Hey, my name's Henry, and I've been

trading options for the past 10 years

now. Today, I'm going to break down

options to you in the simplest way

possible. I'll explain what options

actually are, the differences between

calls and puts, how traders use them to

make money, and I'll also be going over

how selling put options can generate

option premium income. Now, options can

be really risky if you don't know what

you're doing. By the end of this video,

you will understand the basic mechanics

of how options work and why millions of

investors use them every single day. So,

here's my portfolio, and I'm going to be

using real life examples from my own

portfolio. I'm going to explain you the

basics of how options work. So,

basically, all you really need is a

brokerage account, whether it's

Robinhood or Fidelity or Charles Schwab,

that's totally up to you. From there, an

option is basically just a bet on a

stock. So, you have to find stocks that

you like or stocks that you dislike, and

then you can use call options or put

options. So, I'm not going to gatekeep

anything in this video. I want to

explain to you step-by-step if you're a

complete beginner and this is pretty

much your first time. So, once you have

an account, let's say that you opened up

an account and you put in $5,000 into

it. Well, once you have money in your

account, then you can start to trade

options. All you have to do is go to a

certain stock ticker symbol. So, let's

go to here to the search, and I'm going

to open up a stock called AAL. So, this

is going to be American Airlines. I'm

going to be using American Airlines for

the example in this video, just because

American Airlines is a pretty cheap

stock and it's $17 per share. So, the

two strategies that I'm going to talk

about, there's also going to be a third

one, but two of them is going to be

selling put options. I'm also going to

talk about buying put options, selling

call options, and buying call options.

Pretty easy here to do on a stock that

is a lot cheaper. So, really, just want

to get a view of the stock. So, here

American Airlines is trading for $17 per

share. If you look at the one-month

results, American Airlines is up 18%.

So, this stock is on an uptrend, okay?

So, let's say that we think the uptrend

will continue. So, what you want to do

is you want to go to trade options here,

and then we want to go for an

expiration. Here, basically, I'm

choosing an expiration. Now, different

expirations mean different things.

Short-term expiration just means that

the option will will short-term, and a

longer expiration means that it'll

expire in the longer term. So, if I go

for an option right here and I pick

August 21st, that just means that this

option expires on August 21st. Now, the

most basic option is really just buying

a call option. So, if I click buy and I

click call option, this just means that

I'm bullish on the stock. A buy call

option means that I think the stock will

go up. An option is just a contract that

gives you the right, but not the

obligation to buy or sell 100 shares of

a stock. So, there's two main types of

options, call options, which I'm showing

you right now, and put options. Every

option contract usually controls 100

shares. That is always a constant. Now,

options have an expiration, so they do

not last forever. All options eventually

expire. You just get to pick the

expiration dates. That's really cool

because as an investor, you get to make

a bet, and then you also get to choose a

time frame that works for you based off

of your view. So, let's say that Apple

is trading for $270 per share, and you

sell a $260 put option, that means that

someone is betting that the stock will

go down. Because if you buy a put

option, you're betting it going down. If

you're selling a put option, that means

you're betting on it not going down. And

if you sell a put option, for example,

you collect income. If you buy a put

option, you are spending money to buy

that option. So, you are paying what's

called a debit. So, there's debits and

credits. Debits is basically when you're

paying, and a credit is when you are

receiving. Whenever you're buying

options, it's a debit, and then whenever

you're selling options, it is a credit.

By the way, selling puts is one of the

two passive income strategies that

you're going to learn in this video.

We're going to start off with buying a

call option, and I'll explain to you how

this works, and then we'll go into the

passive income strategies that I

personally like to use in my own

portfolio. So, here's what a buy call

option is. Let's say that, you know, we

think the stock is going to run further

on American Airlines. If you buy an 18

call option right here, that is your

strike price. You want it to go above

18. The premium that you pay, this $1.30

is basically the premium that you have

to pay a debit for, okay? So, if you pay

this debit, your strike price is 18,

your break-even price is going to be

$19.30.

Okay? So, if I click into this option,

now you will see some statistics on this

option. You can see the mark, the

previous close, the chance of profit.

And by the way, the chance of profit is

based off of delta, typically. Here it's

very different. So, I would go with

delta, okay? What is delta? Well, delta

is basically two different definitions.

They're both pretty easy, so write this

down if you have to. The first

definition of delta is that if a stock

goes up by $1 and delta is .5, like with

this example right here on American

Airlines, that means that for every $1

move in the stock, the option will move

50 cents. So, the delta basically tells

you the sensitivity of how much this

option is going So, if it's 70 delta,

then it's going to go up 70 cents per $1

move in the underlying stock, right?

Another definition of delta is the

chance that the option will expire in

the money. And that's why this option

right here, which is really, really

close to what American Airlines is

currently trading at, has a delta of 49

or basically 50, because it's right

there. So, there's basically a 50/50

chance. So, options and trading is

pretty interesting because when a stock

is right at the money to the strike

price, meaning it's very, very similar

in price, you don't really know what

direction, right? So, the option market

assumes we don't really know too much

direction. Now, in some cases, of

course, there's something called a skew,

so an option could be worth more, for

example, a call could be worth more than

a put, but typically it is going to be a

50 delta if it's right there at the

money. So, a $20 stock that's trading at

$20, and you buy a $20 call option,

it'll have a 50 delta. A put option

that's also at $20 will have a 50 delta,

because the option market is typically

not taking direction, okay? It's

assuming that there's a 50/50 chance

that the stock will go up or down. So,

as the stock goes higher, this call

option benefits. It gains value. So, the

break even is going to be the strike

price plus the premium that you pay. And

then you start making money above that.

However, that assumes that you hold this

option until expiration. You can always

trade options before, before they

expire, really. So, if you buy an $18

call option and American Airlines starts

to go up and it hits $18 per share, this

call option could be worth more. It

could be worth a good deal more, because

currently it's trading for $17.41.

So, if it goes up, you know, by 60 cents

on the stock, well, this option might

gain half that value, right? Because

that delta again, going back to delta,

it's 50. So here, this option could

increase by 30 cents. And although that

might not seem like a lot, the 30 cents

increase would be against the premium

that you pay, which is a dollar 30. So a

30 cent increase on a dollar 30 is

actually a pretty large move. It is a

very large move in terms of percentage,

okay? So that's the benefits of a call

option is when a stock can move a little

bit, the option can move a lot. And that

is why a lot of option traders really

like call options. That's also why a lot

of beginner option traders look at

buying call options. Because this is one

of the easier ways to make a bet if you

have a certain view, right? So if you

have a certain view on a stock going up

and you don't have all the capital for

it, well, a call option lets you use

less money, less capital up front to

still control 100 shares. That is one of

the biggest benefits of a call option.

So if you wonder why are options so good

and how investors make a lot of money

from them, well, it's really by having a

strong view on a stock and then buying a

call option and basically betting that

hey, this stock will go up. And then the

call option that you buy is essentially

a leverage bet because if you think

about it, if you had to buy American

Airlines in this example, you'd have to

pay $1,700 to buy 100 shares. But in

terms of premium, it's only 130 bucks. I

mean, that is a lot, lot cheaper in

terms of upfront capital that you have

to put up to control the same amount of

shares. That's exactly pretty much what

a call option is. Now, I want to move

into another strategy because the next

strategy is essentially a passive income

strategy. This passive income strategy

is one that I have used in my portfolio

for the past 10 years. And this is an

idea of being able to buy stocks below

their current market price and collect a

premium for it. This is going to be a

very different strategy, so I'm going to

exit out of this buy call option. I'm

going to go to sell put option. Now,

when I'm looking at selling a put

option, this is very different. So

remember, if you are buying a put

option, you're betting on a stock going

down. If you're selling a put option,

you are betting on it not going down.

Now, I'm using that, you know, wording

very, very carefully because a lot of

people think a sell put loses if the

stock goes down, but that's not exactly

true. Let's kind of discuss it. So, if

So, look, sell put option. If I sell

this $17 put option, what this means is

if American Airlines goes from 1741 a

little bit down, but it stays above 17,

then that's actually okay. That would

still mean that this is an

out-of-the-money option. When I sell a

put option, I'm saying it won't go down

below my strike price that I choose,

right? So, if you choose a 17, well, the

stock can slightly go down until 17. And

then, at 17, you start to lose money.

But, because you collected premium here,

you can see $1.22. This is actually a

credit. You are collecting income off of

this trade. So, when you sell this put

option, you collect this income, then

your break even is not really 17. If it

goes below 17, you have the risk of

getting assigned early, which typically

doesn't happen. You have a high risk of

getting assigned at expiration. If it's

below 17, you almost have a 100% chance

of risk to get assigned. Now, assignment

is not always bad. Many people think

that assignment is bad. However, when

you sell a put option, you can use this

as a dual strategy. You can use this as

an income-generating

strategy where you are looking to

collect premium. And then, number two,

you can use this as a strategy to enter

a stock that you want to own for a lower

price. So, the idea of buying stock

below their current price is this

strategy right here, selling put

options. Selling put options, again, if

you sell it up front, you collect

premium, and now you have the obligation

to buy at $17 or lower if it goes lower.

So, if it goes to $16.99, you're in the

money now. However, you still have a

gain total because the premium that you

collect is a lot more than being in the

money by one penny, essentially. So,

your break even here is $15.78.

Slightly off on Robinhood, it says 76,

but the premium, if it's 122, you just

do 17 minus $1.22, which is going to be

$15.78.

So, that is your break even. And this is

a strategy that I have used for the last

10 years to simply buy stocks that I

want to own. Now, it's very important

that you don't mind owning these stocks

whenever you sell put options.

Otherwise, you are more in that risk

territory where if it does go down, you

may end up losing on the position having

to close this position because you don't

want to get assigned. But, if you do

want to get assigned, then this is

pretty good situation to be in overall.

Options can be a great way to make a lot

of money trading without having to have

too much capital. And that's why many

investors find option trading so

attractive. So, here's some more

terminology that you might want to know.

So, call options versus put options. You

can basically buy or sell a call option,

you can things that you can do in option

trading for the most part. You can also

combine calls and put options, but

that's more of an advanced strategy.

Simply, if you're a beginner and you

want to make a bet on a stock, you would

buy a call option. If you want to make a

bet on a stock going down, you would buy

a put option. If you want to generate

more passive income and sell a put

option and wait until that option

expires collecting the premium while it

decays, that is a selling put strategy

and that is a more passive income

strategy. I'll show you an example of

another passive income strategy in a

little bit. The most important

terminology that you need to know is

strike price, the price that you agreed

to buy or sell the stock at. Premium,

the price that you pay for the option or

the money that you collect if you sell

an option. Expiration date, the date of

the contract when it ends. Then, in the

money, the option is profitable or has

value if it is in the money. Out of the

money is when an option is not

profitable yet. But, if you're selling

an option and it's out of the money,

that could be a good thing. If you are

buying an option and it's out of the

money, that is not a good thing. So, out

of the money is just referring to the

price of the stock not being within the

value of the strike price that you have.

So, on a call option, if you buy a $100

call option and the stock goes above

100, you're in the money. If it stays

below 100, well, you're still out of the

money. And then there's a term called at

the money, which is not that useful. It

just basically means when a stock is

right at the strike price. So, now I

want to explain to you my option

strategy here because again, my goal

here is not to gatekeep. I want to give

you all the knowledge that I have in

short amount of time as possible to give

you the most amount of value. So, first

of all, I look for stocks with good

support levels, meaning the stock has

already dropped or is holding a price

level where I feel comfortable buying

this stock or trading this stock. That's

a really important point to find support

levels where stocks are cheap. If you

trade expensive stocks, well, it's much

harder to make money when stocks are

expensive and it's much easier when

they're cheap. Next, I choose options

with good liquidity and a tight bid-ask

spread so you don't lose much money

whenever you're trading them. So, let me

show you what bid-ask spread is and why

it is so important. If I go to another

stock, which is going to be Nevius, this

is an Neo Cloud company essentially.

It's an AI revolution story. I had 100

shares where I made really good money,

but I want to show you if I trade

options here and I go for an option with

an expiration of July 10th, for example,

and I go down somewhere and I'm looking

at selling a put and I look at 250. You

can see here that the bid, okay, up here

it says bid $20.95 and ask $22.80.

Okay, so what this is is essentially a

spread difference of someone looking to

buy and someone looking to sell. It's

basically like a market, right? You're

looking at this as a market. So, think

of it kind of like gas, okay? Someone is

trying to buy gas at, you know, $20.95

and someone wants to sell gas at $22.80.

So, obviously, this buyer and this

seller are really not that close, okay?

So, this would be an example of a

illiquid option where the bid-ask spread

is wide, okay? This is a wide bid-ask

spread. Not that good because every time

you trade, you are losing money here and

this is a very, very big difference. You

can also notice here there is a term

here called mark. Okay, so what is mark?

Mark is essentially the middle point

between the bid and the ask. Do you see

the mark is $21.88.

This is the middle point where you would

likely get filled on a trade if you were

to enter one, right? So, if you buy or

sell, you're likely to get filled at

$21.88.

You always want to choose options that

have better liquidity. So, if I go to

Apple right now, you will see that a

huge mega-cap stock that is lot safer,

Apple, is going to have a very tight

bid-ask spread. And simply, what makes a

good bid ask spread is when there's a

lot of volume. So, if I go right now to

July 10th, which is the same thing I was

looking at on Nebius, and I open up 285,

you can see here the bid ask spread is a

lot tighter. So, it's $2.53, and then

the ask is 269. So, that's a much

tighter spread here, the very small

difference. It's not too small, it's

$16, but essentially you're only going

to be losing half that cuz you're going

for the midway points whenever you're

filling an option. So, you're going to

lose about $8, which is a lot better

than losing like, you know, over $100 on

the other trade that I showed you. The

next thing is really just using Delta.

So, I personally use Delta to estimate

assignment risk. So, here, if I were to

sell this Apple put option, right? Let's

say that I wanted to create some passive

income. I sold this Apple put option at

285. Apple is trading for 291. So, up

until the expiration, I don't really

need to do anything. Hands off. I'm just

like, let me wait and just see what

happens. If it goes down a little bit,

that's fine. If it goes into the money,

then, you know, I have to decide, do I

want to get assigned? Do I want to maybe

adjust the position a little bit? Do I

want to close the position, right? But,

essentially, as long as it's above 285,

I don't need to do anything. And my

decision-making process to get into that

trade, right? To begin with, hey, should

I sell this put option, and how much

risk is this? Well, that's Delta, 27

Delta here, which means there's a 27%

chance of this happening. And if there's

a 27% chance of this happening, that

means that there's a 73% chance of this

not happening. Or, in other words,

there's a 73% chance that I just sell

this put option, and just expires

worthless, which is a good thing. If I'm

selling it, I'm collecting the premium,

I want it to expire worthless, right? If

you're buying options, you don't want it

to expire worthless because you're

paying, and then you hope to get out

with more than what you paid. So, my

basic trading strategy is sell puts for

passive income, wait until expiration,

and then either keep the premium, which

I'm going to keep it anyways whether

it's in the money or not, and accept the

assignment, or don't accept assignment,

and basically either adjust it or just

close it out. Now, if assigned shares, I

either hold the stock long term because

now I have the shares, right? So, in

this example right here, if Apple goes

down to 284, and it's 7:10 on expiration

date, right? At 4:00 p.m. Eastern, well,

the stock market closes, and then I'll

essentially be assigned shares. Then, I

will have 100 shares of the stock. So,

at that point, I'm either going to wait

and hold on to the stock, or I could

just continue to generate income, which

is the next passive income strategy. The

next passive income strategy, the second

one, is covered calls. A covered call is

when you sell a call option, generating

income on a stock that you currently

have right now. So, if I get assigned,

then I have 100 shares. 100 shares gives

me the ability to sell call options.

Let's say that I got assigned on Apple,

right? So, I have Apple shares now, and

I want to sell a call option. So, I go

to sell call option. I pick an

expiration date here, July 17th. If

you're watching this in the future, this

is basically just a tutorial of how you

can option trade yourself and learn from

someone who's been doing it for over 10

years. So, you know, feel free to just

do this in the future, knowing this

knowledge now. So, look, if I have 100

shares, I can now sell call option. So,

I can sell a 295, which would be an

out-of-the-money option. It's oh, it's

more expensive than the current value of

Apple, which is 291. So, at 295, I sell

that, right? And now, I can collect $650

worth of premium. So, if I go into this

option right here, you can see the bid

and ask is really good, and the delta

here is 48%. So, there's a 50% chance, a

little bit higher than 50% chance, that

nothing happens. I just collect the

premium, and it expires worthless. Now,

there is a 48% chance that the option

goes in the money. And that's not a bad

thing, because when you sell a call

option, you are essentially giving the

rights to someone else to buy the stock

from you at that price, right? So, if

you have an average cost of 290, and you

sell a covered call at 295, and you

generate premium income, okay? And it

goes above 295, and you have to get rid

of it, was that a bad thing? Well, I

would say no. I would say it's not a bad

thing, because if you bought at 290 and

sold it at 295, you have profit of $5,

plus, not to mention the premium. So,

the premium here is going to be $6.50.

So, in total, in this example, if you

have Apple at 290, and if it goes to

295, you get $500 worth of capital

appreciating, right? How much money you

make off of the capital appreciating,

and then the premium is still yours. So,

500 plus 650, you have 1150 in total

kind of profit on this trade example on

Apple that expires on July 17th, right?

So, you can also do, you know, something

more shorter term. A lot of people like

weekly options. So, weekly option would

be something that expires within 1 week,

right? So, if it's July 1st, you go for

July, you know, 7th, for example. You

can go shorter term. Weekly options

generate premium more frequently, but

require more active management. So,

while monthly options are more passive

and I personally love monthly options

because it's it's very passive income

stream that I have made for myself by

just selling a, you know, call option or

selling a put option. It's exactly what

I teach in my community. Pick a

high-quality company. That's very

important. And then I sell options on

those positions. Higher returns are

possible when you buy options. Whereas

when you sell options, you have a very

fixed kind of return. You have fixed

income in a way because if you sell

something like this Apple option here

for, you know, 650. So, if you sell

this, you know, short-term Apple call

option for 295, you know, basically

that's $325. That's it. You can't make

more. When you sell an option, you can't

make more than the premium that you sold

it for, right? That's what you sold it

for. That's your kind of max gain.

Whereas when you buy an option, well,

there really isn't such a thing as a max

gain on a call option because

technically speaking the stock could

continue to rise. And if it continues to

rise, call option would continue to gain

value as long as the call option hasn't

expired yet. So, you want to make sure

to not only focus on premium. Focus on

whether you're comfortable owning the

stock if the trade goes against you. If

it's the case if you were selling

options, right? If you're selling

options, the most important thing is you

like the stock and you don't mind

getting assigned. Now, if you're buying

options, make sure that you're

comfortable spending the money on

premium because the money that you

spend, you can lose 100% of that.

Whatever you spend on the option that

you buy, it can go down completely and

you could end up losing. So, it can be

really risky and you can also lose a lot

of money if you're just buying a ton of

call options or you're buying a ton of

put options. So, if I wanted to lower

the risk, I would pay very close

attention to position sizing, okay? So,

let me show you kind of a little bit

about my portfolio. You can get some

kind of pointers here on what I've been

doing. I've been scaling my portfolio

for 12 years now. I worked at Goldman

Sachs and I kind of made it my dream and

my mission to really understand how to

trade options and have more freedom. I

really hated working at 9-5 jobs, so

this is kind of my passion. This is what

I love and then I'm very talented at

teaching this as well. So, I want to

kind of show you here kind of my thought

process on position sizing because

position sizing is incredibly important.

No matter how experienced I really am,

it's not like I can predict the future.

I make mistakes as well. Stocks go down

and they can be very, very

unpredictable. So, what I like to do is

I like to just get into positions that I

like, but typically I'm only putting in

3 to 5% per position. For example, even

if I really love a stock, like I love

several of these stocks. I'll kind of

show you what I do with Nvidia. So, I

love Nvidia. Nvidia is a leader in AI.

So, I personally allow myself to go up

to 10% of my portfolio in Nvidia. But,

you can see here I'm selling a lot of

put options because I personally love

passive income. I like selling put

options where I can generate passive

income. Then, you can also see I have

plenty of covered calls. A covered call

is basically when you sell a call, it's

called a covered call because you have

the shares, you know, behind it, so you

are covered. I run sell puts. I have

American Airlines. I have Shopify. I

have Nvidia, Chipotle, SoFi. Um,

Robinhood has been doing pretty well

recently and then Google I have a pretty

large position here. I'm going pretty

heavy on Google, so I'm kind of breaking

my position sizing rules, but again,

this is more of a beginner video. When

you become more advanced, sometimes you

might be okay taking on more risk on a

certain position when you have a high

conviction play. So, I have lots of

different high conviction plays that I

like to personally make and by the way,

if you want to be part of my high

conviction plays, you can visit the link

in the description. I basically show

everything that I do within my coaching

program. Everything I'm buying and

everything I'm selling. If you enjoyed

this video, I'd appreciate you

subscribing and liking this video. It's

free. Here's another video that YouTube

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