Can you profit from an option or trade options even if you don’t own the stock?

April 11th, 2017

Hey, this is Sasha and thanks for joining me here for another trading and investing video.

In today's video what I want to do is share with you another frequently ask question and that question is "Can you profit from an option trade even if you don't own the stock?"


In the short and simple answer is yes, before we get to the on screen part and getting to viewing things on screen because I want to share with you an example keep in mind that this is simply just an example, anything that I share with you is just strictly for general education and informational purposes. It's not any recommendation to buy or sell any stock, security or options. Most of you should know that anyways but in either case just a simple quick little disclaimer.


Let's take a look on screen here and this is by the way a "Think or Swim Platform" and let's just take a look at a buying an option contract. What I want to do is let's just look at McDonalds here really quickly and you can see here I have a few different types of option contracts. Here are some that are 83 cents, 13 cents and 1 cent. That one isn't as juicy with premiums when you compare it to something like Netflix.

With Netflix you can see $4.45, $2.77 and $1.60. What I could do is even though I don't have any Netflix positions and you can see that by just looking at my risk profile, there's no Netflix position right here it's absolutely zero. I did reset this assimilated trading accounts to zero here just few seconds ago cause we did have one at the 105 level. We don't have any right now, what I wanna do is share with you how we can actually go ahead and execute a trade.


What do we do actually? Let's see on Tesla and if we look on Tesla you can see that we have zero stock, zero option and everything is zero. Why don't we just take a look and buy a single call and we could just go ahead and buy let's say five of these and I can go ahead and right click analyze the trade and you can see this would just simply buy these calls at 2010. If I go ahead hit confirm and send it'll put that order through and there you go you can see it was also filled and now I have that Tesla position.

The way you can see that I have this Tesla position is by seeing those five contracts right there. When you look at it right there, you can see there's five of them right there at the 2010 strike price and that's really what I have.

You can also see I have zero stock, you can see the stock right here is zero so I didn't need to have the stock in order to have the options. And if I remove this price slices which are basically just the range of the stock movement, you can see that the current price is $200.47 and as it wiggles profitable or at a lose at this profit loss that's open.


You can see right now it's moving $10.72 in profitability this of course will move and shift up and down you can see it. But you can see I have absolutely zero stock ownership right there and I have five positions or five contracts right there on the option sites, so I have five on 2010. And that's really what's moving my position up or down, right now it's $4.10 here profit loss for the day as I'm looking at the positions.

You don't need to have a stock or stock ownership to be able to have a position in option trades or profit from options. You can pair them together and you can make them work together to create additional benefits and strategies but it's not necessary, you don't really have to.

You can even create a multi-leg strategies and options which I'm gonna share with you right here in McDonald. This is called a vertical so I'll just buy a vertical, and right click, analyze the trade and when you look at a vertical you can see what that does to the position is it caps your winnings there at the top and again let's delete some of these slices.


You can see here on this vertical I'm maxing my profits at $430 and my max loss is $71 which you can see by this box over here as I move my mouse you can see that changes. Here what I could do is also put on this vertical trade and I can stack more contracts, I can stack however many contracts I want. And now what I can do again is get into this right click confirm and send, and once I'm in that position which you can see again right here, this big entry thing that's saying you're in, you're in the position.


Once I'm in that position now again you can see that I have one more time zero stock ownership right there, but I do have right there five contracts, five positions both the call side at the 120 and I sold the 125. Having multi-leg strategies just an option I didn't need the stock at all.

To simply answer your question "Do you really need to own stock in order to trade options?" No you don't, you can simply trade the options all on their own.

Thanks for joining me in this video, if you like this video, you want see other great videos like this one frequently ask question about the stock market visit my website or my primary website and if you wanna get on the newsletter list, click this button right over here or you can watch another video right here by clicking this thumbnail.

Thanks again and remember to do what you love, contribute to others but most importantly live life abundantly.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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