January Webinar Key Takeaways: Building Your Options Foundation

In January, OIC instructor Mark Benzaquen led two foundational webinars: Options 101: Understanding Key Terms and How Options Work and Options 102: Fundamentals of Calls and Puts. These sessions covered options basics, from terminology to practical strategies, providing the groundwork for understanding how options work and how they can be used to achieve different investment objectives.

What We Covered:

Understanding Options Contracts

• Options are contracts that grant rights to buyers and obligations to sellers. For equity options, call options give the right to purchase stock at the strike price, while put options provide the right to sell.
• Buyers control whether to exercise and cannot lose more than the premium paid during the life of the contract. Sellers face potentially significant risk and must maintain margin with their broker.
• American-style options (all equities and ETFs) can be exercised anytime on or before expiration, while European-style options (most indices) can only be exercised on expiration day.

Why Investors Use Options

• Risk management through strategies like protective puts, which work similarly to insurance by providing downside protection.
• Premium income generation via covered calls and cash-secured puts.
• Leverage to control more shares with less capital than trading stock outright.
• Defined risk in many strategies, where investors know their maximum loss upfront.

Moneyness and Pricing

• In-the-money options have intrinsic value and command higher premium amounts. Calls are in-the-money when the strike is below the stock price; puts when the strike is above.
• At-the-money and out-of-the-money options contain only time value. For the option buyer, they're cheaper with lower capital at risk but require more extensive price movement to profit.

Essential Strategies

• Long call: Buying a call option provides the right to purchase stock at the strike price with limited risk (only the premium paid) and unlimited profit potential. The break-even point equals the strike price plus the premium paid, requiring bullish movement to profit at expiration.
• Protective put: This strategy combines owning stock with buying a put option for downside protection. Maximum loss is limited to the difference between your stock price and the put strike, plus the premium paid.
• Covered call: This income-generating strategy pairs stock ownership with selling a call option to collect premium, lowering your effective cost basis. The main risk remains in the stock position itself, and upside is capped at the strike price if assigned.
• Cash-secured put: Selling puts on stock you'd be willing to own at a lower price. You collect premium upfront and must have cash to purchase the stock if assigned.

Keep Learning:

Key Moments from Options 101: Understanding Key Terms and How Options Work
Key Moments from Options 102: Fundamentals of Calls and Puts

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