I bought Options with real money on Robinhood

Beginner guide to put options, options trading, and short selling. I’m going to put real money into put option trading and walk through the details of what short selling is and how put options work.

General thoughts on short selling, how to short sell, how to trade options, and put options.
- Betting against the market can be very complex and take into account a lot of factors. Options are not something to take lightly.
- This video is not meant to go into all the complexities of investing this way. We’re going to have a bit of fun by executing an option (using Robinhood) in this video and showing you if we make or lose money. So because we are having a bit of fun, this is not a deep dive and this strategy (if you want to call it that) is not something I’d do if I seriously want to purchase options or short sell.
- I am not your financial advisor. In my own opinion I would not recommend using options (calls or puts and the many others) or short selling if you are a novice. You can lose a lot of money quickly.
- You would be betting against a stock or the market if you think it’s current value is far beyond its intrinsic value
- The hard part is knowing the timing of when the value would decrease.

Short selling
- When you sell a stock short, this essentially means that you are expecting the stock price to go down in the future.
- How this works is that you would be BORROWING shares from someone else that then get sold on the market. So today, you sell shares of stock that you technically didn’t own. You borrowed those shares. And you then have to repay that person in the future with a similar amount of shares. You repay whoever you borrowed the shares from, by buying that same amount of shares in the future.
- You would make money off this is the price goes down in the future, because you are able to rebuy that same amount of shares for less than you bought it for. And you then keep the difference.
- We’ll use a super simple example here. You want to short the S&P. Let’s say it’s trading at $100 and you short sell 1 share. So someone sells their 1 share and you have to repay them with 1 share in the future. You now have $100 in equity value.
- Let’s say a month from now the price goes to $50. You can then rebuy 1 share at $50, and repay them with that one share. You then get to keep the difference in equity which would be $50.
- You also lose money if the price goes up and you get to a point where you have to pay back the share. Either because it’s called, or because a date expiration is reached. So if the price rises to $150. Then you have to buy that 1 share at $150 to repay the borrower. Meaning that you lost $50 or paid $50 more than what it was originally sold for. OUCH.
- Your loss could technically be infinite if the price of the stock that you short continues to go up and up and up. Your losses can get huge. This has happened a lot with Tesla over the past few years.
- And you need to keep in mind with short selling that you will have to pay interest. Remember, you are BORROWING shares. It’s just like if you were to take out a loan. You have to pay interest. So that is a cost of short selling.

Now a PUT Option is actually what we are going to be doing in the rest of this video is slightly different. Basically we are trading options. It’s still a bet against a stock, thinking that the price will decrease. But there are some slight differences compared to straight short selling. For a put option we are paying a slight premium to sell a stock at a certain price that we choose AND a certain date that we believe it will get to that price.

So if a stock is at $100 and we believe that the price will decrease in the future. We would need to first determine a combination of the price we think it might decrease to AND also the date we think it will decrease by. For example, I might say think that the $100 stock is overvalued by $10, and I think that in 6 months the market will catch up to those facts. So I would buy an option for a fee that allows me the option to Sell $100 shares of that stock within the next 6 months.

If the price doesn’t get to $90 like I thought, then I lose the full amount of the fee that I paid to hold that option. A fee might be $2 per share. So since I would be getting the option to sell $100 shares, the cost of this option would be $200. If it doesn’t get to $90, I lose the entire $200. That’s my downside.

My upside would be determined by the price it takes to cover that $200 fee and break-even.

The Strike price is the price I think the asset will decrease to.

The Break even price factors into account the premium fee I pay to own that option.

And the execution date takes into account the date by which I need to execute my option, or sell it to someone else.

I’m not talking about Call options and how call options work in this video.

Видео I bought Options with real money on Robinhood канала QuinnTalksMoney