Don't use the mentality of trading US stocks to trade options; real experts play with options this way! Don't watch Regret!

Many people say that playing options is a form of gambling with high risk and high return, but this is for newbies. For experts, options are actually a stable profit tool. So what's the difference between a novice and a pro?

The real gap between newbies and experts is not actually a difference in investment judgment, but a difference in way of thinking. Many newcomers to options are new to stock trading. They often trade options with a typical stock mentality, and this is the core reason why they keep falling behind.

However, real options traders have a completely different way of thinking and approach.

It's not a very advanced method, but it's often difficult for newbies to understand on their own without reminders from others. And this whole process will waste a lot of money, and you may even give up halfway before you have experienced the true power of expiration rights.

So, today Xiaobian will reveal the real expert trading mentality and the complete set of methods behind it. After reading it, I won't say you can become an options expert right away, but it will definitely let you take fewer detours in options trading.

First, options newbies will habitually use stock thinking to trade options.

Simply put, it's either bullish or bearish, because stocks are only bullish and bearish.

For example, if you are bullish, you buy a call; if you are bearish, you buy a put. Those who are a little more advanced will understand that they will be bullish or bearish for a certain period of time.

For example, if I am bullish within a week, or bullish within a month, I can be bullish or bearish by a certain amount over a period of time.

For example, I think Apple can go from 180 to 200 in the next month, so how should I use options to maximize my profits.

But in fact, none of this has escaped the scope of stock trading thinking.

Options experts often don't just focus on stock prices.

The impact on options trading is to search for trading opportunities from multiple dimensions, such as time volatility, rate of change in stock prices, etc. And for all of these dimensions, there is also a uniform reference standard, which is the commonly used Greek alphabet. Each Greek letter represents a level of thought.

Seeing this, you might think it's a bit confusing, but don't look at these Greek letters as fancy, but in reality, the trading logic behind them is very simple and straightforward, but many people just haven't thought about it that way.

Next, Xiaobian will reveal a few core expert trading logics. You'll find that once you understand the trading logic represented by these Greek letters, the trading opportunities you see will increase exponentially.

Let's first introduce one of the most basic Greek letters. Delta is a Greek letter associated with changes in stock prices. Let's put that definition aside. Let's first focus on how changes in stock prices affect the trading logic of options.

Stock price changes are a way of thinking that all of us novice traders are used to. Let's first determine the exercise price and expiration date by judging the rise and fall of the stock price.

For example, I'm optimistic that Tesla can go from at least $180 to $200 within the next month. Then I can buy a $190 Call now, which expires in a month, so if the stock price actually rises to 200 within a month, then I will definitely be able to make money.

There is nothing wrong with thinking this way, but this is a typical stock trading mentality. Although experts also think about changes in stock prices, the logic is completely different.

Most of the time, experts don't even care how much the stock price can rise or how long it will take. Just about one is enough. They are more concerned about the impact of changes in stock prices on the magnitude of changes in option prices. What does that mean?

For example, if the stock price rises by 1 yuan, then how much can the price of my options change? Is it an increase of five cents, or a one-dollar increase? The effect of this change in stock price on the magnitude of the change in option prices is the Greek letter delta.

For example, the picture below shows the Tesla options chain one month later that I intercepted from the multi-asset trading wallet BiyaPay. You can see that each corresponding shelf has a delta value.

For example, the corresponding delta for a call with an exercise price of 200 is 0.239, which means that if Tesla's stock price rises by 1 dollar, then the price of the option will rise by 0.239 dollars. However, the corresponding delta for this call with an exercise price of 195 US dollars is 0.298, which means that for every dollar increase in Tesla's stock price, the price of this call will rise by 0.298 US dollars.

Of course, while you have higher earning potential, you will also take on more risk in equal proportions. If the stock price falls by one dollar, then Call 170 will also lose $0.692.

So you see, through the value of delta, we can not only quantitatively determine the bullish rate, but also quantitatively weigh the risks we bear.

Now that we have the delta figure, you can completely forget the exact meaning of the stock price of 200 US dollars and the stock price of 195 US dollars. You don't need to think about whether the stock price can rise more than 195 or more than 200 within a month.

Because this is so difficult to determine, you just have to see if the bullish margin that this delta gives you is enough.

Are you willing to use 0.24 to be bullish or 0.3 to be bullish. This will obviously better judge that it will have more reference value than the specific stock price, and can also help us make options trading decisions.

In fact, changes in stock prices affect option prices not only on the delta dimension, but also on a more advanced dimension called gamma. Since Gamma is too complicated to apply, I won't talk about it today.

If options experts are also ranked, the top players often make money through Theta. They will be friends with time and let time make money for them. These experts have often weathered the ups and downs of stocks, and instead reap the surest returns in long-term investments.

So how can time help you make money? Actually, the logic is very simple; I'll give you an example.

We all know that an option is an agreement to bet on the stock price over a period of time. As time passes, even if the stock price does not change, the price of this gambling agreement continues to drop. And this rate of decline, let's quantify it as Theta.

Let's take a look at Tesla's options chain again. We see this Call with an exercise price of $200. Theta is -0.111, which means assuming no other factors change, it's just the passage of time. Every day the price of this option drops by $11.1. Let's take another look at the $195 Call. Its Theta is -0.124, which means that the price of the option will drop by $12.4 every day as time passes.

If you were to buy Call, the passage of time would definitely be very bad for you. Because even if nothing happens, you'll still lose ten yuan or so every day. Since it's not good for the buyer, then for the seller, of course, it's a definite advantage. Because even if nothing happens, I can passively earn this time-wasting money every day.

One of the most classic strategies is the covered call strategy. The covered call strategy is an option strategy based on holding 100 shares of the original stock and then selling one call option.

I found one particularly interesting point. Newbies and experts would be completely different in applying the covered call strategy.

Let's take Tesla as an example. Currently, Tesla's stock price is 179 yuan. If you had someone new to THETA to do Covered Call, what would he do?

He will definitely wonder where Tesla's stock price will rise to the highest in the coming month? For example, if it can go up to 200, then I'll sell one that expires at an exercise price of 200 US dollars. The purpose of Call's doing this is to expect Tesla's stock price not to rise more than 200 US dollars in the next month. Well, in this case, I'll have all of the royalties I received from selling Call.

I know the options experts. They do covered calls, and most of them do ATM (the exercise price at the current price) covered calls.

In other words, Tesla's stock now costs $179. I'll just sell the $180 call. In the opinion of newbies, this is very unreasonable, because the stock price will break through the image price as soon as it rises slightly. Are you bearish on Tesla within the next month? Of course not; this is still a bullish strategy. And the reason we do it is because it makes the most of your time to make you money.

Why do you say that?

If you take a close look at this Tesla options chain, you'll find that in the entire options chain, Theta's highest position is the 180 Call, which is nearly 30% higher than the 200 Call. In fact, this gap will continue to increase over time during the holding process, and experts have taken this into account, and under the premise that other factors are relatively manageable, the stable benefits that can be brought about by maximizing the passage of time can be brought.

You might think this is incredible. Why doesn't it make sense for the mind to run so fast? What if the stock price soars? Is it only when the stock price falls that one can actually make money? If you think this way, it means you're still in the options newbie village and haven't gotten rid of the stock price. In fact, numerous backtests suggest that ATM's covered call is one of the bullish strategies with the highest benefit-risk ratio.

We talked about stock price thinking and the application of time thinking in options trading. In fact, there is also a trading mentality unique to options, the volatility mindset, which is the easiest way for novice traders to overlook. For the time being limited, let's not talk about it.

In addition, for investors who want to invest in options, it is very important to choose an appropriate platform. An easy-to-use platform is not only easy to use, but also highly secure. For example, you can choose a relatively trustworthy brokerage firm to invest. For example, Jiaxin Wealth Management and Futu are world-renowned investment brokerage firms, and you can get a bank account with the same name by depositing digital currency (USDT) to the multi-asset wallet BiyaPay, and then withdraw fiat money to Jiaxin Securities or Futu to invest in US stocks and US stock options. Of course, you can also directly invest in options on BiyaPay. Select the appropriate US stock, click on the option, and you can see the options chain.

In fact, the three points of stock price, time, and volatility together make up the three most important factors affecting the price of an option, also known as the three elements of an option.

And if you think carefully about the characteristics of these three ways of thinking, you'll find that the expert mentality has one thing in common, which is that they pay more attention to changes in the options trading process.

Newbies to trading options often focus on the stock price at the time of expiration; in fact, they focus on an outcome. An expert in options trading, on the other hand, is the influence of various factors in the option holding process on the option price. What he is concerned about is a process.

And the Greek alphabet is an indicator we have abstracted out to quantify these various effects. Through these quantitative indicators, experts will comprehensively consider the benefits and risks in the holding process, and make timely adjustments.

Finally, I wish everyone a prosperous investment path and early financial freedom.