Part 1:Purchasing during earnings season | Practical Options Trading Guide.

Earnings season is one of the most anticipated periods during the financial year for the market. Investors should know what to expect, but also undertake their own research and analysis to find opportunities that may arise during this time.

Historically, earnings announcements have played a prominent role in moving stocks. As a result, they represent the understanding of a company's position in the unknown future in the world of investing. While projections and expectations are effective tools in modelling the direction and magnitude of equity plays, the world of options opens a plethora of opportunities based on trading volatility. Knowing when to capitalise on mispriced options can yield some great returns.

Learning more about what options are, their benefits, and how you can invest in them will help expand your portfolio and also assist you in finding greater opportunities in your investment journey.

1. What are options?

An option is a right to buy or sell a certain amount of an asset at a specific price and at a specific time in the future. What does it mean? Let's ask a question first:

If you think a stock is bound to rise in the future, but you don't have enough money, how can you seize this opportunity?

Simple! Let's start with an example:

Jack looked at a $1 million house that was for sale, but now he has no money. He wants to buy it after a month, but he is afraid that the price of the house will rise after a month. So now, Jack faces two choices:

1.One month later, regardless of the rise or fall of house prices, he buys it according to the latest market price;

Or,

2.Spend $10,000 to buy a subscription certificate in the sales department; (the subscription certificate gives Jack the right to buy the house for $1 million after a month, regardless of the rise or fall of the house price).

If this were a situation faced by you, what would you do? It's actually quite simple!

Let's look at how to use options thinking to solve investment problems.

Jack believes that the probability of house prices rising after one month is relatively large, so he chose the second one, and a month later, the house price rises to $1.02 million. Jack exercised his right to buy a house at a price of $1 million, excluding the subscription certificate fee, making a net profit of $10,000 (102-100-1=1). However, think about this, what will Jack do if the house price falls to $980,000 a month later?

The answer is that Jack will not exercise his power, because if he can buy a house directly at the market price of $980,000, why should he buy it at $1 million with a subscription certificate?

For Jack, the only loss is the subscription certificate fee of $10,000, and he forfeits his rights to the option of purchasing the house at the agreed price.

Therefore, the warrant itself is an option, a right rather than an obligation, and you can choose to exercise or not exercise the right after buying a warrant.

The question arises again, what if, after a month, Jack still doesn't have the money to buy a house, but the house price has risen to $ 1.1 million, and Jack doesn't want to give up his position to exercise his contract and lose money?

Very simply, Jack can sell the subscription certificate to other buyers, because whoever has the subscription certificate means they can buy a house of $1.1 million for $1 million, so in theory, the subscription certificate can be sold for up to $100,000, and Jack can make a net profit of $90,000 through the transfer of the subscription certificate. Although Jack did not buy a house, he made a profit from rising house prices.

If Jack's $1 million investment bought a stock rather than a house, then the warrant is called an option. The $10,000 spent on purchasing the warrant is called the premium or option premium, and the $1 million purchase price agreed upon in the future is called the exercise price.

2. The benefits of options.

So in simple terms, the benefits of the existence of options are as follows.

  1. Lock in the future transaction price in advance and hedge risks

Just like Jack buying a house, he can't trade now for various reasons, but he is afraid that the price will rise in the future, so he chooses to buy options to lock in the future price first and hedge risks.

      2.Earn leverage with smaller investments of money

As mentioned above, Jack did not actually buy a house, but he also made a profit from the increase in house prices through the transfer of subscription certificates. If it is through the purchase of the house, the house price rises from $ 1 million to $ 1.1 million, with a yield of 10%, but if it is a transfer of the subscription certificate, the investment amount of $10,000 earns $90,000, and the yield is 900%.

      3.Control the maximum loss

If Jack directly spends $1 million to buy a house, if the house price falls in the future, Jack's maximum loss can theoretically reach $1 million (assuming that the maximum fall in house price is 0), but if it is a purchase option, the house price falls, Jack gives up the exercise, then the biggest loss is the cost of the subscription certificate of $10,000. The reason why the option can control the maximum loss is that it is a choice, it is exercised if it is beneficial to itself, and it is not exercised if it is unfavourable to itself, and the maximum loss is the premium.

If Jack already has a house, but is afraid that the price will fall in the future, can he use options to lock in the price? The answer is yes. Whether you are worried about future price increases or future price declines, you can rely on options to lock in the price.

To solve this problem, we must understand the classification of options.

There are two types of options: call and put

  • The so-called call option is the possibility to buy an asset at an agreed price in the future, for example, Tesla's stock call option strike price is $100 and the premium is $10. This means that you can buy this option for $10, and thus have the power to buy Tesla stock for $100 in the future. If Tesla's share price exceeds $100 in the future, you can profit from it!

For example, Jack bought the option, and Tesla's stock price rose to $200 in the future, and Jack exercised the option, so he made a profit of $200-$100-$10 = $90

  • The so-called put option is that you can sell an asset at an agreed price in the future. For example, Jack has Tesla stock in his hand. The current market price is $100, but Jack is worried that Tesla's stock price will fall in the future, so buy a put option with a strike price of $100, a premium of $10, then in the future, if Tesla's stock price falls to $90, Jack can still sell his stock at $100.

Of course, as previously mentioned, options not only have the benefit of locking in the asset price, but can also obtain the benefit of rising prices by using leverage.

If you find this article helpful, share it with 3 friends and you could win Tiger Coins!

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# Options Hub

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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  • koolgal
    ·2023-03-25
    TOP

    🌟🌟🌟Today I learn the definition of Options, the benefits of using Options especially during earnings season and the 2 types of Options - Call and Put Options. 

    Call Option is the option to buy a stock at an agreed price in future.  This is useful if I believe that the price of the stock will go up.  

    Conversely Put Option is the option to sell a stock at an agreed price in future if I believe that the price will drop. 

    Thanks @Tiger_Academy  for your excellent lesson today.  I am sharing this lesson with my Tiger Friends @4Leaf  @A.111  @Zarkness  @firefirefire  @HelenJanet  @ChaoAhBeng  

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    • koolgalReplying toZarkness
      My pleasure 😍😍😍
      2023-04-13
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    • Zarkness
      Thats cool!! Thanks for sharing
      2023-04-13
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    • firefirefireReplying tokoolgal
      过将😁😁😅
      2023-03-25
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  • GoodLife99
    ·2023-04-12

    Sharing is caring! [Love] 

    Instead of 3, I would like to share with you all my frenssss & it's important post for my own record.

    Come learn together

    Part 1

    Purchasing during earnings season | Practical Options

    Thanks a lot @Tiger_Academy  !!

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    • Furore
      ooo
      2023-04-12
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  • CL_Wong
    ·2023-03-25
    TOP

    @Thonyaunn @MeowKitty @Derrick 1234 come and join me learning 

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  • Derrick_1234
    ·2023-03-25
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    @CL Wong @Thonyaunn @MeowKitty Comeand join me learning 

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    • Thonyaunn
      👍
      2023-04-23
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    • MeowKitty
      👍👍
      2023-03-25
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    • CL_Wong
      👍
      2023-03-25
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  • HelenJanet
    ·2023-04-13
    Sharing this useful article on Practical Options Trading Guide with friends @MHh @DiAngel @Fenger1188 @SR050321 to win some wonderful tiger coins.
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    • Fenger1188
      谢谢分享👍🏻👍🏻👍🏻
      2023-04-23
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    • SR050321
      Thank you 😍
      2023-04-13
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  • SR050321
    ·2023-04-12
    I was good at math but still dont know how this option is counted. If i want to buy $Tiger Brokers(TIGR)$ at a price of $2.60 thru option, is it possible ? How to enter the order ? Thanks for your guidance 😍


    Tag 3 friends to get coins @rL @LMSunshine @HelenJanet 😁
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    • LMSunshine
      App issue I can’t see the post…
      2023-04-13
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  • MeowKitty
    ·2023-03-25
    TOP

    @CL Wong @Thonyaunn @Derrick 1234 come and join me learning 

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  • Fenger1188
    ·2023-04-23
    感谢 @Tiger_Academy 精彩分享👍🏻👍🏻👍🏻我在您这里得到的知识,我学以致用,我开始尝试买入期权,哈哈,祝我好运😃😃😃 @Chooer @koolgal @HelenJanet @rL
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    • koolgal
      Best of luck with your investments 😍😍😍🍀🍀🍀
      2023-04-23
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  • Success88
    ·2023-04-12
    So What Is a Stock Option?
    A stock option (also known as an equity option), gives an investor the right, but not the obligation, to buy or sell a stock at an agreed-upon price and date. There are two types of options: puts, which is a bet that a stock will fall, or calls, which is a bet that a stock will rise. Because it has shares of stock (or a stock index) as its underlying asset, stock options are a form of equity derivative and may be called equity options.


    Buy call now
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  • SR050321
    ·2023-04-13
    Tag 3 friends to get coins @rL @LMSunshine @HelenJanet in case the post you could not see ❤️
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    • Fenger1188
      👍🏻👍🏻👍🏻
      2023-04-23
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    • HelenJanet
      Thanks 👍👍❤️❤️
      2023-04-13
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  • MHh
    ·2023-04-12
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    • SR050321
      Thanks my dear friend 👍
      2023-04-12
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    • DiAngel
      👍
      2023-04-12
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    • Success88
      Great
      2023-04-12
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  • SR050321
    ·2023-04-13
    Hello @Tiger_Academy instead of a house why not give example real stock, so can check yr description against the data in tiger apps, then if interested can directly put into action. Thank you
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  • Zarkness
    ·2023-04-13
    Its a good basic explanation, buy call options and put options . Thanks for the knowledge @Tiger_Academy …
    @Tigress02 @Viv22 @melson @MojoStellar lets get some knowledge together
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  • DiAngel
    ·2023-04-12
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  • b1uesky
    ·2023-04-12
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  • Zee Novice
    ·2023-04-12

    Succinct explanation of complex concepts. Highly recommend newbies to read this.

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  • Omega88
    ·2023-04-23
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    • Fenger1188
      谢谢分享👍🏻👍🏻👍🏻
      2023-04-23
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  • moliya
    ·2023-06-19
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    • LMSunshine
      Thanks buddy❣️
      2023-06-19
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  • Kiwi1978
    ·2023-04-13
    What an awesome article…actually underatand options a little better now thank you!
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  • Cedric77
    ·2023-04-12

    Good read! Options explained in Simplest terms and further illustrated with paradigm. 

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