How to Buy Call or Put Option (Go Long)

Video Transcript

"Hello my name is Mark Griffith. And this is going to be a very brief introduction into buying options or more specifically going long in options. The two main things to understand, first of all with most kinds of trades going long and going short are symmetrical. If you go long, or five apples it means you have five apples. If you go short with five apples it means you have minus five apples. That is you sold some and you haven't yet obtained them. With options it's different. Going short of options is very dangerous and it's what's called becoming a writer. And going long of options is very safe. And it's like buying insurance premium. The simple way of looking at it is that if you go long of options you are effectively buying an insurance contract. And if you go short in an options position you are becoming the insurance company. And your potential loss is unlimited. So the first thing you have to understand is most brokers won't let you go short. And you should be looking for an options contract and options account and you will explain to them that you only wish to have positions that are zero or larger then zero. You go long or you'll be flat at zero but you are not going to go short. That's the first thing. The second thing, is that you are going to need to get used to three or four special terms which at first it can be a bit confusing. You have to keep in mind whether you are buying an option to sell or buying an option to buy,something else at a certain price at a future date. So there's quite a few things to keep in your mind. If you buy a contract to buy it's called a call, and if you buy a contract to sell, this is called a put. The price that you are building into the contract is called the strike price. And so you need to consider several different things, if you are buying a contract to buy gold at one thousand dollars an ounce, and today it's trading nine hundred dollars an ounce, then you'll be buying a call, it will be relatively cheap because it's more expensive then the market and it will have a date attached to it like next Christmas. And they'll be four prices, the thousand dollars is the strike price, the call, decides whether you are buying the right to buy, this case it's a buy not sell which would be a put. The date is as I suggested next Christmas and then of course the option itself has a price. So you are going to have to get used to these terms and try not to get confused. Look at some prices, look at how options trade and try to get used to the idea that you have a separate strike price, and a price for the options that you are buying. And just get used to how they work. So just to go over that again, a call is an option to buy, a put is an option to sell, those options will have written into them a strike price which is the price you are buying and selling at and they'll be a future date. And the options themselves will have a price."