Series 7 Exam Prep - 7 Most Tested Option Strategies. FREE Class Replay. SIE Exam too!

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00:00 Introduction "7 Most Tested Option Strategies on the Series 7 Exam"
10:20 Long call - BULLISH
buy 1 AAPL Aug 150 call @ 9 with Apple at 154.
The contract is in the money or has intrinsic value of 4. Intrinsic value + time value = premium
4+?=0 Time value is 5
Breakeven= Strike price plus premium 150+9 = 159 is the breakeven. CALL UP!
Maximum gain is unlimited.
Maximum loss is the premium 9 points or $900.

38:30 Short call - BEARISH
sell 1 AAPL Aug 150 call @ 9 with Apple at 154
Strike price plus premium is breakeven 150+9=159 breakeven. CALL UP!
Maximum gain is premium of 9 points or $900. If Apple is below 150 at expiration the contract will expire worthless.
MAXIMUM LOSS IS UNIMITED!!!!!!!!

55:36 Long put - BEARISH
buy 1 AAPL Aug 150 put @ 9 with Apple at 154
Breakeven is strike price less premium. PUT DOWN!
150=0=141 Breakeven
Maximum gain is breakeven or when the stock goes from the breakeven to zero.
141 points or $14,100 (141 X1 X 100)
Maximum loss is the premium. 9 points or $900

1:03:54 Short put - BULLISH
sell 1 AAPL Aug 150 put @ 9 with Apple at 154
Strike price less premium is the breakeven. PUT DOWN!!
150=9=141 breakeven.
Maximum gain is the premium ($900). If Apple is at or above 150 at expiration the contract will expire worthless, and the write keeps the 9 points or $900.
Maximum loss is 141 per share or $14,100 (141X1 contractX100 multiplier).
Worst case is the seller will pay the strike price for worthless stock but does get to keep the premium.

Stock with an Option Contract (STOCK DOMINATES)
Long stock and option BULLISH
Short stock and option BEARISH

For income sell the option contract
For protection buy the option contract

1:13:31 Covered call to "generate additional income" on a stock position.
buy 100 shares of Apple at $154 per share and write 1 AAPL Sep 160 call at 7.
BULLISH
Breakeven is stock cost less premium. 154 stock -7 income =147 breakeven (-154+7=-147)
Maximum gain is breakeven or net out off pocket cost 147 to the strike price of 160. 13 pooints or $1,300
Maximum loss is breakeven to zero.

1:24:33 Protective put to participate in a big price increase but not participate in a big price decline. An effective hedge.
buy 100 shares of Apple at $154 per share and buy 1 AAPL Sep 150 put @ 3.
Breakeven is stock cost plus premium.
154 stock +3 protection=157 Breakeven (-154-3=-157)
Maximum gain is unlimited. There is no ceiling.
Maximum loss is breakeven to the strike price. I can exercise the choice to sell at 150 (floor).
Out of pocket 157 to 150 is 7 points of $700.

1:34:29 Changing bearish short stock position from UNLIMITED RISK to LIMITED RISK! An effective hedge. SMART BEAR!
Short 100 shares of Apple at $154 per share and buy 1 AAPL Sep 155 call @ 3.
Breakeven is +154 - 3 = +151 breakeven
Maximum gain is breakeven to zero
Maximum loss is breakeven to the strike price.
Brought in 151 net for the short stock position and can cover the short by exercising the 155 call.
4 points or $400

1:41:00 Short stock and short the put is NOT an effective hedge. Still exposed to UNLIMITED RISK!!! DUMB BEAR!