sell

How to SELL a CALL Option - [Option Trading Basics]

hey this is Sasha Abdi cousin thanks for

joining me here for another educational

training video about options today what

I'd like to do is go in detail about

selling a call option now for many

people they don't understand that you

can actually sell options without having

the stock or without only the other

options side of the trade in fact

selling call options or selling options

in general is more popular amongst

professionals than buying option

contracts and that is because you can

allow the time value or the time to get

to work in your favor so in either case

understand that there's four parts to a

trade you can buy a call you can sell a

call you can buy a put you can sell a

put so in our case in situation in this

video we're going to talk about selling

a call option now selling a call option

is very similar to selling you know a

car that is not on a lot dealers or car

dealerships they often sell cars that

aren't even on the lot because you might

want it in a different color you might

want different see different color seats

different little details and bonuses

add-on and special features that they

may not have on the lot so what they

typically do is the car they sell it to

you it's already sold but they order it

make it for you and that's ultimately

what happens with selling call options

so let's take a look at in more detail

about up selling a call option look at

some profit pictures and risk profiles

and then also look on-screen how we can

execute that trade and order so first

off what is a call option well typically

most people they're buying calls that we

could beginner people when you buy a

call it means you're looking for the

stock to go up you have a bullish

outlook okay that's an upward direction

when you're selling a call it means

you're looking for the stock to go down

it's a bearish outlook now typically

many people the way they approach

selling calls is they already have a

stock position and then what they do is

they sell upside calls also known as

they covered calls

strategy against it now I'll show you

this briefly but I'm going to do another

video that's in more detail they'll show

you this exact strategy but in the

meantime let's just talk about selling a

call option and in this case we're going

to talk about basically this would be a

naked position because you're going to

have unlimited risk and you'll see what

I'm talking about here in a second now

here's a quick cheat sheet for you as

far as looking at what happens when

you're a buyer of a call you want stock

prices to go up

when you're a buyer of a put you want

stock prices to go down if you're a

seller of a call you actually want

prices to go down for that call if

you're a seller of a put you actually

want stock prices to go up so that's a

little cheat sheet for you if you're

having a hard time to remember where you

want the direction of the price to go

for a stock when you are a buyer or

seller of a call or a put so taking a

look at our risk profile picture here it

is when we talk about selling a call now

the biggest issue or problem that we

have here is the unlimited loss

potential that we can get if that stock

price continues to head higher so the

way that you really read these risk

profiles is again you have the profit

here on the left and the loss and here

is our zero line so anything above that

narrow line is a profit making below

that is the loss our stock price is

towards the bottom so as the stock price

goes up we lose money and we can

actually lose an unlimited amount based

on this so the black line is our call

contract at expiration and this pink

line continues to get closer to our

black line with time okay so over time

it gets closer and closer and what

happens here is we make money day in and

day out as that stock basically does not

move or it moves to the downside okay so

selling a call is actually kind of like

buying a put as you can see however

the difference is you have a cap or max

profit you can't make any more than that

basically if you sell a pair of shoes

for $75 that is basically pretty much

all you can get you can get more in the

future you're just making $75 all you

can do is maybe lower your purchase

price so in our case in situation here

that is what's happening is when we sell

a call we're looking for a downside move

not an upside move and ultimately with

time that line the current line day okay

we started right here at 50 it continues

to get closer and closer to expiration

and that's what we make on the

profitability side if we move downward

then we can make you know if it's a $35

level we can make our whole max profit

potential anyway that gives you a little

bit of insight to a risk profile picture

of selling a call let's take a look at

how to sell a call on an option trading

platform because that's a little bit

more direct to what you'll be looking at

so the first thing I want to do is show

you let's just take McDonald's for

example so want to show you what buying

a put looks like on a risk profile

picture so here I'll right-click buy a

put analyse the picture and you can see

here I have a downside move I need the

stock or this option really to move to

the downside so here's our price level

right here's our zero line and you can

see that there's my current price at the

154 I want that stock to move down

because that's what I make more money

right as I move my mouse you can see

there's my profit and if I move it down

there's kind of my loss and what I can

also do is move this to 150 which is a

little bit closer I can move it to even

155 which gives me a little bit more

acceleration there on the profit

potential so that way if it goes to 145

I make $650 the problem with this is if

you're buying a put right so take a look

at buying

but if the stock stands still I'm losing

three dollars and 18 cents every single

time and with time continuing to move

forward you can see the losses here

continue to add up right so as I

continue to move the time and date

forward I continue to lose more and more

money and basically I need this stock to

move if it stands still I lose money

because I'm below that zero line okay I

basically need to move above that price

point of about 151 right if it goes down

or actually if it goes to the upside I

lose money if it stands still I lose

money the only way I make money if it

goes down and it has to go down in a

pretty big way about four or five points

here on this stock now what a call

option what's different here is if I go

ahead and let's just say I sell this 160

call option and we'll just do a single

again

take a look I'm taking kind of the

opposite side of the call or the call

trade right so buying a call would be

this way okay so I'm looking for

unlimited profit potential here with

buying a call right so this person who

buys the call looking for unlimited

profit potential now for me if I'm a

seller of this call I'm actually looking

for the other side of the trade right so

I'm looking for this side let's see if

we can do an orange color so right there

I'm actually looking on this side of the

call or the opposite side of the trade

so if I flip this you'll notice how that

angle just go down that set arm right so

I'll flip it you can see both right

there so now I have unlimited loss right

there to the upside so if the stock

price continues to head higher I'm

losing money right so you can see I'm

losing four hundred a thousand if that's

not gift to let's say $200 you know by

tomorrow I'm losing three four thousand

dollars

so ultimately that's what's happening in

selling a call because you are naked

you're selling a naked call okay now

here the difference though the

advantages that you have is basically

make a positive data so every day that

white line gets closer to the green line

so you're making two dollars and fifty

cents time and time again okay and your

max profit potential is right there

right around 150 okay and you can see

that because that's what you sell it for

so that's the most you can make that's

the amount now if you get into let's say

this stock drops to 142 in two three

days you're at a very safe point right

if it drops to 142 you're at 140 on the

white line which is the pad a line and

then the rest you just wait until time

expires to make your extra $10 can you

get out of it early absolutely you can

get out of any option contracts early

but if you want you could just let these

things expire if you're in a sweet zone

okay or a nice spot because that's the

Green Line is your expiration line so

anyways you can see the advantage of

selling a call because what happens is

if a stock stands still you make money

right so if it's right here if it goes

down I make money and if it goes up a

little bit I still make money and make

my max profit up to 160 but I still make

some money up to 161 162 so you can see

how the probability of success increases

with this unfortunately you don't have

that unlimited upside money potential

right so in this case you can make two

three thousand dollars if that stock

explodes to 186 now the chance of that

happening is unlikely but you do have on

the unlimited potential and a cap max

loss of 163 whereas if you sell the call

you have an unlimited loss potential

which is naked and you need to have an

advanced option on level and capability

could be able to do this

now for most people they sell these call

contracts because they own let's say 100

shares of McDonald stock so for example

if I had 100 shares of McDonald stock I

could go ahead and sell a call contract

you know against it and what this allows

me to do is think of it like two trades

right the McDonald's stock I make money

from it from going up the call contract

I make money from it from staying under

that 160 so if this McDonald's stock

doesn't do anything and stand still

normally I don't make any money but

because I have that call contract from

selling it right what it allows me to do

is make that additional $150 okay from

just pretty much sitting still and if it

continues to go up I make my

appreciation from my stock but I lose a

little bit of money from that option

contract especially as it continues to

head higher now the difference is is

because I have 100 shares of stock if it

goes beyond it what they'll do is

they'll take away my hundred shares of

stock and that's ultimately the dangers

whereas if you sell this without stock

you're continuing to go into a bigger

and bigger loss because you owe the

stock at that 160 dollar price point

okay that's if you didn't own the stock

that's where you have the problems but

when you own the stock well maybe just

take your stock away at 160 so if it's

at 164 they take it away you still get

to keep that 150 dollars and you get to

sell your stock at 160 but if you want

that stock and you want it back you'll

have to buy it back out 164 so that's

kind of the downside but we'll get more

in detail into covered calls in another

video for now just understand and

recognize that when you sell a call

contract when you're selling a call

you're looking for prices to actually go

down or you need it to stab you know

below a certain

selling calls is a downward direction

bias that's what you're looking for

you're technically bearish on the

position or you're neutral if you want

to just stand still and hang out right

there below a certain price level then

this is the position to put on now you

could do it a little bit closer let's

say you were at 155 in that case you'll

make more money but you pretty much have

that break-even at that one 58 and your

max at 155 if you go wider right if I go

to 160 I make less I make 150 $150

that's my dollar fifty

but I'm safer meaning I have a bigger

range or a wider range if I go 165 I can

go even wider now I only make $51 on

this one but my chance of success is a

lot higher so anyways you have to play

with those probabilities based on your

own personal situation and risk levels

but that's ultimately what you're

looking at with a call contract so

thanks for joining me in today's video

about discussing selling a call contract

hope you got some more insights about

option trading in this video if you want

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