 Hey everyone, thanks for joining today's video. Today we're going to be looking at short call options versus long call options and what the difference would be between going short on a call option, meaning selling a call option or going long on a call option, meaning buying a call 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 the 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 7-Data 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 zeroes to in the thousands. 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 it's like I call options going short versus going long or buying versus selling. So these are two different trades with two different biases. We're going to start with buying a call option 475 strike SPY January 2nd at an at the money call. So that would cost $292. You would be paying $292 in premium for potentially an infinite gain. So with put options that's a bearish bias. So really you can only lose or make what you can lose or make depends on the strike price but in theory the price of an option of an asset really could continue to go up infinitely. So that's why there's an infinite max loss or max gain for buying and selling call options. So let's take a look at this. Let's analyze this. So this is that same trade buying a call option at a 475 strike for a January 2nd expiration. So you're going to see on the y-axis here. This is your potential profit loss in the thousands on the x-axis. This is a strike price of the security. As we go you know we follow this t-line that is where your potential profit and loss is graphed out. So left to right as the asset price falls your maximum loss is $298. That's the premium you paid. But as we go left to right here you see as a strike price rises that's your potential gain rising. So let's look at your breakeven here. And this is set to since this call option expires at the end of the day on January 2nd. This is the beginning of the day on January 3rd. So your breakeven in order to make back that $289 premium your strike is going to have to go above 478 by the end of the day. So right now there's about a 40% chance of that happening and a 60% chance of that not happening and that is your breakeven analysis right there. Again if we adjust this graph a bit you can see how high your profits can potentially go but your loss is it's capped there at the premium that you paid. So what does this look like on the other side? So this is you having a bullish bias buying this call option you want security to go up you don't want it to go down but if you had a bearish bias on SPY and you were looking at call options what does that look like? Let's look at that same strike price 475 bid would be to sell and ask is to buy. So let's take a look at the confirm and send. So this is selling they call it naked you're in many accounts including mine not allowed to do this. There are ways you cover this loss by adding a by buying and selling in that same strike in that same options expiration period but let's just look at this one just to analyze it here your max profit if SPY goes down you can make 291 your max loss in theory if it continues to go up that's infinite. So let's take a look here taking a look at your breakeven 477 same breakeven again as you go right to the left you'll see in the bottom corner here 291 is your maximum gain and your maximum loss it continues to go down here so just take a look yeah it goes down pretty far. So depending on your options privileges what tier of options trading privileges you have from your broker you could be allowed to do this but you are obviously you know you are version quite a lot to do it in many accounts you are not allowed to do this in my account you're not. So if you're if you are selling these options and looking to collect that premium you know some people talk about that as acting like the insurance agency collecting a premium for you know your chance at something bad happens something catastrophic or unlikely happens I should say with SPY going up you know 300% 400% in 7 days here but it's possible right it could go up to you know $1200 and you're down 67,000 so unlikely but not impossible but again this all depends on your risk tolerance the type of account you have and the bias you have on the market and there are other ways to make some simple call options use some simple call up or some simple option strategies with that bearish bias or bullish bias that don't leave you looking at potentially unlimited losses or you know looking at unlimited gain where it's unlikely that it'll be over a certain point with options you can cap your gains and cap your losses to a specific range what you feel comfortable winning what you feel come or risking and what you feel comfortable looking to gain there are some other videos we have about short calls versus long puts short puts versus long calls short puts long puts and just explaining some of these simple option strategies and how they work you can check that out with the link in the description below.