Introductory science on options for newbies in the US stock market (1) Conceptual understanding + Buyer’s single-leg strategy 44,000 When it comes to options, m

Introductory science on options for newbies in the US stock market (

1) Conceptual understanding + Buyer’s single-leg strategy 44,000 When it comes to options, many people's first reaction is: this is gambling, this has leverage, and this is a tool for advanced players. I want to say that your first reaction is actually nothing serious. Options are indeed high-risk, and it is true that many people succeed or fail in options.

But there is nothing wrong with the tool itself, the problem is just how we control and use it. Therefore, this article does not teach you "how to get rich", but explains the things that are most important to understand and are most easily ignored in the entry-level stage.

This article will break away from the complicated textbook definitions and use the most direct common sense to help you understand the operating mechanism of options. So, what are options? To understand options, the fastest way is to take these two words apart - its name itself has already highly summarized its core mechanism. Option = "period" + "right".

"Period" represents "time" and "future": In options, it refers to the "Expiration Date", which is the validity period of the contract. Ordinary stock trading is spot trading. You pay money in one hand and stocks in the other hand, and the transaction occurs immediately.

The "period" in options means that the result of this transaction is not settled now, but is locked in a specific time in the future (i.e., the "expiration date"). The game between buyers and sellers is the price of the asset in the future. "Quan" represents "right" and "right to choose": This is the core of options.

This "right" gives the buyer a privilege but in no way imposes any obligations. That is to say, when the agreed "period" comes, if you find that trading at the agreed price is profitable, you can choose to exercise your rights; if you find that you are losing money, you can give up directly. No one can force you to buy or sell.

Putting these two words together, "option" means: you have the right to decide whether to conduct this transaction (right) at a specific time (period) in the future. Use a house to understand call and put options Options can be purchased as call options (Call) and put options (Put).

All higher-level gameplay is essentially different combinations of Call and Put. Let’s start with the most basic one, buying Call or Put separately. 1. Single-leg call option (Buy Call): Suppose you have your eye on a house worth 1 million.

You judge that this area will be connected to the subway in the next few months, and the house price will definitely rise sharply. But you don’t have the full amount on hand right now, or you want to wait and see first. At this time, you find the seller and pay a "deposit" of 50,000 yuan.

The two parties signed a contract: In the next three months, no matter how the house price changes, you have the right to buy this house for 1 million. 🥳Scenario 1 🥳If the house price soars to 1.5 million in 3 months: You will make a lot of money!

You can exercise your right to buy the house for the agreed upon 1 million and easily earn the difference of 500,000. The $50,000 deposit provided huge leverage. 🥲Scenario 2🥲If the house price drops to 800,000 in 3 months: You are a smart person and will definitely not spend another 1 million to buy it. You can choose to "break the contract" and not buy.

Your biggest loss was only the 50,000 yuan deposit you originally paid, but you successfully avoided a huge loss of 200,000 yuan after spending 1 million yuan to buy it.

😏Scenario 3😏You can be a "trader" and directly earn the price difference: Just a week later, the government suddenly announced that a key school would be built nearby, and house prices rose sharply. At this time, whoever holds the contract in your hand can buy a house at an ultra-low "internal price" of 1 million.

So, someone comes and is willing to pay 200,000 yuan to buy your deposit contract. If you resell it decisively, you don’t need to raise 1 million to buy a house. You can make a net profit of 150,000 yuan in just one week at a cost of only 50,000 yuan. In this example, the 50,000 yuan deposit is a "call option." 2.

Single-leg put option (Buy Put): The puts changed direction. Suppose there is a house worth $1 million that is now yours. Recently you heard that a large chemical plant is going to be built next to it, and housing prices may be cut in half at any time.

In order to preserve your assets (or you don't have a house and just want to make money by betting on the plummeting housing prices), you find a wealthy institution and pay a "premium" of 50,000 yuan.

The two parties have agreed: In the next three months, no matter how house prices fall, you have the right to forcefully sell the house to them at the original price of 1 million. 🥳Scenario 1🥳If the house price really plummets to 500,000 in 3 months: You exercise your privilege immediately!

The houses in other people's hands can only be sold for 500,000 yuan, but you took the contract and forcibly sold it to an institution for 1 million yuan, successfully preserving the assets.

🥲Scenario 2🥲If the chemical plant is canceled after 3 months and the house price rises to 1.5 million: Your house has appreciated in value, and of course you will not be stupid enough to sell it to an agency for 1 million. The insurance contract was voided, and the 50,000 yuan premium bought a solid foundation.

😏Scenario 3😏 Take advantage of the market panic and directly resell the "insurance policy"! Two months later, the chemical plant had not yet been built, but the news became more and more true. Owners in the entire community fell into extreme panic and frantically grabbed the "guaranteed sale for 1 million" insurance.

As a result, the insurance premium has now risen to 300,000. At this time, you can say to your neighbor: "Don't go to the agency and get ripped off. I'll transfer my 200,000 yuan policy to you!" You didn't sell the house.

Just because the panic in the market caused the "policy" itself to appreciate, you made a net profit of 150,000 yuan with a cost of 50,000 yuan. In this example, the premium of RMB 50,000 is a “put option”. Once the market expects the asset to plummet, the price of this contract will rise.

Three basic terms, all explained in one house After walking around with this 1 million house, the three most basic terms in options will be easily understood: Premium: You pay a "50,000 deposit" if you buy a call, or a "50,000 contract fee" if you buy a put. This is your cost of entry and your largest potential loss.

In the real market, what everyone earns by reselling back and forth is this premium. Strike Price: The "buying price of 1 million" or the "forced selling price of 1 million" agreed in the contract. Expiration Date: The validity period of the contract (agreed 3 months).

After this time, your deposit and betting contract will be invalidated and returned to zero. This is also the biggest risk of options: time loss. Realistic drill: How to use it in the real stock market? Now that we understand the logic of houses, let's return to the real stock market.

Buy Call and Buy Put usually correspond to two completely different needs in actual combat: offense and defense. 🤓Buy Call = Attack! Use small money to create big fluctuations and the stock price will rise! Exchange the house for stocks.

Suppose you are optimistic about NVDA, the current price is $200, and you judge that it will rise sharply within a month due to a certain catalyst (financial report, new products, industry trends).

You have two paths: Buy 100 shares directly: $20,000 Buy a call that expires in one month and has an exercise price of $210, with a premium of $5: only $500 😊If NVDA rises to $230 in one month: People who buy stocks: Earn $30 per share, total + $3,000, relative to $20,000 principal, return about +15% The person who buys Call: The intrinsic value of the option is $20(230−210)×100 = $2,000.

After deducting the cost of $500, the net profit is $1,500. Compared with the principal of $500, the return is +300%. Looking at the same direction, options use about 1/40 of the funds, leveraging a return rate that far exceeds that of stock holdings.

This is "offensive" - ​​you are not seeking stability, but using a loss-capping cost to gain a big fluctuation. 😅But the other side of the coin: If NVDA is still sitting at $200 a month later, or it has dropped People who buy stocks: If you still have the stock, you can hold it and wait for your capital to be recovered or sell it at a stop loss.

People who buy Call: It will return to zero when it expires, and all $500 is gone. The cost of attacking is: you not only have to bet on the right direction, but also on the right amplitude and time. 🤓Buy Put = Defense! Buy insurance for your positions!

The most classic use of Put is the "insurance policy" in your house example - to buy insurance for existing positions. Suppose you have 100 shares of NVDA, cost $200, and position $20,000. The financial report is about to come out, and you are afraid that it will be a thunderstorm, but you don't want to leave the market (in case it goes up).

You can spend $500 to buy a Put with an exercise price of $190 as insurance: 😭If NVDA plummets to $150: Your stock has a floating loss of $5,000, but Put helps you earn back $40/share ×100 − $500 = $3,500, reducing the net loss to about $1,500. This Put locks a "floor price" for your position.

😗If NVDA goes up: Put is invalid and you lose $500 in premiums - but your stock is going up, so the $500 is considered a peace of mind. This is the same as buying car insurance: you don't want it to "come in use", but its existence allows you to dare to hold the position. Put also has a second use - as an alternative to shorting.

If you are bearish on a certain stock and go short directly, your losses will theoretically be unlimited, and you will also need to take up your margin. The biggest loss when buying Put is the premium, and the risk is capped. For those who want to express a bearish view but are afraid of being shorted, Put is a more controllable tool.

Don’t rush to place an order: Three invisible killers of single-leg options After reading this, you may already be eager to give it a try. But before buying your first single-leg Call or Put (that is, buying only one leg without any combination), you must first recognize three things that will quietly eat up your profits. The first is time loss (Theta).

This is where the house example is not a perfect analogy: the options purchased are depreciating every day, even if the stock price does not move. And the closer to the expiration date, the faster the decay. What you buy is never just direction, you are also racing against time. The second is the break-even point (Breakeven). Remember that $210 call?

Your cost is $5, so the stock price must rise above $215 (exercise price + premium), which is higher than your cost, before you really start to make money. Rising to $214? You were absolutely on the right track, but your account is still losing money.

This is the cognitive gap that almost everyone will encounter for the first time: getting it right ≠ making money. The third is Implied Volatility (IV). There is a price in the premium that reflects the market's expectations for future fluctuations. Uncertainty is high before the financial report, and IV is pushed very expensive.

As soon as the financial report was announced and the boots hit the ground, IV collapsed instantly (commonly known as IV crush). The result is: Even if you bet correctly on the direction of the rise or fall after the earnings report, the options may not rise but fall because IV plummets.

Therefore, "betting on financial results by buying single-leg options" is an action with a very low winning rate. Put these three points together, and you will understand the essence of single-leg options: you bet on three fronts: direction, time, and volatility at the same time. You must be right on all three to make money steadily.

This is why a large number of novices who can only "buy Call and Buy Put" lose money in the long run. It is often not because the direction is too bad, but because they are worn away by time and volatility. write at the end Is there any way to hedge the risks of single-leg options? Yes.

This is exactly the meaning of the existence of various option strategies - to combine Call and Put according to different directions, different exercise prices, and different expiration dates, and use one leg to make up for the loopholes of the other leg.

But the first step to advancement is often not a more complex combination, but a change of identity: from a buyer to a seller. In this article, we have been the person who "pays a deposit and buys insurance", and Theta (time loss) is your enemy. And when you become the seller, time is on your side. You pocket the royalties first.

Every day that passes, the contract depreciates in your favor. The two most classic entry-level seller strategies are Sell Put (sell put) and Covered Call (covered call), which rely on making this "time money".

Next, there are real combination strategies such as vertical spread, calendar spread, butterfly, iron condor, etc., which put multiple legs together to accurately shape your risk-return curve, rather than unilaterally betting on the direction. I will save these for the next article and talk about them one by one.

Tools are neutral, how you use them determines whether you are investing or gambling. If you treat it as a skill that requires serious learning, rather than a get-rich-quick button, you will already be ahead of most people. (The above is educational content and does not constitute investment advice.

Options trading has high risks and you may lose all your principal. Please pay attention to position management!) Part 2: Introductory science on options for newbies in the US stock market (

2) Single-leg options strategy as a seller https://x.com/staypinkyup/status/2063475952458568171 6:58 AM · May 31, 2026 · 44,000 View Related View citations