Call option as leverage | Finance & Capital Markets | Khan Academy



Call Option as Leverage. Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/derivative-securities/put-call-options/v/put-vs-short-and-leverage?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/derivative-securities/put-call-options/v/american-put-options?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Finance and capital markets on Khan Academy: Options allow investors and speculators to hedge downside (or upside). It allows them to trade on a belief that prices will change a lot--just not clear about direction. It allows them to benefit in any market (with leverage) if they speculate correctly. This tutorial walks through option basics and even goes into some fairly sophisticated option mechanics. About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy’s Finance and Capital Markets channel: https://www.youtube.com/channel/UCQ1Rt02HirUvBK2D2-ZO_2g?sub_confirmation=1 Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy

Comments

  1. 3 people trade equities, not options.
  2. How is the profit in call option 15?
  3. So if the stock rises to the strike price of $60, you only break even with the sale and lose the $5 upfront capital, right?
  4. so you can hedge your buy if you buy a put option?
  5. Could anyone explain why 300% gain? Thanks!
  6. @RufioDeLaRocha Remember that if your purchase options, you can still trade the options if they are not IN THE MONEY. Just because the strike is at $10 and the stock is trading at $5 doesn't mean you can't still get maybe a 0.01 on every $1. You only lose 100% if you let the option expire and the price is below the strike. This is why most should buy LEAPS which are 6 month to 1 year options. There is more time value associated with LEAPS = less volatile compared to short term options.
  7. I was reading about options replication technology where one uses the greeks to create a payoff that looks like actually owning an option. It seems to me that the replication does not mimic the leverage part. Am I doing something wrong here? Can anyone tell me for sure? Basically I want to create options-like payoffs on underlyings where there is no options traded (e.g. linkedin on day 2 of trading) complete with the leverage... possible?
  8. @RufioDeLaRocha but if you noticed , the investor will only pa $5 for a call option and $50 if he/she bought a stock. I mean the cost of acquiring a call option is less than the cost of buying a stock therefore you will lose small amount. share price = $10 & u bought 100 shares then the total cost = $1000 + commission share price = $10 & u bought a call option contract of 100 shares , the premium = $3.5 , then ur total cost would be premuim * 100 shares = $350 only and not $1000
  9. Options are definitely riskier in terms of absolute profit/loss. Say you have two choices: 1) buy $10 worth of stock OR 2) buy $10 worth of options with a strike price of $10. If the stock goes down to $5, 1) With Choice 1, you only lose $5 of your investment since your stock is worth $5 now so -50% 2) With Choice 2, you lose $10 or -100% on your investment. Overall, it is easier to get a -100% return with options as opposed to owning the stock since it is harder for a stock to hit $0.
  10. Sal, Do you think that options are less risker than stocks and bonds? Thanks
  11. yet another amazing explanation! You rock Sal!


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Duration: 3m 4s

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