Options Trading Explained with Bananas (No AI) — Transcript

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1. 0:00Monkey buy one banana for five leaves.
2. 0:03Later, banana price go up to 10 leaves.
3. 0:06Monkey sell banana. Monkey make five
4. 0:09leaves profit. This is trading. Options
5. 0:12trading is simply, instead of buying
6. 0:14banana, monkey buy banana coupon. This
7. 0:18coupon gives monkey the option to buy
8. 0:21bananas at a certain price, but coupon
9. 0:24eventually expires. There are two main
10. 0:27types of options. Call options and put
11. 0:31options. Call options. A call option
12. 0:34gives monkey the right to buy bananas at
13. 0:37a certain price. Let's say banana
14. 0:39currently costs 10 leaves. Monkey thinks
15. 0:42banana price will go up. So, monkey buys
16. 0:46a banana coupon for one leaf. The cost
17. 0:49of banana coupon is called the premium.
18. 0:52Wow, so my leaf is premium? No, that's
19. 0:54just what it's called. Ooh, premium
20. 0:57leaf. This coupon lets monkey buy banana
21. 1:00for 12 leaves anytime during the next 30
22. 1:04days. The 12 leaf price is called the
23. 1:07strike price. Monkey now has the option
24. 1:10to buy banana for 12 leaves, but monkey
25. 1:13doesn't have to. But why would monkey
26. 1:15buy a coupon to buy bananas at a certain
27. 1:18price instead of just, you know, buying
28. 1:21bananas? Well, if banana price go up,
29. 1:24monkey would like the option to buy them
30. 1:27for less leaves. So, it always works
31. 1:29out, right? Uh, no. There's basically
32. 1:32four scenarios.
33. 1:33>> Fewer the sparkly titles.
34. 1:35>> Call options scenarios. Scenario one,
35. 1:38banana goes down. Banana price falls to
36. 1:40eight leaves. Monkey's banana coupon
37. 1:43lets him buy banana for 12 leaves, but
38. 1:46why would monkey pay 12 leaves when
39. 1:49banana only costs eight leaves at the
40. 1:52market? Monkey doesn't use coupon.
41. 1:54Coupon expires worthless. Monkey wasted
42. 1:57the one leaf he PAID FOR IT. NO, my
43. 2:01premium leaf. Scenario two, but anna
44. 2:04goes up, but not enough. Banana price
45. 2:08goes up to 11 leaves. Monkey can use
46. 2:10banana coupon to buy banana for 12
47. 2:13leaves, but banana only costs 11 leaves
48. 2:16at the market. So again, monkey doesn't
49. 2:18use coupon. Coupon expires worthless.
50. 2:21Monkey wasted his one leaf.
51. 2:23>> But but number go up.
52. 2:26>> I know, it's okay. Shh. Scenario three,
53. 2:29break even. Banana price goes up to 13
54. 2:32leaves. Monkey can buy banana for 12
55. 2:35leaves and sell it for 13. Monkey makes
56. 2:38one leaf. Monkey big brain. Monkey knows
57. 2:40stonks. But monkey paid one leaf for the
58. 2:45coupon. So monkey breaks even. Ah, damn
59. 2:48it. Scenario four, banana goes way up.
60. 2:52Banana price goes to 50 leaves.
61. 2:55>> Baby, there's a fire or a storm or a
62. 2:58politician.
63. 2:59>> I'm investing in bananas.
64. 3:01>> But monkey's coupon still lets him buy
65. 3:04banana for just 12 leaves. Monkey can
66. 3:07buy banana for only 12 and sell it for
67. 3:1050. Monkey only paid one leaf for banana
68. 3:13coupon and made 37 leaves profit. The
69. 3:17higher the banana price goes, the more
70. 3:20valuable monkey's call option becomes.
71. 3:22>> Finally, monkey rich. Wait, wait. I've
72. 3:25always wanted to do this.
73. 3:27Hey monkeys, if you want to be rich like
74. 3:28me, click the link in the description
75. 3:29and buy my online course. No, no, no,
76. 3:31no, no. Stop it. Stop it.
77. 3:34>> Call options pop quiz. Banana costs 10
78. 3:37leaves. Monkey thinks banana price will
79. 3:39go up. Monkey can choose between two
80. 3:42coupons. Coupon one, buy banana for 12
81. 3:45leaves. Coupon two, buy banana for 13
82. 3:48leaves. Both expire in 30 days. Which
83. 3:51coupon is better?
84. 3:54Obviously,
85. 3:56coupon one. Monkey would rather have the
86. 3:59option to buy banana for cheaper.
87. 4:01>> Yeah, right. Obviously.
88. 4:02>> I knew that. What did you write down?
89. 4:04>> Nothing.
90. 4:07>> A quick word from today's sponsor, Cape,
91. 4:10>> [music]
92. 4:10>> America's privacy-first mobile carrier.
93. 4:12Monkey is sick of AT&T, Verizon, and
94. 4:15T-Mobile leaking or [music] selling
95. 4:16monkey's data like it's just another
96. 4:18banana. Monkey doesn't want strangers
97. 4:20knowing monkey's [music] secret options
98. 4:22trading strategy. That's why monkey uses
99. 4:25Cape. Cape only collects the minimum
100. 4:27information needed to get monkey
101. 4:28connected. They don't even ask for
102. 4:29[music] monkey's name, address, or
103. 4:31social security number. So, they
104. 4:33couldn't sell monkey's personal data
105. 4:34even if they wanted to because they
106. 4:36don't collect it. But, it gets even
107. 4:38better. [music] Every 24 hours, Cape
108. 4:40changes monkey's phone's secret network
109. 4:42ID. So, to hackers, advertisers, and big
110. 4:44corporations, [music]
111. 4:45monkey looks like a completely different
112. 4:47monkey every single day.
113. 4:49>> I can't seem to find him.
114. 4:50>> He's just over there.
115. 4:52>> What? How?
116. 4:53>> Monkey also gets two extra phone numbers
117. 4:55included with the plan. One for
118. 4:57shopping, one for random websites asking
119. 4:59[music] for monkey's number, and
120. 5:00monkey's real number stays safe for
121. 5:02friends and family. Cape also protects
122. 5:04monkey from [music] SIM swaps. If a
123. 5:06hacker tries to steal monkey's number
124. 5:08and move it to their phone, they need a
125. 5:09secret 24-word [music] phrase that only
126. 5:12monkey has.
127. 5:13>> Give me monkey's phone number.
128. 5:14>> No.
129. 5:15>> Please?
130. 5:16>> No.
131. 5:16>> Pretty please?
132. 5:20>> And Cape automatically deletes monkey's
133. 5:22call and text metadata after just 24
134. 5:24hours instead of keeping it forever.
135. 5:26Even monkey's voicemails [music] are
136. 5:28encrypted, so random banana thieves
137. 5:30can't snoop through them. And when
138. 5:31monkey travels to another jungle, Cape
139. 5:33securely routes monkey's connection
140. 5:35through its US-based [music] network
141. 5:36with up to 15 GB of international
142. 5:38roaming included every month. Cape
143. 5:40normally costs $99 a month, but if you
144. 5:43sign up this year, you can lock in their
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146. 5:47forever. Plus, use Monkey's code for 33%
147. 5:50off your first 6 [music] months. Cape,
148. 5:52protect yourself with private cell
149. 5:53service.
150. 5:55Put options. But, what if Monkey thinks
151. 5:57banana price will go down? Monkey can
152. 6:00buy a put option. A call option gives
153. 6:03Monkey the right to buy bananas at a
154. 6:05certain price. A put option gives Monkey
155. 6:08the right to sell bananas at a certain
156. 6:10price. Stay with me now. Let's say
157. 6:12banana costs 10 leaves. Instead of a
158. 6:15banana coupon, Monkey buys banana
159. 6:18insurance for one leaf. The insurance
160. 6:21lets Monkey sell a banana for eight
161. 6:23leaves during the next 30 days. But, why
162. 6:27would Monkey want to sell banana for
163. 6:29eight leaves when banana currently sells
164. 6:31for 10? Because Monkey thinks banana
165. 6:34price will fall. It's all coming down. I
166. 6:37can feel it. There's four ways these can
167. 6:39go. Put option scenarios. Scenario one,
168. 6:42banana goes up. Banana price goes up to
169. 6:4512 leaves. Monkey's insurance lets him
170. 6:48sell banana for eight leaves. But, why
171. 6:50would Monkey sell for eight leaves when
172. 6:53he could sell for 12 at the market?
173. 6:56Monkey doesn't use insurance. Insurance
174. 6:58expires worthless. Monkey wasted his one
175. 7:01leaf premium. Not again. Scenario two,
176. 7:04banana goes down
177. 7:06but not enough. Banana price falls to
178. 7:08nine leaves. Monkey's insurance lets him
179. 7:11sell for eight leaves. But, Monkey could
180. 7:13sell banana for nine at the market. So,
181. 7:16Monkey doesn't use the insurance.
182. 7:18Insurance expires worthless. Monkey
183. 7:20wasted his one leaf premium. OH, COME
184. 7:23ON. Scenario three, break even. Banana
185. 7:26price falls to seven leaves. Monkey's
186. 7:29insurance lets him sell banana for eight
187. 7:32leaves. Monkey makes one leaf. Yay!
188. 7:35[screaming]
189. 7:36But, Monkey paid one leaf for the banana
190. 7:39insurance. So, Monkey breaks even.
191. 7:42>> GOD DAMN IT!
192. 7:44>> SCENARIO FOUR, banana crashes. Banana
193. 7:47price falls to two leaves. I'm
194. 7:50mass-producing
195. 7:51bananas. Monkey's banana insurance still
196. 7:54lets him sell banana for eight leaves.
197. 7:57Monkey can buy banana for two leaves and
198. 8:00use his insurance to sell it for eight.
199. 8:02Monkey makes six leaves. After paying
200. 8:05one leaf for the insurance, monkey makes
201. 8:08five leaves profit. The lower the banana
202. 8:11price goes, the more valuable monkey's
203. 8:13insurance becomes.
204. 8:15>> It's all coming down. Monkey's rich. I
205. 8:17love scenario four.
206. 8:18>> Different parts of options contracts.
207. 8:21Every option has three important things.
208. 8:24The premium, how much the option costs.
209. 8:27The strike price, the price monkey can
210. 8:29buy or sell the banana for. And the
211. 8:32expiration, how long the option lasts.
212. 8:35Stay with me now, monkeys. It's big
213. 8:37brain time. How much an option costs
214. 8:40depends on the strike price and the
215. 8:42expiration. If banana cost 10 leaves, an
216. 8:46option with a strike price of 11 leaves
217. 8:49would be more expensive because banana
218. 8:51price doesn't have to move much for
219. 8:54option to be valuable. And a longer
220. 8:56expiration also makes option more
221. 8:59expensive because banana price has more
222. 9:01time to go up or down. Why are options
223. 9:04risky? Options are also risky because
224. 9:07monkey usually isn't buying an option
225. 9:09for just one banana. One option is
226. 9:12usually for 100 bananas. So, if the
227. 9:15option costs one leaf, that's one leaf
228. 9:18per banana. So, one leaf times 100
229. 9:21bananas, monkey actually pays 100
230. 9:25leaves. If the option expires worthless,
231. 9:27monkey could lose all 100 leaves.
232. 9:31If monkey invests 100 leaves in bananas
233. 9:35and banana price goes down a little,
234. 9:37monkey loses a few leaves. If monkey
235. 9:40spends 100 leaves on banana options and
236. 9:43the option doesn't go monkey's way in
237. 9:45time, monkey loses everything. Options
238. 9:49can make monkey lots of leaves,
239. 9:52but monkey can also lose it all. But
240. 9:55remember, this is the most important
241. 9:57thing. Don't forget this is not
242. 9:59financial advice. Please do not sue
243. 10:02monkey.
244. 10:06>> [music]