After much anticipation, I finally delve into put and call options and Danielle helps make sense of it along the way. We talk about why options may not be as risky as they seem, why doing your homework is important, and why Danielle got into burritos. As usual, we’ll talk about the greats like Charlie Munger and Warren Buffet, and how we can invest like them.
In Episode 168 You’ll Learn:
Why are we talking about Options?
- Options can function as an insurance policy to protect profits
- Options can help us when we want to lock in a price that we feel fits the intrinsic value of the company
Put and Call Options and the Collar
- Put Option:
- Similar to an insurance policy; at a set price, over a period of time, I can sell my stock regardless of the current price
- Put Options have fees. Call options can help us pay for those fees
- Call Option:
- This allows you to sell someone the right to buy a stock from you at a locked in price which I value at intrinsic value, therefore they will buy it at above the price of my Put Option, the profit of which pays the fee from my Put Option
- The Collar:
- Owning a stock at a price that I want to protect. Despite the stock going down, I want to protect the potential profits of a future increase, there for I can insure my price
Links from this Episode:
Invested, by Danielle & Phil Town