that far in the next 90 days now If there's a 65% chance that Disney will stay below 106 Conversely, there's about a 35% chance that Disney will get above a hundred and six So you got a much better probability now You're looking at 35% chance of Disney moving above a hundred and six versus your 1% chance of it moving above a hundred and 40 So by picking a different strike price that has a higher probability of letting the stock move that far You're gonna have a better chance of making a profit. Sure. It's gonna cost you six hundred dollars versus six dollars I know that's five hundred and forty five hundred and Five hundred and ninety four dollars more expensive But you know when you buy those cheapy options cheapy options, you get what you pay for Okay, what you're by paying more money You're increasing your probability that the stock can make that move in the time allotted sure It's gonna cost you more, but you're gonna make profits more often. All right So number two is picking the correct strike price number one was going with the trend Let's go back to our cheat sheet here and talk about You know what what the next what the next thing is on the list. Okay, so number three buying too little time Most people think they know where the stock's gonna go very quickly. They have a hunch Hey, I think in the next two weeks. Disney is gonna jump up to a hundred and forty dollars Telling you you're gonna be wrong more times and you're going to be right when you think you know Where the stock is going to move to in options trading? It's very important to understand that you have to give yourself more time to be right You know how crazy the stock market is you know how it moves up and down it doesn't go up in a straight line for long It has ups and downs. So how do you know Disney is gonna move that far in the time allotted? Do yourself a favor go out further in time and give yourself More of a chance to be right because Disney could flat line for a little it could go down for a little before It starts to make that next move now. We look at Pepsi. Let's go back to the chart and look at Pepsi for a second. Okay Where's my chart of Pepsi here? Here's the chart of Pepsi now you can see Pepsi is going up But then it has these dips right before it starts to move up again And it has another dip before it starts to move up again So if you're buying Disney here if you're buying call options here that expire in two weeks or a month You're gonna lose because Disney's on the downtrend. I mean Pepsi's on the downtrend right here So but if you bought an option that had three months to expiration you'd be able to You know you'd be able to weather that this move downwards out and then it would have a nice reversal back up So your your call option would lose money here, but then it would regain value here And it would fall again here and regain value here So you want to give yourself more time to be right go out three to six months in time instead of two weeks The market's not gonna cooperate with you in that short period of time unless you have some kind of you know Illegal inside information for most of us. We're gonna be wrong more than we're right So give yourself more time for the stock to keep moving up now Remember if you choose a stock that's in an uptrend more likely it's gonna stay in that uptrend Within these, you know down moves. So give yourself more time. Let's go back to the option chain here So the the 90 days is okay. Maybe that's enough time if you were looking at something like the You know the the May 19th that's expires in 27 days Or let's go to the the May 5th options expires at 13 days You think I know I know this stocks gonna move in the next 13 days and you end up buying You know a cheap option that costs five dollars and the stock doesn't move and Then if you you know move forward if you had the foresight to see forward Say, oh if I had given myself three months in this option contract I would have made money because the stock actually made the move that I needed But it took three months for it to make that move. So give yourself more time If we're looking at Disney here again, and let's see. Let's go to the the 100 calls Now the 100 calls for this May Is a hundred eighty hundred eighty dollars, it'll cost you so hundred eighty dollars and You don't know if this is gonna go up in the next two weeks So you're really taking a gamble here But if you go back to the July's those 100 calls like I said cost six hundred dollars So the more time you give the more the options going to cost So you have to once again weigh out how much time do I want to give versus how much money am I willing to spend? The longer the expiration the more money you'll have to pay But in the long run this if you're sure that the stocks in an uptrend and it's gonna keep going in that uptrend Give yourself more time to be right. Yes, the option will cost more But more likely than not it's gonna perform for you in the longer run So give yourself more time. Alright, so let's go back to the cheat sheet here Let's look at the last the last one here number four Not taking profits along the way I see this time and time again with you know new option traders. They come to me We do our coaching sessions. They say you know what I was you know, the stock made the right move I was I was lucky enough to catch it right when it was going higher and my call options had all this profits built up then all of a sudden the stock starts to go down and my call option profits start to slip away and I end up having an option that expires worthless even though I had all this profit built up So, you know the way to rectify that is if you have profits built up Man, you got to take those profits when they when they're there for you You know when you trade option contracts, you don't have to hold it all the way to expiration You can get out of that option anytime you want you buy it today You have profits you can sell it tomorrow even though the expiration dates three months in the future You don't have to hold an option expiration The rule here is that if you have a call option that you've bought and you've already got 50% profits built up or even a hundred percent profits built up You got to take the money and run because you never know when the market's gonna give that take that money away from you All right, so if you're trading, you know two contracts and you've made a hundred percent on those two contracts sell at least one of them Okay, that'll take all your investment out of the trade and now you're just playing with the house's money And if the and if it keeps going up then you got that one other call option left that could have unlimited profit potential But if it if it wraps out on you and that second option expires worth Worthless at least you've taken money off the table and you've taken back your initial investment So you'll be playing with the house's money, but just remember you got profits built up Don't think that they're gonna keep growing and go to unlimited take the money and run You know take some money off the table. I've seen it time and time again The market will go against you at some point and those call options will go down about so take the profits and run All right, so there you go. There's your four Mistakes that you're probably making if you're not having any success buying call options trade with the trend Choose a different neck choose a different strike price Give yourself an extra time longer expiration date and take some profits along the way There is your four right there. All right. I hope this is helpful. Let's go to our website real quick smart options seller calm and We want to take a look at you know, we're option sellers at smart options out calm We mostly focus on selling put options So if you want to be a put option seller and you want to learn a little bit more about it Go to our website smart options seller calm click on the put selling basics Basics link right here scroll down. You can read a little bit about it put in your name and email address down here at the bottom We'll send you an email with a link to download the free copy. All right, that's all for me today I hope this video has been helpful. Give me a thumbs up, you know, leave me a comment Send me an email. We always answer your emails and if you want to learn a little bit more about what we do here at the smart option So here's our services tab right here. We have two newsletters and our one-on-one coaching. All right, that's all for me today I hope everyone has a great weekend and a great Trading week ahead next week. I'll see you all back here next Saturday. This is Lee Low signing off