your contract is slowly gonna deteriorate in value right it's gonna decay that's what they call it it's gonna drop to nine cents eight seven six five four three two eventually it's gonna expire worthless if the price of pudding stays at five dollars but if putting shoots up to fifty dollars a pack you're making out like a bandit and then i'm screwed and i am what i'm doing is you're the person who sold the option because i'm obligated no matter what i am obligated contractually obligated to sell you the pudding for five dollars a pack right now that's what's called a covered call because i own the pudding and i'm writing a call contract and selling it to you there's another thing that people do it's called naked call writing right which is if you don't even own people have gotten into very very big trouble doing this and we'll get to a nasty story about it if i don't even own the pudding i can still write the contracts i'm still doing the side bet i'm still going dang i see that guy over there he's got that opponent going for five dollars a pack i think that that voting is gonna go down in value so i'm gonna write a ton of options and sell them to people because i'm gonna collect the money it's called the premium that's the price that you pay for the contract NUMBER_TOKEN cents is your premium and that's the premium that i would collect as the writer of the contract is all of this making sense yeah i'm just going back to the covered call that one you already own it so no matter what you're just losing the money you already sunk into it yes naked call you don't own you're gonna have to buy the thing that stock to sell it at that price yes so if i'm writing the contract and it goes up to NUMBER_TOKEN per pack i have to fulfill my obligation to sell you the pudding so i have to go buy it for fifty dollars and then sell it to you yeah oof is right man do you ever do naked calls never ever i don't i i don't even think i'm you have to have a certain amount of money and you have to have a certain amount of experience to get your broker to give you permission to do it because if you screw yourself eventually you run out of money and your broker's gonna be on the line but there's all sorts of mechanisms in place to prevent that they would likely just cut your position if it were to go against you but but i do wanna know how you learned all this stuff first like where like is there it took me a while to really understand the mechanics of how it worked and understanding them once it clicks it's like oh it's very simple it's just you know the the option kind of moves in tandem or or not with the price of the underlying the underlying is the stock but did you have resources you were using or yeah you know i'd google it and still try to understand it but the the thing is with a lot of these resources online they they really stick to a buy the book definition so it's like it is the right to buy or sell a
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