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In this clip for Stocks in Translation, sponsored by tastytrade, Sean McLaughlin, Allstar Charts’ chief options strategist, joins Markets and Data Editor Jared Blikre to break down the basics of options trading.
Blikre and McLaughlin explain the fundamentals of a call option contract, which is a “financial contract that grants the buyer the right but not the obligation to buy a stock at a predetermined price within a specified timeframe.”
McLaughlin highlights the key difference between a call buyer and a stock buyer. “The advantage a call buyer has over a stock buyer is that a call buyer's risk is limited to the premium he paid for that call,” McLaughlin continues. “The risk is defined to the premium they pay. So this stock can go to zero overnight, but all they're [going to] lose is the premium they paid for that call.”
The video also shares McLaughlin’s common strategies and tips for managing volatility in the options market.
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Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio. You can find more episodes here, or watch on your favorite streaming service.
This article was written by John Tejada.