Show Transcript
Kim Parlee speaks with Bryan Rogers, Senior Client Education Instructor with TD Direct Investing, about options trading, including how to use basic strategies such as buying a call option. TD Direct Investing is holding an Options Education Month in June. Register at www.td.com/oem
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[AUDIO LOGO]
Welcome back. June is one of my favorite months, and one of the reasons for that is it's Option Education Month at TD Direct Investing. It's a time when you can take advantage of all sorts of webinars, master classes, all there to help you sharpen your options-investing skills, or gain them for the first time, if you're interested.
One of the things you're going to be learning about are how-- multiple ways you can invest in equities, including the purchase and sale of equity options contracts. Joining us to tell us more about this, Brian Rogers. He is senior client education instructor with TD Direct Investing. It is lovely to have you here in person. How are you?
Good. I'm great. It's always a pleasure.
Yeah, it's nice to have you here. So let's start with the most basic. What are options, and how do options differ from stocks?
Yeah, well, we always try to explain it in simple terms. You can think of options are kind of locking in a price in many ways. So you can think of like a coupon. You go to the grocery store, and you get a coupon, and it's going to lock in a price to pay for that product.
A little bit different in the markets is where you can buy these coupons. You can buy them and lock in a price, as an example. And let's say if you don't want to buy that right away. You can lock it in and wait until later on. Like the coupon, it has an expiration date.
Guarantees something for you.
Yeah, and it guarantees for a certain time. And so it's basically just-- it's known as a derivative, but it's a derived from the price of that underlying stock. And then you can use that to maybe make up your mind a little bit later on.
What is one of the most basic options strategies for people who are starting off?
Well, we always start off with a call. There's all kinds of different terms. And I know you know from the industry, there's all kinds of weird ones as well. And there's calls, and puts, and things like that.
The call option, you can think of the call option-- if you're speculating-- you're thinking in the market that the market is going to go up on a stock that you're looking to purchase, you can lock in that price, like I mentioned with the coupon earlier. The reason we go with that is it's a set risk. You don't have to take a ton of risk.
You can pay a smaller amount typically, like you could buy-- you normally don't have to buy coupons. But let's say if you did have to buy a coupon, you can lock in the price with that smaller amount. And then as that stock goes up, you can either cash in your coupon and use it to buy the stock, hopefully at a lower price, or you can even sell the coupon itself.
Interesting. I think that's the cool thing people may not realize. We'll get to that. What do you think makes options significant or useful in this environment?
Well, yeah, that's always an interesting question, because one, it's an easy one to answer. But then it's also complex because there's a lot of different ways you can use options. And somebody that's a beginner, it may be a little bit too complex for them.
That's why I'm giving that simple coupon example. But it's just the versatility. There's so many ways you can use options. You can use it when the market's going way up.
if we're in like a down market-- if the market's going sideways, you can use it to protect like an existing position, an existing stock. So that's the thing. There's so many versatile ways to do it.
So when you say right now, like if there's indecision in the market-- if you think there's an election coming up, but I don't know if I want to buy that stock right now, so using that call example, you can say, well, I'm going to be on the sidelines. I'm going to wait. I'm just going to pay the smaller amount to hold and lock in that price, and then see what happens after the election, or if inflation changes, or interest rates change, things like that.
I feel like there's more going on here than there has been in the past. But yes, there's many things going on. Can you take us through an example?
Like I know you've got the platform here. You can bring it up and show us. But take us through what-- how would you think about a call option?
Yeah, absolutely. So we have the WebBroker platform up, here and I've pulled up a stock. Just randomly, I've pulled up Apple, one a lot of people are familiar with.
And you're going to see that you have the symbol here. There's the price. So we're after hours right now, but it doesn't really matter.
You don't usually-- you can't trade options after hours. I definitely wouldn't recommend it. But we can look at the pricing for an example.
And you can see as we scroll down, I'm on the Options tab. That's important to mention. I want to mention here that you can see here-- I'll actually highlight this for everyone too.
You can see we're on the Options tab right here. So you can see we circle that. That's the first place you're going to find the prices.
And as we scroll down-- so just remember that you can scroll down here, and you're going to see the dates. That's the next part. So remember I mentioned those expiry dates. That coupon is going to expire.
You get to choose. That's a nice thing. You have all these different dates. This is-- I've selected right now roughly about 50 days.
A lot of options trading around that 30- to 60-day range. On the left-hand side, we have-- remember, we mentioned those call options. So I'll just highlight this down here. There's the call options.
This is for another day. There's put options. There's different types of options you can use.
But the call option is the one that I mentioned where we can possibly lock in that price. So if I scroll down a little bit further, you can see I'm going to highlight one of the key things. There's a lot of numbers here. I know you mentioned there's a lot of stuff to look at.
You can see the ones you want to focus on is there's the bid and then the ask. So these are the prices for those options. Seems like a lot right now, like up at the top here. But as we scroll down, that's because you can see the strike price right here.
If I circle this one, these are the prices that you can choose. So these are those coupon amounts that you can choose yourself. So we know Apple is right now at roughly around $189.
So if we wanted to say, in 52 days, we think Apple is going to go significantly above that, we can scroll down here. And remember these columns here to the left. We can scroll down and we can look at the prices.
And let me highlight those for you as well. In this column here, these are in multiples of 100. Every contract represents 100 shares.
So I could pay a much smaller $595-- so the $5.95-- to buy that option for $190 to lock in that price. And then if Apple goes up to $220, or $200, or $230, then I get--
You're smiling.
Yeah, I'm smiling. Exactly. [CHUCKLES] And then I can sell that coupon. It'll go up in price, or I can say cash it in and go to TD Direct Investing and say, hey, I want my shares at $190 even though they're up at $200, or $300, or whatever it may be.
I've only got a couple of seconds here, Brian, but I want to talk about the risk on this play is the money that you use to buy the call option. Is that correct?
Yep, that's your total risk on them.
Yeah. And also I should mention, this is the beginning of something. Like I said, June is my favorite month. So what's coming? What should we pay attention to?
Yeah, as you mentioned, we have Options Education Month. There's all kinds of classes. There's master classes that are dedicated to live interactive webinars and a number of different things.
There's videos out as well. But really, the live interactive part is great. We've got-- Sarah Potter is going to be there. And yeah, so a number of things for everyone. Whether you're brand new or an expert on options, I think you can pick something up. [AUDIO LOGO]
[MUSIC PLAYING]
Welcome back. June is one of my favorite months, and one of the reasons for that is it's Option Education Month at TD Direct Investing. It's a time when you can take advantage of all sorts of webinars, master classes, all there to help you sharpen your options-investing skills, or gain them for the first time, if you're interested.
One of the things you're going to be learning about are how-- multiple ways you can invest in equities, including the purchase and sale of equity options contracts. Joining us to tell us more about this, Brian Rogers. He is senior client education instructor with TD Direct Investing. It is lovely to have you here in person. How are you?
Good. I'm great. It's always a pleasure.
Yeah, it's nice to have you here. So let's start with the most basic. What are options, and how do options differ from stocks?
Yeah, well, we always try to explain it in simple terms. You can think of options are kind of locking in a price in many ways. So you can think of like a coupon. You go to the grocery store, and you get a coupon, and it's going to lock in a price to pay for that product.
A little bit different in the markets is where you can buy these coupons. You can buy them and lock in a price, as an example. And let's say if you don't want to buy that right away. You can lock it in and wait until later on. Like the coupon, it has an expiration date.
Guarantees something for you.
Yeah, and it guarantees for a certain time. And so it's basically just-- it's known as a derivative, but it's a derived from the price of that underlying stock. And then you can use that to maybe make up your mind a little bit later on.
What is one of the most basic options strategies for people who are starting off?
Well, we always start off with a call. There's all kinds of different terms. And I know you know from the industry, there's all kinds of weird ones as well. And there's calls, and puts, and things like that.
The call option, you can think of the call option-- if you're speculating-- you're thinking in the market that the market is going to go up on a stock that you're looking to purchase, you can lock in that price, like I mentioned with the coupon earlier. The reason we go with that is it's a set risk. You don't have to take a ton of risk.
You can pay a smaller amount typically, like you could buy-- you normally don't have to buy coupons. But let's say if you did have to buy a coupon, you can lock in the price with that smaller amount. And then as that stock goes up, you can either cash in your coupon and use it to buy the stock, hopefully at a lower price, or you can even sell the coupon itself.
Interesting. I think that's the cool thing people may not realize. We'll get to that. What do you think makes options significant or useful in this environment?
Well, yeah, that's always an interesting question, because one, it's an easy one to answer. But then it's also complex because there's a lot of different ways you can use options. And somebody that's a beginner, it may be a little bit too complex for them.
That's why I'm giving that simple coupon example. But it's just the versatility. There's so many ways you can use options. You can use it when the market's going way up.
if we're in like a down market-- if the market's going sideways, you can use it to protect like an existing position, an existing stock. So that's the thing. There's so many versatile ways to do it.
So when you say right now, like if there's indecision in the market-- if you think there's an election coming up, but I don't know if I want to buy that stock right now, so using that call example, you can say, well, I'm going to be on the sidelines. I'm going to wait. I'm just going to pay the smaller amount to hold and lock in that price, and then see what happens after the election, or if inflation changes, or interest rates change, things like that.
I feel like there's more going on here than there has been in the past. But yes, there's many things going on. Can you take us through an example?
Like I know you've got the platform here. You can bring it up and show us. But take us through what-- how would you think about a call option?
Yeah, absolutely. So we have the WebBroker platform up, here and I've pulled up a stock. Just randomly, I've pulled up Apple, one a lot of people are familiar with.
And you're going to see that you have the symbol here. There's the price. So we're after hours right now, but it doesn't really matter.
You don't usually-- you can't trade options after hours. I definitely wouldn't recommend it. But we can look at the pricing for an example.
And you can see as we scroll down, I'm on the Options tab. That's important to mention. I want to mention here that you can see here-- I'll actually highlight this for everyone too.
You can see we're on the Options tab right here. So you can see we circle that. That's the first place you're going to find the prices.
And as we scroll down-- so just remember that you can scroll down here, and you're going to see the dates. That's the next part. So remember I mentioned those expiry dates. That coupon is going to expire.
You get to choose. That's a nice thing. You have all these different dates. This is-- I've selected right now roughly about 50 days.
A lot of options trading around that 30- to 60-day range. On the left-hand side, we have-- remember, we mentioned those call options. So I'll just highlight this down here. There's the call options.
This is for another day. There's put options. There's different types of options you can use.
But the call option is the one that I mentioned where we can possibly lock in that price. So if I scroll down a little bit further, you can see I'm going to highlight one of the key things. There's a lot of numbers here. I know you mentioned there's a lot of stuff to look at.
You can see the ones you want to focus on is there's the bid and then the ask. So these are the prices for those options. Seems like a lot right now, like up at the top here. But as we scroll down, that's because you can see the strike price right here.
If I circle this one, these are the prices that you can choose. So these are those coupon amounts that you can choose yourself. So we know Apple is right now at roughly around $189.
So if we wanted to say, in 52 days, we think Apple is going to go significantly above that, we can scroll down here. And remember these columns here to the left. We can scroll down and we can look at the prices.
And let me highlight those for you as well. In this column here, these are in multiples of 100. Every contract represents 100 shares.
So I could pay a much smaller $595-- so the $5.95-- to buy that option for $190 to lock in that price. And then if Apple goes up to $220, or $200, or $230, then I get--
You're smiling.
Yeah, I'm smiling. Exactly. [CHUCKLES] And then I can sell that coupon. It'll go up in price, or I can say cash it in and go to TD Direct Investing and say, hey, I want my shares at $190 even though they're up at $200, or $300, or whatever it may be.
I've only got a couple of seconds here, Brian, but I want to talk about the risk on this play is the money that you use to buy the call option. Is that correct?
Yep, that's your total risk on them.
Yeah. And also I should mention, this is the beginning of something. Like I said, June is my favorite month. So what's coming? What should we pay attention to?
Yeah, as you mentioned, we have Options Education Month. There's all kinds of classes. There's master classes that are dedicated to live interactive webinars and a number of different things.
There's videos out as well. But really, the live interactive part is great. We've got-- Sarah Potter is going to be there. And yeah, so a number of things for everyone. Whether you're brand new or an expert on options, I think you can pick something up. [AUDIO LOGO]
[MUSIC PLAYING]
