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Alan Cring Productions in association with Emergent Light Studio presents

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the Illinois State Collegiate Compendium, academic lectures in business and economics.

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This is business finance, FIL 341 for autumn semester 2024.

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Today, financial options. See, you have to sound real formal, dignified in fact.

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Actually, I learned that from Apple iTunes. I think I was the first or one of the first education podcasters

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they ever took in Apple years ago. And boy, they let me know everything has to be professional.

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The music, the serious voice and all that kind of stuff. And I'll be darned if they didn't pick me up.

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And they've kept me ever since. God knows why. But anyway, I'll talk more and I'll show you on Monday

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how these podcasts and RSS work. But let me get... Now, we're going to look at the numbers first.

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But a little bit of caution. Financial options is really... It can be really mathematical.

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And I'm talking at the PhD level of mathematics. It's that serious.

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You're using some pretty high powered... A form of calculus called stochastic calculus.

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And at the undergrad level, we have a course, FIL 347. So if this excites you, you can take FIL 347.

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Sometimes I actually teach that course because that's one of my specialties is options.

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However, at the undergrad level, there are two ways you can take it.

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You can introduce them to the hellscape of the math and go from there.

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Or you can take a more practical approach. Here's what we do with options.

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And just bring up the terminology and not so much the math behind it.

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And that's the approach I'm going to take with this chapter five.

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Is show you a little of the math, maybe scare you a little bit, and then from there we'll say,

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okay, now let's talk about what these can do in a practical environment, in a corporate environment,

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as well as an investment environment. The thing is that for investment purposes,

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a lot of people jump into options on the speculative side.

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They're just jumping in and see if they can make a quick buck.

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But there is the other side of it where you are doing that for very specific hedge creating purposes.

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And corporations use them all the time for hedging their operations.

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And that's where it is important in a corporate finance class,

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which this is largely a corporate finance class for you to know what they're all about.

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But before I get too much into that, we look at the numbers today and we have a really odd day going on.

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You notice that there was this bullish surge coming out of the bell and it rose,

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and then it just decided it was going to head to the toilet.

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It just started plowing down, and then just in the last, within the past 30 minutes, it bounced.

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The traders saw that it was hitting back to zero and it was going to go negative,

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and they just turned it around and it bounced as you can see visually on the spark charts.

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It dipped a little in the negative territory and then it turned around.

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Here's the thing, the Fed, of course, there's an interest rate cut coming,

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and so that seems to indicate that the Fed with all of its data sees us going into a soft landing.

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In other words, that difficult time we had during the lockdown.

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Actually, the recession happened before the lockdown,

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but crawling out of it was not normal because of the lockdown.

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If you look at the data, 2020 was when we actually dipped into a recession,

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a technical recession, two consecutive quarters of negative GDP growth.

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Then after that, we should have just come back out, but we didn't because of the lockdown.

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We've been mired in the after effects of the lockdown for quite some time.

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We are recovering, and so there is this sense that the Fed did it right.

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They thwarted the inflation that was caused by printing a lot of money

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to keep the economy going during the lockdown, and then they clawed it back,

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but they didn't claw it back so rapidly that we fell into a secondary recession.

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So the fear that there is a black swan coming, the hell is about to happen,

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that is not on traders' minds.

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You have some that are apocalypse freaks and all that, but most traders see it as,

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okay, we're going to make it out of this, we're going to grow.

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It might not be spectacular growth, but it will be sustainable growth

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coming into the rest of this year and into next.

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The real thing that we're looking for right now is what's going to happen in the Christmas season.

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And that's on every corporate mind, investor's minds.

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Are we going to have a good Christmas season?

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Is there going to be robust buy?

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So make sure you get your wish list for Santa and fill out a whole page

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because you're helping the economy the more you ask for from Santa Claus.

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But notice here, I'm going to take you over to the S&P 500

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and just have a quick look at what's happening with the trading of those big 500 stocks.

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As you can see, it is really weak.

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Typical day, 3.8 billion shares, we're half way, more than half way through the day

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and we don't even have half of that volume.

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It's a really quiet day.

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The investors just aren't ready to jump all in.

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There is a generally positive sentiment, but that sentiment is tempered by the question,

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when do we really see the growth begin to happen at a good rate?

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3% growth of GDP, all of that, 3.5%.

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When is it going to happen?

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They don't see it happening yet.

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The numbers aren't supporting a robust expansion yet.

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So that's why traders are staying off the playing field.

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Now, something that you can look at from this that helps supplement it, first of all.

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Now, notice there is just essentially a flatness right now.

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It bounced a little bit, but the markets are just waiting to see what happens next.

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And we do have an issue.

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Crude oil is showing a little bit of life.

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It's trying to find that trading band again,

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that 72 to 79 that it had for so long earlier this year.

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It's looking for that trading band one more time.

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And the reason I explained this on Monday, there is concern in the Middle East.

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And overnight, I don't know, I just got a sense that there was a little more concern than there had been,

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that we're going to have a widening of the low-level combat situation that's in the Middle East right now.

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We're just waiting to see what Israel is going to do to the Houthis in Yemen.

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And we're going to wait and see if the Iranians step in to help and all that.

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And of course, there's a little worry over in Eastern Europe about Putin,

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but we've kind of gotten to the point where we figure that he doesn't have the will to do anything but threaten a nuclear response.

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He's not, apparently he's crazy, but he's not stupid.

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Now notice that gold has fallen. That's good news.

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Because that just tells us that the gold bugs are not excited about some apocalypse happening.

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Their data is not pointing to some grim future.

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So there's a little bit of a sell-off in gold, and that's good news.

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We'd love to see gold get below $2,500 again per ounce, but it's pretty good where it is.

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Now, here's the thing that is a little bit concerning.

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Bond yields are up.

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Well, if the Fed is cutting interest rates, why are yields turning the other way?

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Well, one thing that means that yields are up, so bond prices are down. Chapter 4, bonds.

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Yields are up, so prices are down.

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So there's a sell-off in the bond market, but clearly that's not translating into a buy frenzy in the equities market.

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So that's more evidence that the money that is out there is just going into money markets, going into cash.

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The wait and see is driving us all crazy.

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Now, here we had an interesting situation, but right now the dollar is depreciating against both the euro and the British pound.

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That would say that the interest rates in the United States are weakening.

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There's no question that that's the case.

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So then the question is, why are bond yields rising?

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If the general sentiment is that the interest rate environment of the United States is weakening against the interest rate environment of Europe and England and Japan probably,

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I haven't looked at that yet, why is the U.S. dollar doing what it's doing?

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Well, if our interest rates are going down, that's why the dollar would be weakening.

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But we're seeing over here today that yields on bonds are rising.

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So then it comes to the question, how could those two happen at the same time?

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The next factor in currency exchange rates, interest rates are a big factor in appreciation,

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relative interest rates are a big factor in appreciations and depreciations.

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But the next factor is general relative economic growth.

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If the U.S. economy is growing at a slower pace than the European Union economy,

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then the euro will strengthen against the dollar.

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Put another way, the dollar will weaken against the euro.

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So the explanation that we could probably reach for is that there is a sentiment that the Europeans and the British are probably,

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the expectation is that they are growing at a slightly more robust rate than the U.S. economy.

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That would be about the best other explanation of why there would be that weakening.

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Now there's one more that could possibly be in play.

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As a currency of a country, more of the currency is printed, that weakens that currency.

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Okay, well the Fed has announced that it is easing up on interest rates,

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which is the same thing as saying that the Fed is opening the money supply.

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So if that is really what's bothering the currency traders,

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that would explain why the dollar is weakening against the euro.

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We're just starting to print more money, which weakens our currency against the currencies of our trading partners.

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These are the chains of logic.

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Now do I expect you to be able to do this on an exam yet?

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No, I don't.

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I'm just walking you through the logic of how this works.

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And you notice today I slipped in that next factor in what can drive currencies, interest rates.

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Now in 341, as I said, it's mostly a corporate course.

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There's a lot of investment in it, but it's a corporate course.

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Why would you care about that?

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Because you're going to live in a very, very global corporate world

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where those currency exchange rates are going to be something that you should at least have a good sense about.

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You might even need more than a good sense about it.

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But if that's what you want, you can take a really good sense.

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You can take our course, FIL 344, I think it is, International Finance.

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I teach that. Stella teaches that.

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And it's a really fun course.

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Math isn't that bad.

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But taking it over here just really quickly, Nikkei, every blessed day,

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they come out of the box on the opening bell in Tokyo in a pissy mood.

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And it just slides down.

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And as you can see, another day, like the typical day over in Tokyo,

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it starts out just being in a bad mood, drops and drops,

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and then it stops being grumpy and it just floats and maybe rises a little bit.

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But it's just sort of like they're in a funky mood from most days right now.

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Now, Britain opened with a strong pop.

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But then from there, it just sort of floated and then finally gave back

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some of that first opening bell gains by the end.

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They're still trading over there for a few minutes anyway.

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But I mean, as you can see, something was exciting overnight.

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It popped the stocks on the opening in London.

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And then just from there, there was no more information,

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bullish information and really not much bearish information.

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But about a little after lunchtime over there, the bears did take hold

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and drop at some, but whatever that means.

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But coming back over here, as you can see,

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we're in sort of a standing, still kind of mode right now.

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Let me very quickly focus on some sector stocks.

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Look at telecommunications, for example, AT&T.

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We will look at them first.

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Down hard today.

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They had a decent day yesterday.

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So something is pissing off investors about AT&T.

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So we would say, well, is that just AT&T or is that more broadly based in telecom?

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Well, there's Verizon.

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It's down as well a strong amount.

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So you can see that if you begin to look a little more granularly at what's

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happening in the stock market, that is not necessarily what's going on sector

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by sector.

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In this case, the telecom sector seems to be having a very bad day,

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a really sour day.

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So there's something upsetting investors about that.

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Now, let's go over to oil, MRO.

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Up.

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And of course, crude oil prices are up.

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So that should, their raw materials are up,

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but that means they can pass along some price increases.

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And so that's a good news for those who are in the oil.

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Looking at another one, Conoco, Phillips.

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And I can never remember this trading symbol number, how hard I tried.

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CLP.

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Right.

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It's up.

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So if you look at a closer level, the stock market, that's one thing.

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But if you look sector by sector, you will see a lot of things more interesting.

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On a day like this when the market is just sort of, the stock market overall is

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just sort of sitting there looking stupid, you see that if you look at industry

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level, you'll see some different things happening, which kind of give you more

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information.

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Go over to war stocks.

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Lockheed Martin.

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Down today a little bit.

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Well, that's good news.

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No draft for you guys.

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And if you do get drafted, I do expect you to send pictures back, you know,

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selfies in combat.

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That would be really cool for my scrapbook.

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Another one in that sector too, Halliburton.

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It's a war materials company.

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Ooh, that's up.

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That's interesting.

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Halliburton is a company that provides supplies globally to conflict areas.

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It's sort of a background company.

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Most people have never heard of it.

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But at the same time, it kind of reads a pulse of the underlying flow of

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militarism across the globe.

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They would supply our troops with their chow and all that in Iraq, Afghanistan.

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They provide food and resources, new uniforms, you name it.

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They can do about anything to keep an army on its feet.

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They're providing our things for our forward positions in countries you've

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probably never heard of.

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It's kind of one of those reach under the waves and see what the current is kind

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of stocks if you're into military industrial types of environments.

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It's something to look at.

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Now, one more sector, just obviously automotive is one of mine.

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So Ford, it's up very strongly today.

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It had taken some butt beatings earlier in this month and last.

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But something is good.

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Now, GM, see if this is a trend in the industry today.

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And it is.

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The auto stocks are up.

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So what I've tried to do here, and I had intended to do this last week, is to

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show you that, yeah, there's the overall stock market, but we don't really trade

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much in that.

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We go for not some perhaps individual companies, but in our world in

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professional finance, we kind of are interested in sector, telecom, war,

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automotive, basics, consumer basics.

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So we could look over here and look at Pfizer, PFE.

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And it's down.

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So we could look at another stock that's in consumer and medical stuff, Johnson

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and Johnson.

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And it's down.

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You notice that there are patterns that are emerging if you know how to look.

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Instead of just shotgunning looking at stocks the way I sometimes do, and I

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quite admit that I do that.

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But if you begin to look on a more professional level at stocks, I kick my

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keyboard out.

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I think I just did.

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Okay.

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So there's that to pay attention to.

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And if you decide that you're going to be some kind of a trader or work in a

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corporation, you will probably be more interested in sectors than you will in

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individual stocks.

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Now, without further ado, let me take you into the world of options.

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And I'm going to do this in two parts today, mostly just terminology, not math.

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I'll try to avoid the math, but I'll sneak it in here.

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Now, I will tell you one other thing, too, is for years and years, professors and

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some professionals out there, traders, have been using Excel to do options

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calculations instead of having to do integrals and derivatives and all that

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kind of insane stuff.

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It started probably 15 years ago.

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There were some templates that were being passed around in these message boards

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before there was social media and all that, these message boards that were for

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professionals, academics and others, sort of like the pre-Reddit subreddits of the

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pre-Reddit era.

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And there were these, we would get them, and then we would do a tweak.

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Hey, we'll do this, and it might make it look more interesting.

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It might be easier to see where to put your numbers in.

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And so I have those, and I'm going to upload some of those spreadsheets so that

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you can actually price options and you can do some pretty impressive things that

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would be otherwise really not that easy to do.

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For example, I don't know, have you heard of the Black-Scholes options pricing

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model?

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It is the holy grail of options developed by Black-Scholes and Merton back in the

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1990s.

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No, it was in the 1980s.

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As a matter of fact, I was a Ph.D. student when it came out.

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It's a monster equation with two integrals in it and unbelievable functions buried

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hidden in it.

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And so this is the way we actually calculate options in the real world.

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Now, a couple of other models have come out since then, and you can choose which

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one.

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They usually give you about the same results.

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But they are theoretical models, and they are the same equations that you would

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find in some pretty heavy-duty physics.

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And that's how we price options.

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Now, everything is about pricing options because you see, in our world, one thing

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that we are always looking for is an option that is not priced correctly.

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And if it's not priced correctly, it will correct itself very quickly because

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everyone will be using these options pricing models to find the correct price.

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And when the price deviates from that, the traders jump in and arbitrage it away

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very rapidly.

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So that's sort of a backdrop.

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But these Excel sheets do it for you.

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Now, they're Python.

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You can write these in Python, too.

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But the elegance of Excel is that most of you are pretty comfortable with Excel.

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You know how to put numbers in.

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You don't have to write any fancy code.

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It's been done for you.

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And as I said, I'm going to upload a couple of these sheets for you so that you

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can do the pricing very quickly.

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Now, the one interesting thing is that options can...the Black-Scholes options

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pricing model and the other ones that are like it, they have a couple of

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assumptions that don't necessarily actually occur in the real world.

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But you can get their prices, but it's god-awful hard.

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This Excel sheet can do it for you.

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However, you can't be using a Chromebook or even a Mac might fall apart.

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I won't ever hit you with what's called the binary model.

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I'll show you a binary model, but I will never hit you because for these ones

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that don't abide by the options pricing model assumptions of Black-Scholes,

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you have to do it in three yards in a cloud of dust.

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You put in the numbers.

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You get a number out.

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Then you take that number and put it back in, and you get it out again.

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And only over about 500 iterations of this will you get about the theoretically

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correct answer.

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So, but this Excel sheet does it.

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But I caution you, I'll put them up here, and they can really take a while on an

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older computer to run through the Excel calculations.

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That's the backdrop.

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Now, let's start.

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The book's approach is a little different from mine, but I'm going to put up these

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PowerPoints anyway just as a conversation starter.

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And I apologize for this because I should have had this ready when I got up here.

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Okay.

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Now, the first thing is that the terminology is very standard, although there is a

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shorthand version of some of these things that traders use.

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And I will use those terms.

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I'll introduce them.

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For example, exercise price, you would hear me say strike or strike price.

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I'd probably just say strike is.

329
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Okay.

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The underline, that's referring usually to the stock that's backing the option.

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And there are other terms too.

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Expiry, what day does the option expire on?

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Settles to.

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Now, in all of my time, options settled to cash.

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However, I found out the hard way that brokerage houses are now doing a nasty,

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nasty trick.

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They're settling to the underline.

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And that means that it costs you a fortune if you hold it to the very end.

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But let's just start with some basic terminology, financial options terminology

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for you to see.

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And I'm going to ignore that.

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An option is the right but not the obligation to buy or sell a stock at a specific

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date.

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Do I just have a small stroke or does that turn off?

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Try that again.

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There.

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Now, here's what that means.

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An option is a contract.

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A contract.

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Now, this contract, if I buy, let's say, a Ford option, the first thing would be,

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is it a call or is it a put?

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A call option gives you the right to buy a stock.

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A put option gives you the right to sell a stock.

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In either case, the contract specifies a guaranteed price at which you can buy or

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sell.

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That guaranteed price is the strike price.

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So I'd buy one Ford call option striking at 10.

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What that would mean is that I have the right but not the obligation to buy 100

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shares of Ford at $10, regardless of the actual price of Ford.

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Again, I buy a call option, a Ford call striking at, with a strike price of 10.

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That means that I can buy Ford stock at $10 a share, regardless of what Ford's

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actual price is.

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Now, the Ford stock is called the underlying.

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It is the basis of the contract, the underlying asset.

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So in other words, if Ford goes to $25 a share, I have the right to buy it at 10.

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That's my strike.

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I got the contract.

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Now, the writer, I am the purchaser.

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The writer is whoever wrote this thing and sold it to me.

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Now, the next thing.

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I buy a one Ford call striking at 10.

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Well, let me put it this way.

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I buy a September 20, a September 20 Ford call at striking at 10.

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In other words, the date of expiration is the 20th of September.

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That's when it's over.

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Now, I have the right but not the obligation to buy Ford at $10.

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Suppose Ford goes to $18.

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Well, I sure as hell am going to buy that option, exercise, I'm sorry, I'm going to

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00:31:48,000 --> 00:31:55,000
exercise my option and say, you who wrote me that option, I want 100 shares of Ford

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at $10 and the writer must cough up those 100 shares.

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00:32:02,000 --> 00:32:10,000
So theoretically, and the way it used to be done, all I'd get is $8.

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$18 minus the strike.

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00:32:12,000 --> 00:32:14,000
It would settle for cash.

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00:32:14,000 --> 00:32:21,000
Now they make you buy it at $10 and then instantly sell it for one reason or another.

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So now we have I bought a September 20 call striking at $10.

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So that's the first part of it.

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Now, what's the price of it?

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Suppose that Ford, oh, by the way, let me finish that.

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Suppose that Ford has fallen to $8 a share on the 19th.

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00:32:46,000 --> 00:32:52,000
I just walk away, I say kiss my ass because I have the right but I don't have the obligation

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to buy it at $10.

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00:32:53,000 --> 00:33:01,000
So Ford finishes out of the money below $10, I just walk away.

393
00:33:01,000 --> 00:33:04,000
I let the option expire worthless.

394
00:33:04,000 --> 00:33:07,000
It's out of the money.

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00:33:07,000 --> 00:33:15,000
But if it is $18 or $15 or $13 or whatever, it's in the money and I exercise my

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option.

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I exercise the right to buy it at $10.

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So it's striking at $10 and all that's going to happen is if on the expiration date,

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the price of Ford is below $10, I just walk away and say kiss my ass.

400
00:33:30,000 --> 00:33:37,000
If it finishes the 20th above $10, I say hey, I'd like the difference between the strike

401
00:33:37,000 --> 00:33:41,000
price and the price of the underlying.

402
00:33:41,000 --> 00:33:45,000
So options are just pure bets.

403
00:33:45,000 --> 00:33:48,000
If it finishes in the money, you make money.

404
00:33:48,000 --> 00:33:51,000
If it finishes out of the money, you walk away.

405
00:33:51,000 --> 00:33:55,000
But, of course, you have to pay for the option.

406
00:33:55,000 --> 00:34:01,000
The option price is something that you have to, you're going to pay the rider.

407
00:34:01,000 --> 00:34:09,000
And see, riders of options, the rider of that call, he is going to take money up front.

408
00:34:09,000 --> 00:34:16,000
And he is betting that Ford will finish out of the money and I'll just walk away.

409
00:34:16,000 --> 00:34:21,000
That's the side for riding and it's risky AF to do that.

410
00:34:21,000 --> 00:34:25,000
Now there are two types of options a rider can do.

411
00:34:25,000 --> 00:34:31,000
A rider can do a covered call, which means he actually has a stock and he just cashes

412
00:34:31,000 --> 00:34:33,000
some of it to satisfy me.

413
00:34:33,000 --> 00:34:37,000
And then there are naked, which means that he don't got that stock so he's just going

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00:34:37,000 --> 00:34:40,000
to have to pull it out of his wallet.

415
00:34:40,000 --> 00:34:47,000
Now let me take this, you want a little journey here.

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00:34:47,000 --> 00:34:57,000
And I do this in a bass-ackwards kind of way, but I'm going to pull up Ford here.

417
00:34:57,000 --> 00:35:01,000
Options.

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00:35:01,000 --> 00:35:03,000
Yeah, these are the 20s.

419
00:35:03,000 --> 00:35:06,000
Now these are called options chains.

420
00:35:06,000 --> 00:35:11,000
Now these are not, I would not trust these prices at all for these.

421
00:35:11,000 --> 00:35:14,000
I would pull up a professional platform.

422
00:35:14,000 --> 00:35:18,000
I use Thinkorswim by TD Ameritrade Schwab.

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00:35:18,000 --> 00:35:20,000
But okay, let's have a look here.

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Now we go up here.

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00:35:22,000 --> 00:35:26,000
Now Ford right now is trading at 10.90.

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00:35:26,000 --> 00:35:31,000
So you can see all the blues, they're in the money right now.

427
00:35:31,000 --> 00:35:37,000
Expiring, these are expiring on the 20s, and all of these are in the money.

428
00:35:37,000 --> 00:35:43,000
Because if it expires today, I win.

429
00:35:43,000 --> 00:35:51,000
And if you go down here, the first one that's out of the money is, what the heck is a strike at 10.82?

430
00:35:51,000 --> 00:35:54,000
Whoever heard of that?

431
00:35:54,000 --> 00:35:58,000
Usually they're in 50 cent or dollar increments.

432
00:35:58,000 --> 00:36:00,000
That's a weird one right there.

433
00:36:00,000 --> 00:36:04,000
But you see this one, this one's just out of the money right now.

434
00:36:04,000 --> 00:36:08,000
Ford is just a little below $11 at 10.90.

435
00:36:08,000 --> 00:36:13,000
So this guy is just out of the money.

436
00:36:13,000 --> 00:36:20,000
Not much, but, and by Friday when it expires, it might be in the money.

437
00:36:20,000 --> 00:36:22,000
So there's that.

438
00:36:22,000 --> 00:36:29,000
So if I would, my own personal trading, I trade right around the money.

439
00:36:29,000 --> 00:36:35,000
That way I'm not hoping to God something spectacular happens.

440
00:36:35,000 --> 00:36:42,000
But as you can see now, they have bid and ask, just like stocks do.

441
00:36:42,000 --> 00:36:50,000
So now if I wanted to buy, let's say that 11, I would pay $9.00.

442
00:36:50,000 --> 00:36:53,000
Because everything is up for $100.

443
00:36:53,000 --> 00:36:56,000
So I would pay $9.00.

444
00:36:56,000 --> 00:37:03,000
If I wanted to write an option, I would get $10.00.

445
00:37:03,000 --> 00:37:05,000
I wouldn't do either one of these.

446
00:37:05,000 --> 00:37:18,000
So this option, you will win if by Friday Ford reaches $11.00 and,

447
00:37:18,000 --> 00:37:23,000
I'm sorry, I'd buy it at 10 cents, and $11.10.

448
00:37:23,000 --> 00:37:26,000
I'm sorry, $11.00.

449
00:37:26,000 --> 00:37:31,000
No, 10 times, yeah, 10 times $1.00.

450
00:37:31,000 --> 00:37:33,000
My ass.

451
00:37:33,000 --> 00:37:36,000
Yeah, $11.00.

452
00:37:36,000 --> 00:37:39,000
It'd have to reach $11.10.

453
00:37:39,000 --> 00:37:46,000
See, because I'm going to spend 10 cents for each share to get this option.

454
00:37:46,000 --> 00:37:50,000
So it doesn't, it's in the money at 11.

455
00:37:50,000 --> 00:37:55,000
But I don't start making money until it gets above $11.10.

456
00:37:55,000 --> 00:37:57,000
Because the option cost me 10 cents.

457
00:37:57,000 --> 00:37:59,000
Do you follow that?

458
00:37:59,000 --> 00:38:03,000
So just because it's in the money, you've still got to crawl out of the cost of the option,

459
00:38:03,000 --> 00:38:05,000
the price of the option.

460
00:38:05,000 --> 00:38:11,000
And in this case, the price to buy it is 10 cents.

461
00:38:11,000 --> 00:38:17,000
But, I mean, if you're bullish on Ford, this is a very tight option.

462
00:38:17,000 --> 00:38:20,000
It's expiring very soon.

463
00:38:20,000 --> 00:38:22,000
Now let me take you out.

464
00:38:22,000 --> 00:38:27,000
Let's look at the same option, but with an expiration date a week from the 20th.

465
00:38:27,000 --> 00:38:33,000
That would be the expiration on the 27th.

466
00:38:33,000 --> 00:38:36,000
Now let's look at that same one again.

467
00:38:36,000 --> 00:38:42,000
It's 18 cents, not 10 cents.

468
00:38:42,000 --> 00:38:44,000
Here's the reason.

469
00:38:44,000 --> 00:38:55,000
There's a greater probability that Ford will make it above $11.00 in two weeks than there is in one week.

470
00:38:55,000 --> 00:38:58,000
That is called theta.

471
00:38:58,000 --> 00:39:04,000
Theta decays as you get closer to the option's expiration date.

472
00:39:04,000 --> 00:39:06,000
So let's look even further out.

473
00:39:06,000 --> 00:39:12,000
Let's look at the options chain out here on the fourth.

474
00:39:12,000 --> 00:39:14,000
Here's 11.

475
00:39:14,000 --> 00:39:15,000
Do you see it?

476
00:39:15,000 --> 00:39:27,000
25 cents, because there's an even greater probability that it's going to get into the money in three weeks.

477
00:39:27,000 --> 00:39:29,000
I thought that was a closing bell.

478
00:39:29,000 --> 00:39:33,000
Wait a minute, I haven't done my trade yet.

479
00:39:33,000 --> 00:39:35,000
Okay, do you follow?

480
00:39:35,000 --> 00:39:45,000
In other words, the call price is going to increase as you've got more time for the stock to get to the money.

481
00:39:45,000 --> 00:39:50,000
Well, you might say, well, wait a minute, fat boy, there's also more time for it to fall out of the money.

482
00:39:50,000 --> 00:39:52,000
But why do I care?

483
00:39:52,000 --> 00:39:58,000
If it's one penny below $11.00 on the expiration date, I'm zero.

484
00:39:58,000 --> 00:40:02,000
It could fall to freaking $4.00 and I'm still zero.

485
00:40:02,000 --> 00:40:16,000
The downside is actually not anything because only upside potential is being priced in the theta, the growth, the potential for a win on the stock.

486
00:40:16,000 --> 00:40:25,000
As you buy these options farther out, you've got more chance to win, but you're going to pay a price for that bigger chance to win.

487
00:40:25,000 --> 00:40:27,000
That's how options work.

488
00:40:27,000 --> 00:40:37,000
Now, in a case like this, I mean, and another thing that will affect it is the volatility of the stock.

489
00:40:37,000 --> 00:40:42,000
I mean, stocks that have higher volatility tend to have higher options prices.

490
00:40:42,000 --> 00:40:50,000
The options have higher prices because there's more chance that it could bounce into the money and you get rid of it real fast.

491
00:40:50,000 --> 00:40:52,000
That's all there is to that.

492
00:40:52,000 --> 00:40:54,000
And I'm kind of ignoring put options here.

493
00:40:54,000 --> 00:40:57,000
Put options are just the opposite.

494
00:40:57,000 --> 00:40:59,000
You're betting that the stock price will fall.

495
00:40:59,000 --> 00:41:08,000
So let's look at the put options for the options chain for the October 4, Ford puts.

496
00:41:08,000 --> 00:41:16,000
Now, you notice that you're in the money the opposite way.

497
00:41:16,000 --> 00:41:24,000
So in other words, $11 is in the money because Ford hasn't made it to $11.

498
00:41:24,000 --> 00:41:30,000
You're betting that the stock will drop in price.

499
00:41:30,000 --> 00:41:40,000
And if you're bearish on a stock, you buy put options on it because you make money if the stock drops downward.

500
00:41:40,000 --> 00:41:50,000
In a case like this, and notice that they get pretty expensive pretty quick because Ford is at $10.90.

501
00:41:50,000 --> 00:41:54,000
So $11.50 strike, you're in the money big time.

502
00:41:54,000 --> 00:42:06,000
And the deeper in the money you're getting deeper in the money, the higher the put strike is because the Ford's already below those prices.

503
00:42:06,000 --> 00:42:08,000
So you're definitely going to win.

504
00:42:08,000 --> 00:42:15,000
It's only here that you begin to get some fun happening because Ford is $10.90.

505
00:42:15,000 --> 00:42:19,000
So a $10.50 put is out of the money.

506
00:42:19,000 --> 00:42:28,000
This is a bet that Ford will fall below $10.50 per share.

507
00:42:28,000 --> 00:42:37,000
And it would cost you $0.14 times $100 or $14 for that one.

508
00:42:37,000 --> 00:42:41,000
But this is almost like fun money.

509
00:42:41,000 --> 00:42:47,000
For the typical amateur, this is just casino.

510
00:42:47,000 --> 00:42:54,000
You just grab one and see if I'd buy a Ford put while I think it's going to drop in price.

511
00:42:54,000 --> 00:43:03,000
So I'd buy a Ford put, a $10.50 strike price put expiring on October the 4th.

512
00:43:03,000 --> 00:43:07,000
And let's see if it falls.

513
00:43:07,000 --> 00:43:14,000
Like I said, it's just a casino bet for most amateur options traders.

514
00:43:14,000 --> 00:43:20,000
But let me tell you something I want you to think about behind the scenes here.

515
00:43:20,000 --> 00:43:25,000
Let's look, let's go back to the front screen of Yee-Haw.

516
00:43:25,000 --> 00:43:30,000
And let's look at the S&P 500, the Spider.

517
00:43:30,000 --> 00:43:38,000
That's an ETF.

518
00:43:38,000 --> 00:43:43,000
Now, is that really?

519
00:43:43,000 --> 00:43:45,000
No, I didn't want that one.

520
00:43:45,000 --> 00:43:52,000
SPY, I wanted the, there it is, that's the one I want.

521
00:43:52,000 --> 00:43:55,000
There we go.

522
00:43:55,000 --> 00:43:58,000
This is the underlying.

523
00:43:58,000 --> 00:44:00,000
It's an ETF, but it's an underlying.

524
00:44:00,000 --> 00:44:04,000
It's a stock for all intents and purposes.

525
00:44:04,000 --> 00:44:11,000
And I am investing in this because I want to ride the market up.

526
00:44:11,000 --> 00:44:21,000
If we have a black swan, I am scurrued because I had my whole life savings in my S&P 500 portfolio.

527
00:44:21,000 --> 00:44:22,000
Well, you know what?

528
00:44:22,000 --> 00:44:25,000
If you come to me crying that you were screwed,

529
00:44:25,000 --> 00:44:28,000
I played a tiny little violin because I said,

530
00:44:28,000 --> 00:44:31,000
you know what you could have done?

531
00:44:31,000 --> 00:44:43,000
Suppose that you think it's a black swan if the Spider falls below, let's say, $480.

532
00:44:43,000 --> 00:44:49,000
Well, I can go over here to the options and I can reach out here.

533
00:44:49,000 --> 00:44:51,000
Let me see what I can do.

534
00:44:51,000 --> 00:44:57,000
Let's go out here to October the 18th.

535
00:44:57,000 --> 00:45:00,000
And I'm going to go down here to the putz.

536
00:45:00,000 --> 00:45:04,000
I'm going to go down to the putz for God's sake.

537
00:45:04,000 --> 00:45:09,000
Have I missed the putz?

538
00:45:09,000 --> 00:45:11,000
Where are the hell are the putz?

539
00:45:11,000 --> 00:45:13,000
There they are.

540
00:45:13,000 --> 00:45:18,000
Well, look at this.

541
00:45:18,000 --> 00:45:21,000
Do you see how I can hedge?

542
00:45:21,000 --> 00:45:24,000
This is called a protective put floor.

543
00:45:24,000 --> 00:45:27,000
That's not that expensive to buy a protective put floor.

544
00:45:27,000 --> 00:45:35,000
So that if the Spider does fall through the earth, well, I'll lose on the Spider,

545
00:45:35,000 --> 00:45:42,000
but I will win on the put option because it's a bet on the fall.

546
00:45:42,000 --> 00:45:44,000
Now, I wouldn't buy it close to the money.

547
00:45:44,000 --> 00:45:46,000
Those things get damn expensive out here.

548
00:45:46,000 --> 00:45:50,000
But out here, if you just want to hedge against, let's say,

549
00:45:50,000 --> 00:45:58,000
if you wanted to hedge against the S&P 500 falling below $525,

550
00:45:58,000 --> 00:46:07,000
well, that would cost me $198 for an insurance policy.

551
00:46:07,000 --> 00:46:08,000
That's what it is.

552
00:46:08,000 --> 00:46:11,000
It's just an insurance policy.

553
00:46:11,000 --> 00:46:15,000
Now, it doesn't kick in until the market falls below $525.

554
00:46:15,000 --> 00:46:17,000
So you're going to lose a little in your portfolio.

555
00:46:17,000 --> 00:46:20,000
It's like a deductible on your car insurance.

556
00:46:20,000 --> 00:46:23,000
But at the same time, protective put floors,

557
00:46:23,000 --> 00:46:33,000
if you really are concerned about having something bad happen to a stock or to a portfolio,

558
00:46:33,000 --> 00:46:36,000
buy some freaking way out of the money putz.

559
00:46:36,000 --> 00:46:39,000
And then if that really bad thing happens,

560
00:46:39,000 --> 00:46:47,000
you've lost money on the stock by it collapsing, but you make money on the putz that you brought down.

561
00:46:47,000 --> 00:46:49,000
That is hedging.

562
00:46:49,000 --> 00:46:51,000
That's what we mean by hedging.

563
00:46:51,000 --> 00:46:54,000
It's hedging a risk.

564
00:46:54,000 --> 00:46:56,000
You know, you're going to pay.

565
00:46:56,000 --> 00:46:57,000
It's like an insurance premium.

566
00:46:57,000 --> 00:46:59,000
You pay insurance on your car.

567
00:46:59,000 --> 00:47:02,000
You probably won't have an accident.

568
00:47:02,000 --> 00:47:08,000
But if you do have an accident, the insurance covers it for you.

569
00:47:08,000 --> 00:47:11,000
That's what put options do for you.

570
00:47:11,000 --> 00:47:14,000
They are for professionals.

571
00:47:14,000 --> 00:47:19,000
We use these to hedge risks in our business enterprises.

572
00:47:19,000 --> 00:47:24,000
We use these to hedge risks in our portfolios.

573
00:47:24,000 --> 00:47:26,000
We aren't betting.

574
00:47:26,000 --> 00:47:28,000
This isn't a bet.

575
00:47:28,000 --> 00:47:32,000
This is just prudent financial management.

576
00:47:32,000 --> 00:47:39,000
That's why in FIL 341, I use a book that brings it up.

577
00:47:39,000 --> 00:47:46,000
We don't kill you with it, but we make you aware that here is part of corporate management.

578
00:47:46,000 --> 00:47:54,000
As a matter of fact, I've made arrangements and then I didn't teach 347.

579
00:47:54,000 --> 00:47:59,000
There's a fellow at Aon Insurance, Reinsurance.

580
00:47:59,000 --> 00:48:02,000
Now, insurance companies buy piles of bonds.

581
00:48:02,000 --> 00:48:04,000
Safe, right?

582
00:48:04,000 --> 00:48:06,000
That's what they do with their money.

583
00:48:06,000 --> 00:48:10,000
They buy bonds, all their profits and their retained earnings and all that.

584
00:48:10,000 --> 00:48:16,000
Well, the problem is that bonds, as you saw in Chapter 4, bonds have price volatility.

585
00:48:16,000 --> 00:48:24,000
And so they don't like that, so they hedge them with put options on bonds.

586
00:48:24,000 --> 00:48:31,000
Simply because if the price drops too much on the bonds, their portfolio would take a bad hit.

587
00:48:31,000 --> 00:48:33,000
And Aon doesn't want that.

588
00:48:33,000 --> 00:48:40,000
So they have these options on bonds so that if the price falls below a certain price,

589
00:48:40,000 --> 00:48:46,000
then the put option is in the money and they make money on the puts,

590
00:48:46,000 --> 00:48:49,000
even though they lost money on the bond price fall.

591
00:48:49,000 --> 00:48:51,000
That's just how they do it.

592
00:48:51,000 --> 00:48:54,000
As a matter of fact, you can even do it both ways.

593
00:48:54,000 --> 00:48:58,000
And there are, I won't get too much into strategies,

594
00:48:58,000 --> 00:49:05,000
but you can buy combinations of calls and puts so that if it goes outside of a certain region,

595
00:49:05,000 --> 00:49:07,000
you're protected.

596
00:49:07,000 --> 00:49:15,000
But if it stays within a certain region, it's just, you pay, you just deal with volatility yourself.

597
00:49:15,000 --> 00:49:19,000
The other side of it is the ones that are really cool,

598
00:49:19,000 --> 00:49:33,000
but if there are the ones where if only if the underlying goes up or down, either, you make money.

599
00:49:33,000 --> 00:49:39,000
But if it stays in a certain range, you just lose what you paid for the position.

600
00:49:39,000 --> 00:49:42,000
Those are called straddles and butterflies.

601
00:49:42,000 --> 00:49:45,000
They have very fanciful names. I don't know why.

602
00:49:45,000 --> 00:49:49,000
Anyway, this is the basis why we do what we do.

603
00:49:49,000 --> 00:49:55,000
And I also was sneaking in there all of the cool terminology that we use.

604
00:49:55,000 --> 00:50:01,000
And I wasn't, I didn't pull up one damn equation to do it for you.

605
00:50:01,000 --> 00:50:04,000
But I will say this again on Wednesday.

606
00:50:04,000 --> 00:50:10,000
I'm just going to talk to you like you are traders and say, just use the terminology.

607
00:50:10,000 --> 00:50:12,000
That's the best way people can learn anything.

608
00:50:12,000 --> 00:50:15,000
It's just by hearing it a couple of times.

609
00:50:15,000 --> 00:50:20,000
Now, just to play this, notice again though, I want you to see something.

610
00:50:20,000 --> 00:50:24,000
Notice the, let me go here.

611
00:50:24,000 --> 00:50:30,000
This one was what? The fourth? Good grief.

612
00:50:30,000 --> 00:50:32,000
Those options change along.

613
00:50:32,000 --> 00:50:34,000
Okay, that was the 18th of October.

614
00:50:34,000 --> 00:50:37,000
Okay, notice it on the call and put side.

615
00:50:37,000 --> 00:50:39,000
Let's take one right around the money.

616
00:50:39,000 --> 00:50:42,000
What is the, what are we right now?

617
00:50:42,000 --> 00:50:48,000
Let's take a 564, which is just out of the money on the call side.

618
00:50:48,000 --> 00:50:56,000
In other words, if you want this to win, the spider has to get above 564.

619
00:50:56,000 --> 00:51:00,000
Okay, now let me take, let's see the price of that one.

620
00:51:00,000 --> 00:51:04,000
What is it? Oh, okay.

621
00:51:04,000 --> 00:51:12,000
$890 for that one. See, it's so close to the money that there's a really good probability

622
00:51:12,000 --> 00:51:16,000
that by the 18th of October, it's going to cross into the money.

623
00:51:16,000 --> 00:51:19,000
Now, but let me go down here and look at the put.

624
00:51:19,000 --> 00:51:21,000
The put for that.

625
00:51:21,000 --> 00:51:27,000
564 was it? Was that what I did? Yeah.

626
00:51:27,000 --> 00:51:29,000
Okay, that's 951.

627
00:51:29,000 --> 00:51:33,000
A little more expensive, but it's in the money, of course.

628
00:51:33,000 --> 00:51:38,000
Right now, the spider is just a little bit below that.

629
00:51:38,000 --> 00:51:48,000
So now let me pull in here and let me get, grab one that's, the expiration is really close.

630
00:51:48,000 --> 00:51:52,000
Let me grab October the 4th.

631
00:51:52,000 --> 00:51:54,000
No, let's do September the 30th.

632
00:51:54,000 --> 00:52:00,000
Okay, let's look at that 564 on, 564.

633
00:52:00,000 --> 00:52:06,000
This is on the call side.

634
00:52:06,000 --> 00:52:08,000
You see how it's cheaper?

635
00:52:08,000 --> 00:52:10,000
That's the theta decay.

636
00:52:10,000 --> 00:52:15,000
We're getting closer, this one is closer to the expiration,

637
00:52:15,000 --> 00:52:20,000
so there's less chance that it will get into the money.

638
00:52:20,000 --> 00:52:28,000
And on the put side, the same thing is happening.

639
00:52:28,000 --> 00:52:30,000
See that one? Cheaper.

640
00:52:30,000 --> 00:52:32,000
The theta decay.

641
00:52:32,000 --> 00:52:37,000
As you get closer, as your options get closer to the expiration date,

642
00:52:37,000 --> 00:52:42,000
they become cheaper simply because, and we use the term,

643
00:52:42,000 --> 00:52:49,000
it's actually a mathematical calculation, and that spreadsheet calculates theta for you.

644
00:52:49,000 --> 00:52:50,000
But it's theta decay.

645
00:52:50,000 --> 00:52:57,000
The closer you get to the expiration date, the more that decay is going to show up.

646
00:52:57,000 --> 00:53:03,000
So, interestingly enough, you can have, and this is the game that I play sometimes,

647
00:53:03,000 --> 00:53:11,000
I buy an option that's out of the money, and quite a long time.

648
00:53:11,000 --> 00:53:15,000
I buy longer options, like two months out.

649
00:53:15,000 --> 00:53:25,000
And then what I do is, I, even though theta decay is in there, it's still very weak.

650
00:53:25,000 --> 00:53:32,000
So any price movements in the underlying really get magnified in the options price.

651
00:53:32,000 --> 00:53:36,000
So I could have just a little blip in the options price,

652
00:53:36,000 --> 00:53:41,000
and if the theta decay hasn't set in, that option can jump in price,

653
00:53:41,000 --> 00:53:44,000
even though it's out of the money.

654
00:53:44,000 --> 00:53:47,000
That's just some of the things that happens with options.

655
00:53:47,000 --> 00:53:57,000
They follow a process in physics, if you were taking upper level undergrad or grad level courses in physics,

656
00:53:57,000 --> 00:54:04,000
the equations are what are called the gas diffusion equations from classical physics.

657
00:54:04,000 --> 00:54:11,000
We've known the equations for well over 150, 170 years.

658
00:54:11,000 --> 00:54:15,000
And then it occurred to some finance geniuses,

659
00:54:15,000 --> 00:54:19,000
oh my God, options do the same thing.

660
00:54:19,000 --> 00:54:25,000
Think about a gas that is being released into a vacuum tube.

661
00:54:25,000 --> 00:54:28,000
As it's released, it expands like this.

662
00:54:28,000 --> 00:54:33,000
Think about the time to expiration of an option increasing.

663
00:54:33,000 --> 00:54:39,000
As time to expiration increases, theta becomes bigger.

664
00:54:39,000 --> 00:54:41,000
It's the same equation.

665
00:54:41,000 --> 00:54:45,000
A difficult equation, but it's the same physical process.

666
00:54:45,000 --> 00:54:48,000
Except we're in finance and we don't see a physical thing,

667
00:54:48,000 --> 00:54:52,000
we see a numerical thing, but it is identical.

668
00:54:52,000 --> 00:54:57,000
Now very quickly, just I've filled you with enough.

669
00:54:57,000 --> 00:55:01,000
Let me see if there's anything worth talking about.

670
00:55:01,000 --> 00:55:03,000
I talked about this.

671
00:55:03,000 --> 00:55:07,000
And this one is pretty much options, expiration dates, strike price.

672
00:55:07,000 --> 00:55:15,000
Okay, now this equation, these are math equations that you probably didn't see much of

673
00:55:15,000 --> 00:55:21,000
in your college algebra or calculus courses.

674
00:55:21,000 --> 00:55:24,000
These are called two state equations.

675
00:55:24,000 --> 00:55:30,000
In other words, if the value is below a certain amount, it's one thing.

676
00:55:30,000 --> 00:55:36,000
If the value of the input is above a certain thing, it's another.

677
00:55:36,000 --> 00:55:46,000
So in other words, if you are talking about a call option, exercise it's due today.

678
00:55:46,000 --> 00:55:48,000
Its expiration is today.

679
00:55:48,000 --> 00:55:54,000
That option will be worth either nothing if you're out of the money,

680
00:55:54,000 --> 00:56:00,000
or it will be worth the stock price minus the strike price if you're in the money.

681
00:56:00,000 --> 00:56:04,000
So in other words, with that Ford at $11 a share,

682
00:56:04,000 --> 00:56:12,000
on the expiration date, the price will either be, you will get either nothing,

683
00:56:12,000 --> 00:56:16,000
or you will get the price of Ford minus the strike price.

684
00:56:16,000 --> 00:56:30,000
So in other words, if the stock price is, if the stock Ford is, I've got one call at $11, striking at $11.

685
00:56:30,000 --> 00:56:40,000
If that is, if I'm on the expiration date, if it is at $12, I will make $12 minus $11.

686
00:56:40,000 --> 00:56:52,000
But if it is below $11, I will, I would theoretically make $11 minus $12, but the max is zero.

687
00:56:52,000 --> 00:56:57,000
So it's essentially a binary result.

688
00:56:57,000 --> 00:57:04,000
You either get nothing, and all you lose is what you paid for the option previously,

689
00:57:04,000 --> 00:57:09,000
or you get the stock price minus the strike.

690
00:57:09,000 --> 00:57:15,000
That's why we really like to see the stock get above our strike price.

691
00:57:15,000 --> 00:57:25,000
My last one just pissed me off. I bought Rivian, and I had that at strike price of something like $12,

692
00:57:25,000 --> 00:57:30,000
and it got up there to almost $16, and I held it.

693
00:57:30,000 --> 00:57:33,000
Nope, it's still going to go further. I didn't dump it.

694
00:57:33,000 --> 00:57:42,000
And of course, Rivian finished at a son of a bitch $10, so I lost, I mean if I had exercised earlier.

695
00:57:42,000 --> 00:57:51,000
And that's one last thing is, the difference, options, some options, you can trade them, you can buy and sell them,

696
00:57:51,000 --> 00:57:55,000
you can exercise at any point, you can exercise any time you want.

697
00:57:55,000 --> 00:58:00,000
Some, you can do it only on the expiration date.

698
00:58:00,000 --> 00:58:05,000
That's the difference between American and European options.

699
00:58:05,000 --> 00:58:11,000
And so I strongly recommend that you stay in the world of American options,

700
00:58:11,000 --> 00:58:15,000
because then you can get the hell out of them at any point.

701
00:58:15,000 --> 00:58:18,000
And of course, I could have gotten out of Rivian.

702
00:58:18,000 --> 00:58:28,000
I mean, if I had, first of all, my strike price was $10, and at one point it got a little above $16, I think, or something like that.

703
00:58:28,000 --> 00:58:35,000
I would not only, if I had sold it, there was still theta in it, so it was worth more than $6,

704
00:58:35,000 --> 00:58:44,000
because it was worth the price minus the strike, that would be the $6, but there was also theta premium in it too.

705
00:58:44,000 --> 00:58:53,000
So if I had dumped it, the theta premium, I think I could have sold it for like $17.80.

706
00:58:53,000 --> 00:58:57,000
But no, I'm going to hold on to this, the sky's the limit.

707
00:58:57,000 --> 00:59:00,000
Well, the hell it was, it went right back into the toilet.

708
00:59:00,000 --> 00:59:05,000
And so by the expiration date, I was out of the money.

709
00:59:05,000 --> 00:59:07,000
And so it just pissed me off.

710
00:59:07,000 --> 00:59:10,000
But that's what you can do with it, and that's what that equation is about.

711
00:59:10,000 --> 00:59:13,000
That's on the expiration date.

712
00:59:13,000 --> 00:59:17,000
Now remember, on the expiration date, there's no theta, no theta premium.

713
00:59:17,000 --> 00:59:24,000
So this is just purely what the option is worth, because you're going to exercise it.

714
00:59:24,000 --> 00:59:26,000
Let's see if there's anything else I can talk about.

715
00:59:26,000 --> 00:59:30,000
Yeah, time value, that's, they don't use the word in the book.

716
00:59:30,000 --> 00:59:34,000
I'm using the word theta. Theta is time value.

717
00:59:34,000 --> 00:59:38,000
There are a couple, this is one of the Greeks.

718
00:59:38,000 --> 00:59:46,000
There are these Greek letters that we use to describe different phenomena within the option.

719
00:59:46,000 --> 00:59:48,000
And I'll just give you the big ones.

720
00:59:48,000 --> 01:00:01,000
There's the delta, and then there's the gamma, and then there is the holy theta.

721
01:00:01,000 --> 01:00:04,000
And then there are a couple.

722
01:00:04,000 --> 01:00:09,000
There's one, it's pronounced by people these days as vega.

723
01:00:09,000 --> 01:00:13,000
Its actual pronunciation in Greek is vega.

724
01:00:13,000 --> 01:00:25,000
But the vega, that is a measure of the option's reaction to volatility in the underlying.

725
01:00:25,000 --> 01:00:30,000
And then there's one called rho, R-H-O.

726
01:00:30,000 --> 01:00:38,000
That is the sensitivity of the option's price to interest rates.

727
01:00:38,000 --> 01:00:47,000
So you've got delta, gamma, theta, vega, and rho are the Greeks.

728
01:00:47,000 --> 01:00:53,000
And I'm not going to teach you the equations, because that Excel sheet will get them for you.

729
01:00:53,000 --> 01:00:56,000
But I'll tell you what you can read from them.

730
01:00:56,000 --> 01:01:01,000
And it is a world, and if you get into options, it's the Hotel California.

731
01:01:01,000 --> 01:01:04,000
You can check out, but you can never leave.

732
01:01:04,000 --> 01:01:07,000
I've had three of my best students.

733
01:01:07,000 --> 01:01:15,000
They came out, they were sitting in classrooms just like this, and I could see in their eyes they were going to be options traders.

734
01:01:15,000 --> 01:01:19,000
And sure enough, two of them have already made it to the point.

735
01:01:19,000 --> 01:01:25,000
You do your time, retail, listening to customers scream at you because they did stupid things.

736
01:01:25,000 --> 01:01:31,000
But once they had done that time, they got up there, and they're now in the options trading.

737
01:01:31,000 --> 01:01:33,000
That's where the excitement is.

738
01:01:33,000 --> 01:01:42,000
And it's quite a world, and you don't stay too long in that world before you burn out and go do something else with your life.

739
01:01:42,000 --> 01:01:45,000
But this is what I'm teaching you here.

740
01:01:45,000 --> 01:01:55,000
And again, the purpose for you in a course like this is that you can understand them well enough that you can create hedges.

741
01:01:55,000 --> 01:02:00,000
Hedges are so important in business these days.

742
01:02:00,000 --> 01:02:03,000
As a matter of fact, that's what a hedge fund does.

743
01:02:03,000 --> 01:02:08,000
It does it for a corporation that doesn't have anyone who can do it internally.

744
01:02:08,000 --> 01:02:10,000
That's what hedge funds are.

745
01:02:10,000 --> 01:02:13,000
Anyway, that's all I have for you.

746
01:02:13,000 --> 01:02:15,000
Go home.