Professional Options Trading Course

Lesson 1: Basics of Options Trading

Adam Khoo Bang Pham Van

Professional Trader Options Trader & Specialist

www.piranhaprofits.com
www.wealthacademyglobal.com
 The Power of Options
Options are a Powerful Tool Used by Investors and Traders

For Investors
• Use Options to Hedge An Investment Portfolio (Buy Insurance)
• Use Options to Generate Additional Income for an Investment Portfolio
(Dividends + Sell Premiums)
• Use Options to Buy Stocks at a Discount or Even Free!

For Short Term Traders

• Options Require Less Capital (Control Apple Stock $200 for Just $10)
• Magnify Returns and Minimise Risks
• Generate Profits under Any Market Conditions
• Bullish Uptrend
• Bearish Downtrend
• Sideways (Non Directional)
 Do You Know that the World’s Biggest
Options Trader is….

1) Sell ‘Put Options’ On Stocks He Wants to Acquire

at Lower Prices

• Coke Shares (KO) are at $50

• Sells Put Options at $49 Strike Price and Collects Cash
Premium of $1
• If KO does not go down to $49, he pockets $1!
• If KO goes down to $49, he is obligated to buy at $49
and pockets $1 ($48 outlay)
Warren Buffett • He collected $7.8 million in cash by doing this
Net Worth: $90 Billion
World’s Greatest Investor
2) Sells Index Put Options
• During the Financial crisis of 2018, he sold Index Put
Options & has collected premium of $4.9 billion so far
• He sells insurance that the S&P 500 will not go below a
certain level in 15-20 years
 Two Types of Options

Call Options Put Options

Buy Call Sell Call Buy Put Sell Put

(Long) (Short) (Long) (Short)
(Write) (Write)
 Call Option
A contract that gives the buyer the Right to Buy
100 Shares at a Strike Price on/before an
Expiration Date

Option Expires in Strike Price is $200

Underlying Dec (3rd Friday)
Stock is AAPL Call Option

Premium

AAPL Dec 200 Call at $8

 Call Option
Pays Premium Option Premium $$ Receives Premium

Call Buyer Call Seller (Writer)

Deliver 100 shares @

Strike Price

Right to Buy the Stock from Obligated to Sell the Stock to

the Call Seller At Strike Price (i.e. $200) the Call Buyer At Strike Price (i.e. $200)

Want the Stock Price to

Want the Stock Price to
or move

6
Buying Calls Versus Buying Stocks
CALLS Control LARGE AMOUNTS of Stocks a small amount of money
Example: AAPL Stock @ $200. You expect it to increase to $220

Buy AAPL Stock Buy AAPL 200 Calls at $8

Investment = $200 x 100 Investment = $8 x 100
= $20,000 = $800
Price increases to $220 Price increases to $220
Market Value = $220 x 100 Option Value = ($220- $200) x 100
= $22,000 
 = $2,000

Profits = $22,000- $20,000 Profits = $2,000- $800

= $2,000 = $1,200
Return = $2,000 ÷ $20,000 Return = $1,200 ÷ $800
= 10% = 150%

7
Risk/Return Profile of Buying AAPL 100 shares

Profit or Loss

+$1,000

$0
$190 $200 $220 Stock Price
-$1,000

Breakeven
Buy AAPL
stock at $200
Risk/Return Profile of Buying
1 Contract AAPL 200 Call At $8
Profit at Expiration
Profit or Loss

+$1,200

Unlimited
return
Strike Price
$200
$0
Limited Breakeven
$220 Stock Price
Risks $208
Premium Paid
-$800 Profit At Expiration
= Stock Price - Strike Price -Premium
=$220- $200- $8 = $12 x 100 = $1,200
Maximum Risk = Premium Paid
= $8.00 x 100 = $800 Breakeven - Strike Price + Premium
= $200 + $8 = $208
Risk/Return Profile of Selling
1 Contract AAPL 200 Call At $8
Profit or Loss Maximum Profit = Premium Paid
= $8.00 x 100 = $800
Potential Loss (Unlimited)
= Stock Price - Strike Price + Premium
=$200- $220 + $8 = -$12 x 100 = -$1,200
Premium
Collected
+$800 Breakeven = Strike Price + Premium
= $200 + $8 = $208
Limited
Return
$0
$220 Stock Price
Strike Price
$200
Unlimited
Risk Breakeven
$208

-$1,200
Profit at Expiration
Summary of Calls and Puts
CALL

Call Buyer
Right to Buy
+$
BUY
Bullish
-$ Profit when Price Goes Up

Call Seller
SELL +$ Obligated to Sell

Bearish
-$ Profit when Price Goes
down or sideways
 Put Option
A Put Option is a contract that gives the buyer
the Right to Sell 100 shares at a Strike Price
on/before an Expiration Date.

Option Expires in Strike Price is

Underlying Dec (3rd Friday) $150
Stock is FB
Put Option
Premium

FB Jan 150 Put at $5.80

 Put Option
Pays Premium Option Premium $$ Receives Premium

Put Buyer Put Seller

Sell 100 shares


@ Strike Price

Right to Sell the Stock to
 Obligated to Buy the Stock from

the Put Seller At Strike Price (i.e. $150) the Put Buyer At Strike Price (i.e. $150)

Want the Stock Price to

Want the Stock Price to
or move
Risk/Return Profile of Buying
1 Contract FB 150 Put At $5.80
Profit or Loss
Maximum Risk = Premium Paid
Profit at Expiration = $5.80 x 100 = $580

Profit at Expiration
= Strike Price- Stock Price -Premium
= $150- $130-$5.80 = $14.20 x 100 = $1,420
+$1,420

Strike Price
$150
$0
Limited risk $130 Breakeven Stock Price
$144.20
Premium Paid
-$580

Breakeven = Strike Price -Premium

= $150-$5.80 = $144.20
Risk/Return Profile of Selling
1 Contract FB 150 Put At $5.80
Profit or Loss

Breakeven = Strike Price -Premium

= $150-$5.80 = $144.20
Maximum Profit =
Premium Collected
= $5.80 x 100 = $580 Profit at Expiration
Limited
Return
$0
$130 Stock Price
Breakeven Strike Price
$144.20 $150
-$1,420
Potential Loss
Limited = Stock Price - Strike Price + Premium
Risk = $130- $150 + $5.80 = -$14.20 x 100 = -$1,420
 The Right Versus the Obligation
Option BUYERS have the RIGHT
• CALL BUYERS have the RIGHT to BUY
• PUT BUYERS have the RIGHT to SELL
=> Limited Risk

Option SELLERS have the OBLIGATION

• CALL SELLERS are OBLIGED to SELL
• PUT SELLERS are OBLIGED to BUY
=> Unlimited Risk
 Summary of Calls and Puts
CALL PUTS

Call Buyer Put Buyer

Right to Buy +$
Right to Sell
+$
BUY
Bullish Bearish
-$ Profit when Price Goes Up -$ Profit when Price Goes Down

Call Seller Put Seller

+$ Obligated to Sell +$ Obligated to Buy
SELL
Bearish Bullish
-$ Profit when Price Goes -$ Profit when Price
down or sideways Goes Up or sideways
 Intrinsic Value of Calls

AAPL Call Strike Prices Intrinsic Value

$230 Out of the Money $0

$225 Out of the Money $0

AAPL Stock $220 At the Money $0

@ $220
$215 In the Money $5

$210 In the Money $10

Intrinsic Value of Calls

= Stock Price - Strike Price
 Intrinsic Value of Puts
FB Put Strike Prices Intrinsic Value
$160 In the Money $10

$155 In the Money $5

FB Stock
@ $150 $150 At the Money $0

$145 Out of the Money $0

$140 Out of the Money $0

Intrinsic Value of Puts

= Strike Price - Stock Price
 Option Price
(Premium)
=
Intrinsic Value Extrinsic Value

Part of the Option that is In

The Money
Call: Stock Price - Strike Price
Put: Strike Price - Stock Price
Time Value Volatility Premium

Declines to Zero at Expiration Date

 The Greeks
- Greeks measure all the things that affect an option’s
premium

Stock Price Interest

Change in
Effect on Volatility Time
Option Price
Delta Rate
 Time Value & Expiry

• Time Value decreases exponentially as time passes

⇒ Buy Options with Different Times to Expiration (days
to 3 years)
⇒ Further the expiration date, more time value, the
higher the premium
• At expiration, Option Price = Intrinsic Value
(Time Value = $0)
• Time value decays the fastest during last 30-60 days
=> Sell Options 30- Days Before Expiration
• Monthly Options Expire THIRD FRIDAY of the Month

Theta: The Rate of Decay of an Option

E.g. Theta is -0.05 => Time value of Option
decreases $0.05 per day
 Option Expiration Dates

• All Options have Fixed Expiration Dates

• Weekly Options
• Expire on the Friday of Every Week
• Monthly Options
• Expire on the 3rd Friday of the Month
• Most liquid. Best bid/ask spreads
• Quarterly Options
• Expire on the Last Day of The Quarterly Month (Jan,
March, June, Sept)
• LEAPS (Long Term Anticipation Securities) Expire Up to 3
Years in the Future (Expires 3rd Friday of January)
 Volatility & Vega
• Volatility Makes up a large part of Extrinsic Value
• The Higher the Volatility of a Stock, The More Expensive the Options
• Volatility tends to increase during major news events (Earnings, FOMC etc..)
• BUY options when Volatility is Low ( Cheap)
• SELL options when Volatility is High (Expensive)
 Implied Volatility (IV)
• Value for volatility derived from the market price of an option calculated
according to an Options Pricing Model (eg. Black Scholes model)
• IV shows where the market place views the volatility in the future
• It implies a magnitude of the

underlying stock price move

within 1 year with 1-SD

probability

Compares IV to its past 1 year values

Sell Options When Above 50%
Buy Options When Below 40%
 Volatility & Vega
• Vega measures option premium change due to a 1% move in
Implied Volatility (IV)
• Example: An option has a value of $1.50; Vega is showing 0.1. If
IV moves from 20% to 21%, the option value will increase to
$1.60
• The further from expiration, the higher the Vega.
 Understanding DELTA
• Delta is the change in the option price relative to the change
in the underlying stock price
• Delta of 0.80 (80 Deltas) => Option price increases $0.80 for
every $1 increase in the stock price.

Delta for Calls is 0 to 1 Delta for Puts is 0 to -1

ITM Call is 0.5 to 1 Delta ITM Put is -0.5 to -1 Delta

ATM Call is 0.50 Delta ATM Put is -0.5 Delta
OTM Call < 0.5 Delta OTM Put > -0.5 Delta

The Delta is also the probability that the Option will

be ITM at Expiration
 Gamma – Premium Acceleration
• Measures change in Delta due to a $1 move in underlying
stock price
• Also known as Delta of Delta
• Gamma is highest when option is ATM
• Gamma increases the closer to expiration
 Open Interest
• A total number of option contracts that are currently open
and active ie. contracts that have been traded but have not
yet been closed, exercised or assigned
• Open Interest number does not change throughout the day,
but adjusts itself before the next day once the trades are
totalled

Call/Put: Buy to Open +1

Sell to Close -1

Call/Put: Sell to Open +1

Buy to Close -1
 Options Allow You to Profit in
Any Market Condition, with Any Asset

+$ Stocks
Very Bullish-Buy call Very Bearish-Buy put
ETFs
Futures
Oil, Gold
Slight Bearish Put Spread
Buy Put Forex
Sell Put

Iron condor
Sell Covered Calls Sell Call Buy Call
Sell Put Buy Put
Sideways

Slightly Bullish

Call Spread
Sell Call
Buy call
 Preferred Securities to Trade
Type Security Rationale
Index SPX, NDX, - Most liquid securities, hence good bid/ask spread
RUT - No dividend consideration
- European type – ie. no early assignment / exercising
- No earning, M&A, announcement risks
- High price tag, hence reducing number of contracts

! less commissions paid

Commodity /CL, /GC, / - Most liquid securities

NG, - Good premiums, esp. when heading towards key events
/ZS, /ZW - Watch-out: IB’s extra fees on /CL exposure

Volatility VIX, VXX, - Highly liquid securities

UVXY, - For hedging or directional trades
SVXY

Currency /6E, /6A - Similar to Index

Equity Big cap stocks in S&P500 – AAPL, FB, MSFT, PG, JPM, NFLX, AMZN,…
 1 Contract Is Equal to …
For stocks / ETF / Index 100 shares
For Crude Oil 1,000 barrels
For Natural Gas 10,000 mmbtu
For Gold 100 ounces
For E-mini S&P500 Futures 50 Futures
For /6E 125,000 EUR
For /6A 100,000 AUD
For /6B 62,500 GBP
For /ZB 1,000 USD
 Piranha Profits
Basic Options Trading Course Curriculum

Lesson 1: Basics of Options Trading

1) The Power of Options in Trading and Investing
2) Call and Put Options
3) Option Pricing: Intrinsic and Extrinsic Value
4) The Greeks: Delta, Gamma, Theta, Vega and Rho
5) Option Contracts for Stocks, Futures & Currencies
6) How to Profit Under Any Market Condition

Lesson 2: Setting Up Charts & Trading Tools

1) Setting Up Your Charting Platform
2) Creating a Watchlist
3) Reading and Analysing an Option Chain
4) Analysing Risk Versus Reward
5) Using Probability Analysis
6) How to Place and Modify Orders
 Piranha Profits
Basic Options Trading Course Curriculum

Lesson 3: Long Calls and Long Puts

1) Steps to Execute Long Calls when Very Bullish
2) Steps to Execute Long Puts when Very Bearish

Lesson 4: Generate Extra Income with Covered Calls

1) Generate Extra Income from Your Stock Portfolio
2) Covered Call Strategy: Long Stock + Write Calls
3) Profitable Entry and Exit Execution Rules
4) Case studies

Lesson 5: Hedging A Portfolio With Protective Puts

1) Buy Insurance to Protect Your Stock Portfolio in a Bear Market
2) Steps to Calculating the Perfect Hedge with Deltas
3) Profitable Entry and Exit Execution Rules
4) Case Studies
 Piranha Profits
Basic Options Trading Course Curriculum

Lesson 6: Own Stocks at a Huge Discount or Even For Free Like Buffett
1) Sell ‘Cash Secured Put’ Strategy
2) Profitable Entry and Exit Execution Rules
3) Case Studies
+$
Lesson 7: Bullish Strategy: Buying Vertical Call Spreads
1) Profit on Bullish Stocks with Limited Risk and A Fixed Target Price
2) Lower Risk compared to Buying a Straight Call: Cheaper with
Lower Theta/Vega Risk -$
3) The Best time to Execute this Strategy
4)Profitable Entry and Exit Execution Rules

Lesson 8: Bearish Strategy: Buying Vertical Put Spreads +$

1) Profit on Bearish Stocks with Limited Risk and A Fixed Target Price
2) Lower Risk compared to Buying a Straight Call: Cheaper with Low
Theta/Vega Risk
3) The Best time to Execute this Strategy
4) Profitable Entry and Exit Execution Rules -$
 Piranha Profits
Basic Options Trading Course Curriculum

Bonus Lesson: Basics of Technical Analysis

1) Tenants of Dow Theory & Principles of Technical Analysis
2) Identifying Trends
3) Utilising Support & Resistance as Supply and Demand Zones
4) Mastering Moving Averages
5) Mastering Indicators:Trend following & Oscillators
6) Using Powerful Candlestick Patterns & Price Action Trading
Professional Options Trading Course
Lesson 1: Basics of Options Trading

Adam Khoo Bang Pham Van

Professional Trader Options Trader & Specialist

www.piranhaprofits.com
www.wealthacademyglobal.com