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  • PUT OPTIONS TRADING FOR BEGINNERS IN 10 MIN. – CALL AND PUT OPTIONS EXPLAINED

  • Hello and welcome once again! Our topic for this video is understandingPut Options”.

  • Remember you can always go back to MBABULLSHIT.COM. In order to understand put options, I’d

  • like to first start with a story. Let’s stay there was a man who owns a share of stock

  • worth $100. He likes to keep his stock for now. But maybe in the future, he’d like

  • to sell his stock for at least $100. Of course, if it’s at least $100 now why would he want

  • to sell it for anything less? However, he’s afraid that in the future

  • the price of his stock might go below $100 –$50, $20, or even zero. Suddenly he remembers

  • that he knows a rich lady and that he can pay her $1 to make a contract with her in

  • order to convince her to sign a contract with him. In this contract, she says she will guarantee

  • to buy his stock for $100 anytime in the next 5 years, if she wants. Even if the stock price

  • goes down to zero or $50 or $20… she guarantees that she will buy it from him for $100.

  • Let’s pretend that this man is allowed to sell this contract to anybody else who can

  • use it. Maybe this guy changes his mind and he says, “You know what, I’m sure that

  • I do not want to sell this stock in the future.” Maybe this guy over here, me, also has the

  • same stock and I think I’d also like to sell this stock for $100 in the future. What

  • happens here is this guy can sell the contract with the lady to me so that I can use it instead.

  • Let’s say that this guy is allowed to sell this contract to anyone else who can use it.

  • Can you guess what this contract is called? It’s easy. It’s called theoption contract”.

  • This man now has the option or the choice to sell his stock at $100 to her for the next

  • 5 years. Specifically, it’s called a “Put Option”. Meaning, this man is allowed to

  • sell at a given price for a certain time, which we know in this case is 5 years. The

  • lady here is theissuerof the option. She bears the risk but she earns $1. She might

  • have the same contract with many, many other guys like this and earn lots of dollars for

  • taking this with many people. Very important: Do not get confused with the

  • buying and selling of this option contract, versus the buying and selling of the stock

  • which possibly can happen in the future. Other things to remember, when I said that

  • the man mightusethe option contract to buy or sell the stock (in this case to

  • sell the stock; to buy the stock is in another casecall optionexplained in another

  • video), in MBABULLSHIT language, we usually say the manexercisesthe option. So

  • if an MBABULSHITTER says, “Oh! I exercise my option,” he’s just bullshitting. What

  • he really just needs to say is he used that option.

  • If the option is good for 5 years, then the date after 5 years is called theexpiration

  • date. It’s like a carton of milk or a stick of cheese, which has an expiration date. We

  • can say that the option expired in 5 years. Very important: I said that this guy can exercise

  • the option any time in 5 years. In Europe, it’s a special case. In Europe, he will

  • only be able to use the option on the exact expiration date itself.

  • Another thing to remember is that, we kept on talking about the man who has the right

  • to sell the stock for $100 exactly. In MBABULLSHIT language, we call this $100 thestrike

  • price. The $1 he paid the lady is simply theoptionprice. Don’t confuse the two.

  • Lastly, remember that in real life, the man and the woman probably will not deal directly

  • with each other. Instead, options are traded in what we calloptions exchange”. Keep

  • that in mind. Now that you understandPut Options”,

  • youre ready for my next easy video onCall Optionswhich is an option to buy a share

  • of stock. If you haven’t watched that yet, you may watch it. If youve watched both

  • videos, youre ready for my next easy videoHow to Value Options at Expiration Date,”

  • which answers the questionHow much is an option worth at an expiration date?”

  • You can watch that at MBABULLSHIT.COM. Remember to share and like us. On Twitter

  • were known as @MBABULLSHIT. On Facebook, we are facebook.com/mbabullshit. You can simply

  • forward our free YouTube videos! Have a great day and goodbye!

PUT OPTIONS TRADING FOR BEGINNERS IN 10 MIN. – CALL AND PUT OPTIONS EXPLAINED

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