Understanding Options Trading: Exploring Calls, Puts, and Theta
Navigating the world of options trading can feel like traversing a complex landscape, filled with terms like calls, puts, and theta. But there's more to it than meets the eye.
Joining us for Yahoo Finance's Options 101 special is Amy Wu Silverman, Managing Director and Equity Derivatives Strategist at RBC Capital Markets. Amy sheds light on the concept of theta – the phenomenon of options losing value over time – and offers insights using Meta Platforms (META) and Uber (UBER) as examples.
When it comes to options, having a catalyst in mind is key, Amy explains. This ties into theta, where options lose value if nothing significant happens in the underlying stock. Understanding this decay is crucial for traders.
Let's delve into some examples. First up is the covered call strategy, where an investor sells a call option against stock they already own. Amy uses Meta Platforms as an example, highlighting how selling a call option can generate income if the stock remains stable.
On the flip side, we look at buying a protective put option on Uber. With upcoming events like earnings and an analyst day, there's potential for volatility. Buying a put option can help protect against downside risk during uncertain times.
In options trading, having a clear understanding of the underlying stock and potential catalysts is essential. With Amy's insights, navigating the options market becomes a little less daunting for newcomers.
Editor's note: This article was written by Nicholas Jacobino.