 Hello, Extraders! And we're going to dive into a few videos, quite a few videos here in the upcoming series, where we will cover, in the first one, the fundamental series, topics such as option basics, as in, you know, options 101, trading styles, brokers that are available in the market, as well as different account types you should consider, charting and indicators, which we will cover, but at a glance, you know, very superficially, and later on, we will dive into those topics a little bit later. And we also talk about level two quotes, why they are important, and finally, we look at position sizing as it relates to trading strategy, because here at Xtrades, we believe that if you're going to use trading as, you know, your business as such, it needs to have a trading strategy, right? If you're going to make it in the long run, any business requires a strategy. In the second series, we talk more about technical stuff. So the technical series covers more charting and indicators and how they relate to certain patterns, such as the debt cat bounce and the golden cross. This is important because, specifically, the debt cat bounce is a very common phenomena, and a lot of new traders get caught up in buying the dip, as it is often called, and a debt cat bounce or a falling knife is something that catches or trips up a lot of new traders. And finally, in the thinkorswim series, we go through an intro to thinkorswim, a platform, which is from what used to be TD Ameritrade, which is now the Schwab network. We then dive a little bit deeper into charting and indicators, because thinkorswim platform is very rich in charting and indicators, which they actually call studies, by the way. Finally, we look at scripts and scanners, which is some of the more powerful tools available within the thinkorswim platform. And there's a lot to be done in scripts and scanners. You can write your own scripts, you can import them, as well as scanners. You can create your own through a GUI interface, or you can also import them. And we will cover how to import them. We will reference you or guide you over to our thinkorswim think script series, which is dedicated specifically to creating your own scripts and how to actually code them, if you are into that. And we also look at some of the more important scripts that we have available in our Elite Plus channel, which include some more famous scripts like the Heatmap, On Your Mark, and the Run for Your Life. So that is, in a nutshell, the three series that we are going to be running through. And in the end, I'm going to throw in a sample trading week video, which is basically what you should do to start trading. Once you know the fundamentals, once you know a lot of technical stuff, and once you have some idea of a complete professional trading platform, such as thinkorswim, how you would prepare for a sample trading week in order to get you guys started on the right foot. Okay, so let's go ahead and cover the first part, which is the fundamental series. Now in the fundamental series, we will look at option basics, such as calls and puts, buying and selling, intrinsic time decay, intrinsic value time decay. We cover trading styles and brokers and account types, charting and indicators, as well as level two quotes and position sizing. So let's go ahead and get started with option basics. Option basics, of course, we know there are calls and puts. You should really be familiar with what those are and how they work. And specifically, the charts of what they look like. Now let's go ahead and take a quick look here at what the profit and loss, or PNL chart of a call and a long call and a long put. You really should have this very clear in your mind that on this two axis chart where the vertical axis is profit or loss and the horizontal axis is the stock price. As the stock price moves from left to right, which means it increases, the profit increases as well on the vertical axis. So if you buy a call, if you are long a call, that means that you expect the stock price to go up because if it does, then of course you profit. That is the green arrow section of this chart. By the same token, if you long a put, then that means that you expect the stock price of your underlying to go down. And as it does, the green arrow gets higher and higher, which is your profit on the vertical axis. And on both of these charts, the difference between the actual strike price and the break even is because you obviously pay something for this call, which is why you are long a call or you bought a call, as well as the put. You are long a put, so you paid something for a put. So there is a break even. If you bought a 100 strike call, then it does not only have to go above 100, it has to go above 100 plus whatever you paid for that call, the premium. Same case if you bought a put. If you bought a put, you will make money below 100, but it also has to go lower than 100 and as well whatever value you paid for this long put. And then after that, after a certain amount, you will only lose money up to a certain point because you cannot lose any more money than what you paid for, which is the case for both of these, the call and the put. That is what obviously makes these two some of the most attractive and even then I would venture to say that the long call is even more appealing to new traders, but that doesn't mean that you should not be aware of the long put and it does not also mean that you should be aware of other things that you can do with options instead of just longing them, you can also short them. So that's where buying and selling comes in. A lot of people are very familiar with the fact of buying a call. So the buyer buys a call of course, but the fact that you're buying a call should immediately tell you that there has to be another side to this transaction. There has to be a seller. You're buying a piece of paper that gives you this and this and this right. That means that somebody obviously created that document and sold it to you. Now, why is this important? Because there is certain information that we are going to glance over here that gives you an idea of just how right you are in looking at the strike price and expiry date of the option that you are buying because if somebody sold it, it's because they stand to benefit if the stock does the opposite. We quickly go back here to this chart. If somebody sold you this call because you are expecting the stock price to go up, that means that they benefit from the stock going down. That's why they sold it to you in the first place. So there is a lot of information to be found and used if you are able to view the other side of the coin. So it's important to know that option selling or option transactions have two sides and that there are buyers and there are sellers. And of course, that you can yourself become a option seller, not just a buyer. We talk about the value of options. So an option is something that has value and it basically turns into a hot potato because you have to get rid of it after a certain amount of time. Why do you have to get rid of it? Stocks go up and down and up and down, but options have an expiry date, much like the milk in your fridge. So if you do not use it before the expiry date, it becomes worthless. Basically, you have to throw it away. So you have to get rid of that hot potato before it becomes worthless, otherwise you lose the money. So what gives an options contract value? Well, there's two reasons why an option contract has value. The value is decided by, first of all, the intrinsic value, which is related to the spot price or the price difference between the strike of that option contract and the current market price. So if you have the ability to buy something at $100 and then turn around and sell it in the market for $110, for a 10% profit, then that difference of $10 is an intrinsic internal value of that option. So in this case, this little bar over here on the left side denotes that this options value has $2 of intrinsic value. Extrinsic value is given by external factors to the options contract and the underlying itself, such as time and volatility, which we will look at a little bit later. Together, those two option values create the complete or the total option value of, in this case, two spot seven. This is an even better explanation. I like this one very much. It really puts it into perspective in a very visual way. Let's say that you want to buy a $195 strike call. Let's say it's on Apple. Currently, the stock price is trading at $201. As time goes by, that stock price can fluctuate. It can either go down. It could bump around and stay around that $195 level, or it can also go up, or it can go down as well as up later on. Now at the beginning, this is the option price chart, not the stock price chart. At the beginning, the intrinsic value, which is this green line here, the intrinsic value is whatever the difference between the current market price of $201 versus the strike price of $195. Therefore, you have $6 of intrinsic value. That's the green line. Remember, intrinsic is the difference between whatever the strike price and the current market prices. Now, this pinkish area here is the extrinsic value. Why is there an extrinsic value? Because from this moment on, when this option contract is born or created, 45 days to expiration, a lot of stuff can happen. A lot of time is going to go by. And remember, we said time and volatility create the extrinsic part of the option value. And there are so many things. Apple could report a new product. Apple could put out some new streaming service. Apple could also put out problems it's having its production line in China or in India, or Apple could get sued because of their practices in the Apple Store, et cetera. And that is going to make this option value fluctuate up and down. And as time goes by, that extrinsic value also basically deflates out of the options contract. Because the closer you get to expiry, the fewer events that can create volatility for the price and the less time there is for new events to come in and create volatility. So the complete price of the call is basically the sum of whatever the intrinsic and the extrinsic value. That's what gives you the call price in this case, 9. So for example, this might have $6 intrinsic value plus $3 extrinsic value. And that would give you whatever the complete option value is, the complete option price. And as time goes by, time is basically ticking down as well as extrinsic value because all of that uncertainty gets basically sucked out of the market. But as you can see, in this case, because the intrinsic value drops from 201 to 195, look at how quickly this value drops goes to 0, because there is nothing left. Why? Because you have a document that gives you the right to buy at 195. But if you turn around and sold it at market, 195 is all you could get for it. So there is no intrinsic value to having something that lets you sell at 195, if you could just go out and sell it at 195 anyway. But there's still value left. So all of this value is extrinsic value. It's people saying, traders saying, well, yeah, OK. It went down to 195, but it could go back up. There's a lot of time left. There's about 43 days left or something like that. I heard that they're coming out with a new iMac or a new MacBook Pro. They're coming out with a new iWatch or whatever. Then somebody eventually may run into some news where trade tensions between the US and China and that is going to create a lot of volatility and make the future expectation of the value of the stock price to fluctuate between, oh, it could go higher as the case is here, or no, it's going to go lower as the case is here. And as you can see, this fluctuating, it fluctuates down here as well. And basically all of the intrinsic value is gone, but the extrinsic value is still creating expectancy. After a certain point, and this is one of the more important points that you want to drive home here with this intrinsic extrinsic value concept, is it after a certain point? Even though we have what, maybe 13 or 14 days left, there's so little time, 13 days is so little for the stock to actually do something so as to recover back above the 195 strike that there's really basically no hope left that this is going to come back. And once this happens, even if price goes up, as you can see here, that it clearly rocketed from 184 to 193 or 194, so basically a $10 jump should have given it some value, but as you can clearly see, basically all hope was gone. So that is a very important concept of intrinsic and extrinsic value. And of course, there is time, which is represented by theta, which is one of the five Greeks. So there's theta, which is time, and delta, which is the change in the price. There's also vega, which is volatility, and other ones, rho. So the more important one of these and the easiest one to grasp, let's say, is of course time, decay, or theta. And this is a very nice graph, which basically tells you, look at what happens between the first 30 days of a life loan option, right? Between those first 30 days, look at how little the value of that option drops from this level to basically this level, okay? We can basically fit one of these crosshairs in there. Now look at what happens in the second interval of 30 days from 90 to 60, okay? You could pretty much fit two of these crosshairs in there. Now look at what happens in the last 30 days, right? Or I go about probably eight of these. This is the time period where an option value loses the most money, and it's the most important to get, basically to get rid of that hot potato, okay? And you have to keep that in mind when you're trading, because this is when your option can basically go to zero and, or it could even cross a particular threshold after which value coming back into that option is very, very unlikely. Okay, X traders, and I hope you enjoyed this option basics video, and I will see you guys in the next one. Have a great one. There's a reason why Xtrades is currently the fastest growing application on the market for sharing financial ideas. With over $2.5 million paid in the last two years to contributors, users are flocking to see what trades the top traders on the leaderboard are sharing in real time. If you're looking to grow your reputation as a trader on the internet, or discuss your trading ideas with other reputable investors, click the link below and get connected with a trading mentor today, completely free of charge.