Basic Module 1 – Why should you consider Options?

Open a virtual trading account to practice what you pick up in each module

Introduction / Learning Outcomes:

“We can accept what the economy and stocks hand us, but we don’t have to be entirely satisfied with those returns – not when we have options.” Join us in the first module for options basics. This module covers some of the differences between a stock and an option, how options have the potential to generate returns in any economy as well as how to choose an option. Specifically, in this module you shall learn:

1. The differences between a stock and an option.
2. The meaning of stagflation.
3. Where to find Warren Buffet’s current thoughts on the market and the overall economy.
4. How an option can be profitable while the underlying stock rises in value.
5. Expected return.
6. Risk versus return for an option.
7. How to choose a strike price.
8. The good and bad of leveraged options.
9. How to choose an expiration date.

Recommended Exercises:

1. Find Warren Buffett’s quarterly and annual reports.
2. Read Warren Buffett’s most recent report.
3. Describe how options alter your risk-reward profile.
4. Identify an out-of-the-money option, an in-the-money option and an at-the-money option on the ETF, SPY.
5. Calculate the potential profitability of an at-the-money call option on the ETF, SPY if the SPY increases by 50%.
6. Describe the leverage of an in-the-money call option.

Describe why a longer-dated option is more expensive than a shorter-dated option.