Options Info

Monday July 15, 2024

Brother Bill for investingwithfaith.com

Stock Options are financial derivatives that can take on greater risk yet offer greater reward than stocks alone. They contain “Leverage” . They can also be “structured” to reduce, limit and even alleviate risk. 

Options are not something that one should simply jump into simply because they sound like a good idea. They take work to understand as components such as “The Greeks”  ( varying measurements used to define an options value ) can change an options pricing. I have been trading Options since 2011 and one of the things that excites me about options trading is that every day is a new opportunity to learn something new.

This piece is not going to be an in depth or deep dive but rather a basic and simple explanation of how we use options here at investingwihtfaith.com

More articles will follow and they will take a look at different strategies, how options are used, when to use them, and how to use them to limit risk with your stocks or “hedge” 

One of the ways that we like to use Options with our stocks is by looking at the options Open Interest, otherwise known as “O.I.” 

What OI does is it offers us a look at how many “Contracts” are being bought ( or sold ) at a certain day, and at what price. Each Options contract controls 100 stock shares. The reason Options are so much cheaper than stocks is the leverage, think of options as a rental, you buy stocks to own. Realistically however when a stock makes a 10% gain it is rather commonplace for the options to make a 150% gain with the same move. 

Options can be incredibly lucrative, but by not knowing the mechanics of how they work “Not knowing what you don’t know” is like anything else, it can go south quickly. That is why I mentioned that options take work. 

We here at investingwithfaith.com combine the elements of stock chart reading with our vast options knowledge to find stocks that we want to watch for when they start to move.

Not all stocks have options, most do but some won’t. We like stocks with strong options activity as the “Options Chain” can show us where the money is flowing into before our stock chart can. Options Chains show you the amount of contracts being bought at future dates. A stock chart can only look back. When we combine the 2 and we then have a stronger advantage. You can’t get that from a news story or an article, Options Chains show you the real math of what is being bought or sold and when.

This Options Chain is of AMZN for AUG 2024 ( In options we only use the first 3 letters of that month, we give a date if it’s a weekly expiration or just the month alone if it’s a monthly expiration ) .  The yellow highlighted area on the left is the Call side, the one on the right is the Put side. The 190 highlight is where the current price sits closest too. 

This Options Chain is simply being used as a demonstration, not a recommendation. 

We look for calls being bought, or puts being bought ( or sold ) and if there is a large range between them, that combined with a few other factors are how we base our determinations if a options being bought or sold, again combining that with the stock charts especially when we have issues attempting to break out from well defined bases. 

Invest wisely, live charitably and be well

Brother Bill