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In this clip from Stocks in Translation, Scott Bauer, CEO of Prosper Trading Academy, joins Markets and Data Editor Jared Blikre to discuss the risks and benefits of trading options in our “Trade This Way” segment, presented in partnership with tastytrade.
“Every option comes with intrinsic value and extrinsic value,” says Bauer.
Simply put, an option has real value along with an additional premium—known as time decay—factored into its price.
“Investors need to be aware that options are a wasting asset. That doesn't mean that's a bad thing, but they are a wasting asset and lose value over time.”
However, it’s not all negative. As Bauer explains, options offer “incredible” upside.
An investor “could take a position in a particular stock, an index, or the overall market at a fraction of the cost of actually buying or selling that stock outright.”
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Blikre and Bauer then analyze a real-world example, breaking down the risks and rewards of an options trade on Nvidia (NVDA) at $140.
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 post was written by John Tejada.