Shorting options is a confusing concept for new options traders. Learn how shorting options works with examples and a step-by-step demonstration!
✅ [PDFs] How Shorting Options Works & Options Trading for Beginners (160+ Pages):
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==== Chapters ====
0:00 Intro (Video PDF Download in Description)
0:19 Buying vs. Shorting
0:48 Short Call Option Example in AAPL
1:56 Short Call Expiration Risk Graph
4:10 Short Call Option Example in NVDA
5:05 Assignment Explained
5:55 Shorting Put Options Explained
6:35 Short Put Expiration Risk Graph
7:36 Short Put Trade Examples (NVDA and QQQ)
10:38 Live Demonstration of Shorting Options on tastytrade
14:24 tastytrade Funding Bonus
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===== Summary =====
In this video, we’ll walk through how shorting options works with many trade examples in AAPL, NVDA, and QQQ.
I’ll also do a live demonstration of shorting a put option in XLU by using the tastytrade brokerage platform.
In the physical world, selling something you don’t own doesn’t make any sense. And since ‘shorting’ refers to selling something you don’t own with the intention of buying it back at a lower price, it can be a confusing topic for beginner options traders.
By shorting options, we are betting against the price increase of an option, and can profit by buying back the option at a lower price.
For example, if I short a call option for $5.00, I will make money as the call’s price falls, which will happen if the stock’s price remains below the strike price over time. If I buy back the call for $4.00, my profit is $100 since a $1 decrease in an option’s price represents a $100 loss of its value.
If I short a put option for $3.00, I make money as its price falls, which happens when the stock price remains above its strike price as time passes.
So shorting calls is a bearish strategy and shorting puts is a bullish strategy.
But if the stock price moves against you while shorting options, you can lose a lot of money. Shorting naked calls has theoretically unlimited loss potential since there’s no upper limit to a stock’s price. Shorting naked put options can lose a lot of money if the stock price falls dramatically, with the worst-case scenario being if the stock price falls to zero.
There’s much more to learn, but that’s the gist of it!
Watch the video all the way through to learn these key concepts quickly, and hopefully effectively with the explanations and accompanying visuals.
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