The Options Millionaire Options Premiums
Jan 4, 2024
They unpack why option premiums vary across securities and how volatility and risk drive pricing. Comparisons include DraftKings vs Apple and SPY vs single stocks to illustrate differing yields. They introduce LEAPs and metrics like cost-per-year and months-to-expiration for planning. Insurance analogies explain premiums and using dividends or covered calls to offset protection costs.
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Premiums Signal Underlying Risk
- Option premiums reflect risk not just dollar size of the premium.
- Peter compares equal-dated at-the-money calls on DraftKings, Apple and shows yields differ (e.g., DraftKings ~7.3% vs Apple ~3.4%).
Calculate Premiums As Percentage Yield
- Always convert option dollars into percentage yield by dividing the premium by the stock/ETF price.
- Peter demonstrates with SPY ($399, premium $9.62 → 2.4% yield) and compares to Apple/Tesla yields.
Avoid Chasing High Premiums Without Risk Checks
- Don't chase high option premiums without understanding why they're high; they usually compensate for higher risk.
- Travis uses the car-insurance analogy: risky drivers pay far higher premiums and cause more payouts.