Yeahhhh
Jalapeño
Alright, are you guys ready
you guys ready?
ok
Hey, I’m Rachel, and this is Step Up to Options, where you learn the long and short of trading options
In the last video, we learned how to sell puts to make money when we wouldn’t mind owning the underlying stock
Just keeping the credit from the put was the goal, but if we did have to buy the stock, at least we got to pick the price
So coming out of that, we’ll either have cash from a winning options trade, yes
Or we’ll have bought stock at a price we liked. Also yes
It came out pretty good either way
So let’s say we do own stock now, either by just buying it or through selling the put
Even though it’s nice to slooowly watch it go up for some amount of time
we could use some cold, hard cash. For stuff like more trades
So we’re going to want to sell the stock
We could just sell it outright at whatever the market price is that day
Hopefully, it would be higher than where we bought it, and we’d see some profit
There’s another way, though, where we can call the shots on our selling price and how long we want to wait for the stock to get there
If it doesn’t hit our price by the time we at least get paid for the time we just waited
We’re talking about selling calls, baby
Selling…Covered…calls
Covered means that we already own the 100 shares of stock we’d sell to the buyer, if we are called to do that
Remember, though we set the price we like. And it’s cool if we don’t already own the stock
We can just buy it when we sell the call…at the same time
This would be a multi-legged trade since we’d place more than one order in a single trade
Alright, let’s sling some stock! We’ll hit up the tastytrade Pre-Game Checklist
with Ryan to find the stock to sell a call against or to check the stock we already do own
Hey guys. As always, we're going start with Liquidity
If we already own the stock, we can just search for it here
If we’re looking for stock though, we can organize the list by High Options Volume
Nice. Next up, IV Rank
We want it high because we’re selling, so we’ll use this filter right here
and you can see IV Rank shoots to the top
and hey, there’s XYZ again! Any notable events?
No? We're good to go. We’ll double-click it to load it into the Trade Page
At this point, we pick our strategy. If we already own the stock, we’ll pick Option, and then Short Call
If we’re just now buying the stock, we’ll pick Covered, and then Short Call Covered because we’re selling
once we do this dough then drops the badges on the price line
and If we only had to sell the call, then it would show up by itself, just like when we sold a put in the last video
but since were selling a Covered Call
we’d see a badge to buy the stock alongside the badge to sell a call
Now we’re going to adjust the trade
We can’t do anything with the stock because its market price just is
There’s no If Factor there. Let’s move on to the call then
First we’ll need to set our expiration
So what we’ll look for is the monthly expiration with about 45 days to go from the current day
We also want to find the Probability of Profit and Return on Capital that we’re happy with
so we’ll slide the Call badge back and forth along the strikes until we find what we like
and POP will probably be around 70% or so
the strike will be somewhere above the stock
Okay, let’s say we’re good
Once we’re ready, we’ll carefully double-check the Review page because it’s the last chance we’ll have to change anything
When we’re good, we hit the button and wait to get filled
If the call doesn’t get filled, we won’t have to buy the stock
They only come as a package deal
And if we do get filled, we pay a debit to buy the stock, and at the same time, receive a credit to sell the call
Unless, of course, we already owned the stock. Then we would only see the credit for selling the call
Remember, there was no Buy order involved in that situation
now what, Ryan?
well we got into this so we could get rid of some stock, but at our price. Now we just need to see if it’ll get there
If it does move up as much as we wanted, the stock will be called away from us, and we’ll sell it for the price we picked
Plus the credit we got when we opened the trade
This is the most profitable way selling a covered call can turn out
But, what if the stock was down or neutral at expiration instead
Well, we’re selling, right?
That means the call would expire worthless to any buyers, we’d never have to sell any stock, and we’d keep the premium we collected to open the trade
We’d keep the 100 shares of stock and could now sell more calls against it
Thanks, Ryan. So even if we had to sell another call next month…and another call the next month…and another call the next month…
all that premium could cut our stock’s cost basis down by a lot
Maybe even enough to make up for how much the stock has dropped. Pretty rad, right?
Now, on the off-chance that the stock really took off way past our price, sure, we’d miss out on some of that profit
But we still got paid more than the stock was worth at the beginning of the trade, at a price we liked
We can’t exactly tell the future, and trying to squeeze every cent out of the potential profit is a trap we shouldn’t fall into
Of course, we could have also placed a buy order to close the trade, or we could have rolled the call to the next month
depending on how much we still believed in our assumption
So that’s Selling a Covered Call
We do that when we want to sell stock even when we think its price will go up
We pick the price that’s high enough for us
And like we saw when the price didn’t go up, we can get paid while we wait for it to happen
That’s because, as sellers, we collect the premium up front
And if the call does expire worthless, we keep the 100 shares of stock and can sell more calls against it later to lower our cost basis
We could also close the trade early with a buy order if our assumption changed
Or we could roll the call to the next month, depending on whether we still believed in our assumption
I know you’re super stoked to push the button on your first option trades, but there’s still one more video to watch
To wrap up Level 4, we’re going to hit on some things about fees, commissions, interest rates, stuff like that
and also recap what we’ve learned throughout Step Up to Options
Now, if you can wait to trade for just a few more minutes, check out the next video
And if you’re hungry for more options knowledge, there’s always something tasty to chew on at dough or tastytrade.com
Guys thank you so much for watching. You can click to check out all the resourced we have for you.
I know this is getting complicated and tough but you are doing so so good. You're getting it, I'm here for you
You got this, just keep going and watch the next video
Power