Alright, so start off, what I did was I created a little agenda. And so this is Derek's crash course on how to trade options, spreads and crude oil. And the whole object is, is by the time you're done going through this, you're going to understand not only how the futures work on trading, but also how to construct your own limited risk trades using options. Okay, so on this agenda, what we're going to do is just cover the basics of crude oil. And I'll show you where to go for the Chicago Mercantile Exchange know where to get all your information for how the products look like charts, will talk about how the Crude Oil Futures trades works. Then we're going to go into options, Crash Course and options, how the p&l is worked profit and losses, how to actually create your own spread.

And then what I'm going to do is go over a worksheet and I'll give you copies of that work sheet. Play around on your own later. The worksheet I created was mainly for the kids. So it's really easy to work with. And then from there, I'm going to show you how to use what we call the quick strike software. So very simplified software that's put out by the exchange, I use something a little bit different.

But this will at least give you a very simple way of how to do things. Alright, so let's get started. Alright, so the first thing to do is open up the internet browser. You're going to go here to CME Group, comm Chicago Mercantile exchanges website, you scroll right around to the middle, where it says delayed quotes. And in this section here, it's got all the different markets that are here, but what we're going to do is mainly just focus on one markets keep life simple. That's called the crude oil markets.

The first one up here, if you move your mouse over this thing versus CL, you can see here's Crude Oil Futures, it'll tell you at CL in this case, it's the October futures and you can see here it gives you the last price. And over here it says chart. Okay, so if you click here on top chart. It'll open up a chart of the Crude Oil Futures there to see zactly what all that stuff is here. And I won't go over all these details, you can go ahead and play with it on your own. But you switch over here, for example, candlestick charts, what it does is when you're looking at these charts, it gives you the price per barrel of crude oil.

So this case here is $55, and 10 cents a barrel. And what you'll see is that the prices will move one penny at a time, so to go up from $55 and 10 cents to 11 cents to 12 cents, down to $55 and nine cents, eight cents, so forth. Okay, so don't move in one penny increments. What we're going to talk about now is what that actually needs. So next, I'm going to click back to where we were here. And again, crude oil.

What I'm going to do is just click on top the label for SEO where it says crude oil here. And what that's going to do is to take us to an area where I want To show you how to find the product specifications, what that means is, what are the products? You know, what does it look like and how does it work? Okay? When you get to this page, you'll see a whole list of different months over here. And what we're going to do is right below where it says the title Crude Oil Futures quotes, we're going to click over here to contract specs, contract specifications.

So what this shows you is that each contract that you buy and sell in the futures market is 1000 barrels of crude oil. The price fluctuation moves in US dollars and cents, as we know, so us base product crude oil, and these are the times that the product actually trades, okay, runs pretty much from 6pm to 5pm. And this is central standard time, so in Chicago, and then there's like a one hour break, where the markets kind of go off and then from there, it starts all over again. Each price tick, like I said earlier is one us per barrel, so you see it go up and down. one penny. Okay, so let's move forward.

So we're going to go here to the second part of our agenda. How does a Crude Oil Futures trade work? Alright, so to start off, this is what we're looking at trade. So this is a barrel of crude oil. Okay, so they dig this stuff out of the ground. In the United States, it's called WTF or West Texas Intermediate crude oil.

That's what the US produces. In Europe. And other parts we they work with crude oil taken out of the ocean of the Black Sea, and that's Brent crude oil. Okay, in any event, a barrel of crude oil here is 42 gallons. Alright, so when we're taking a look at price quotes, you're looking at a price quote, per one barrel of crude oil. Now, when we trade futures, we don't just trade wonder all the time we trade contracts, and have barrels or groups of barrels and each crude oil futures contract is 1000 of these barrels, okay, so when you're buying and selling and top the exchange, you're buying and selling contracts, not just one barrel, a contract of thousand barrels, you're going to see the price move as it's quoted per barrel, okay, but when you buy and sell, just know that you're buying and selling 1000 barrels at a time.

All right. And when you take a look at an actual chart, which we're going to do right now, this is what you're seeing here. Alright, so the right here prices are the price per barrel of crude oil. Okay, now what I've listed on here and drawn lines up here to make it real easy, you can see the last price of crude oil here was $55 and 16 cents. Okay. Now on the left hand side, what I've got is a diagram and I'm what I've done just to keep life easy, is I've taken it from $55 and 16 cents just to 55 On 10 cents just to make the math easy.

Okay, so about six cents less per barrel of crude oil. Okay, so when we're looking at this schematic here, how I've created this for the kids is this right hand side per unit. This is the quote per barrel of crude oil, $55 and 10 cents. The left hand side is the quote per contract again, the contract is 1000 barrels. All right? So if I were to take a look at trading one contract, the value of that contract is going to actually be $55,100.

Okay, when I'm buying and selling one contract for oil, now you're saying, Wow, that's a lot of money. Well, how it works in the futures market, is you're able to do a thing called leverage. In other words, when you buy a contract of crude oil, you don't necessarily have to come up with $55,100. All you need to do is put down what we call a margin deposit. Which is a percentage of this value. And typically that value is like around 2% 3% can be 5% 10%.

This depends on which broker that you work with. Okay, so just for the sake of our example here, let's suppose we work with a 10% margin deposit. So what that means is if you see the price per barrel of crude oil at $55 and 10 cents, and you said, Okay, I want to go ahead and buy one contract, well, the broker will require you to put down let's say, a 10% deposit or about 50 $500. Okay, and to your margin account, and then from there, you now are controlling a contract in value worth $55,500, because it's $5 and 10 cents times 1000 barrels is $55,100. And as I said, and we looked a little bit earlier, the product specifications, the price moves in one penny or one cent increments, so if it goes From in this case here on the chart $55 and 16 cents a barrel up to $55 and 17 cents a barrel goes up one penny.

Okay, you're now looking at over here I have it here as $55 and 10 cents on this chart just again to keep things easy. But if this also moved up just one penny, okay, one penny move over here times 1000 barrels would be $10. Okay, let me show you real quick if price moved up by one penny and this is on this side for barrel, okay, we would then multiply this one penny over here times 1000 barrels and we get over here per contract at that one penny move is worth 10 US dollars. Okay, and the way I like to look at this is that notice over here per unit is really the quote that you're going to see on top. The chart here, okay, and the left hand side per contract, I think of that is what's happening in my wallet. Okay, so this moves up by one penny, okay, in my wallet, it's going to affect my wallet by 10 US dollars moves up by two pennies, it's gonna be 20 US dollars in my wallet.

And of course, if it goes down by a penny to $55 and nine cents, and I lost one penny for that I would have lost 10 US dollars. Okay, so moving on to the next step. So how do you trade this stuff. So taking a look here at the chart, and you notice I've got some other prices over here again, I have this chart that shows $55 and 16 cents, but again, on top of our little schematic here, I've just simplified it to $55 and 10 cents. But anyway, take a look at this chart. Let's suppose over here price at $55 and 60 cents and I'm just visually playing around with the stuff and going well you know what?

Down here the bottom I think this thing's gonna To go a little bit higher, and down here, the bottom, you know, $54 and 80 cents instead of been close to the lowest over here. You know what I think I want to get out price seems to hit this area or go below. Okay, at the same time, you know, I want to make some money, I want to go long I want to buy this contract. And I think it's going to go higher. And for whatever reason, I think it's going to go here $55 and 50 cents. Okay, so this is kind of what I'm doing visually in the chart.

Let's take a look at how this worked from the schematic here. Okay, so instead of $55 and 16 cents a scarer. Look, you're at $55 and 10 cents. Well, one way and the different way of looking at this I can say hey, you know what, I want to trade this crude oil barrel thing. And you know, I know that if I buy a one lot of this trade. In other words, I get in with one type of unit what we call a one lot of this trade, then I don't want to risk any more than let's say 300 In this trade, okay, so there's another way of looking at it.

I go, well, what's that gonna look like over here on the right hand side of the quote site? Well, if I take $300, and again, this left hand side represents my wallet, and I divide that by 1000 barrels, it tells me that I don't want to lose any more than 30 cents on this trade. So in other words, if I'm able to get in and buy at $55 and 10 cents a barrel, I don't want to see a loss of any more than 30 cents. Okay, and what price would that be? Well, if I just subtract three cents from here, it would be $54 and 80 cents. Okay.

So again, if I buy or go on this trip, $55 and 10 cents, and I don't want to lose more than 300 bucks, then that means I don't want to see more than a 30 cent loss per barrel on this trade. In which case I would tell my broker to get me out at around $54 and 80 cents, okay, just to see what the value is. I mean, you this really doesn't matter very much. But this is See the value? You can see this on this site, he just took $55,000 and subtracted $300. This is actually the value of the contract that you're working with.

Okay? Well, let's say on the flip side over here on the upside, okay, let's suppose again, I'm not willing to lose more than $300. But I'm looking to make, say $500 on this trade. Well, what's that mean for us over here? On the cold side? Well, if I divide that by 1000, that means that I'm looking to make 50 cents.

Okay, so again, here, I'm risking 30 cents, or I'm risking $300 to make $500. I want to make 50 cents on this trade. Well, what price Do I need to tell my broker to get me out at that case? I just had 50 cents to hear. And I tell my broker, Okay, you know what, here's my target. I want to get out of $55 and 60 cents, okay, and what's that look like in terms of value the contract, that's what it is.

You can just add this over here. So now I've got my key things here. I know I'm long at $55 and 10 cents. And if I want to make 500 bucks, I would tell my broker to get me out at 5560. That would be my order. Okay, and then from there I make 500 bucks.

I also want to put like a stop loss on here, of, let's say 30 cents, in other words, so I don't lose any more than roughly around 300 bucks. And so I would tell my broker, the price to get me out would be roughly about $54 and 80 cents, so far to throw back the charts. You can see it side by side. Again, in this case, let's suppose I got in here at about $55 and 10 cents. And you know, I want to see where that's at graphically on the trade or on a chart and see here, you know, the bottom of red, I have it at $54 and 80 cents, and the green the top I have it up at $55. Well, in this case, they're either 5550 up here, just to be consistent $55 and 60 cents.

Sense. There we go. Okay, so this is the 5480, we're getting in close to about $55 and 10 cents. And again, you can see how this moves up and down by one penny on the black. So let's say it's moving up and down like this, and it fell down over here, that would be stopped out and lose my 300 bucks in it somehow, when like this moves all the way up here to $55 and 60 cents, I would get out, I would make my 500 bucks. So that's basically how you trade the crude oil futures.

Alright, now on my agenda, you notice that I said, I'm going to show you how to trade the futures so you understand it, and then we're going to move into options. So the question is, well, if this futures markets is so lucrative like this, why would I want to trade anything like options? It's just so complicated, as opposed to work with just this some futures. But when you look at the futures as I said earlier, the contract value is 55,100. And let's suppose the margin for what business asked you to put down a deposit with a trade one contract is 10%. So that means out of your entire account, now you've got to put it on close to 50 $500 to trade that one contract, even though the tick moves up and down by a penny or 10 US dollars.

Alright, so putting down money for your margin posit, that's gonna be one factor for you if you're brand new to trading futures. Alright, the second part is just how fast this stuff actually moves. Now what we're looking at here is a 15 minute chart. So if you want to be glued to your computer, watching a five minute or 15 minute chart, you know, and seeing the vacillations in the market and sweating it out. If you've got 100 lots on, he could do that. But you know, that's a really rough way to be trading.

And just to give you an idea of how much this actually moves this a 15 minute chart and then move here to what we look at for a daily chart. Okay, and I'm going to put on an indicator here called the average range and explain what that means in a second. So what this ATR Average True Range means is it gives you an idea of how much this market moves up and down in the course of a day, or one bar this case over here, see this big red bar? Okay, so I move my mouse here, this blue line, which you see here. And you can see the reading here is roughly about $1 $95 $96 95. But what does that mean?

It means that the market on average of last 14 days has moved an average of around $1 95 cents per day. Okay, so let's suppose you're not one of these traders that wants to improve in theater, you got a full time job and you're working all day. And you go, okay, Hey, you know what, I'm going to put a trade into this thing. All right, well, how much can you expect this thing to move? When $1 95 and we know that each barrel over here or each time requisite thousand of these barrels $1 and 95 cents on the futures times 1000 barrels means that this thing could move $1 95 or, you know, up or down by 1950 bucks in the course of a given day. Okay, that's quite a bit to work with.

Alright, so I'm going to move back here to 15 minute chart. And you can see here, each bar here represents a 15 minute interval. Okay, so you can see how fast this thing moves. The other thing I want to mention on the futures is just because you put an order in here, stop loss, say to get out 5480 doesn't guarantee that you're going to get out here. That's the order that you put into your broker or your electronic platform to get sewn at. And depending on the type of order you make, if the market moves really dramatically, really fast.

You might not necessarily get billed at $54 and 80 cents, or you know living yourself to the $300 loss could be your best fill, which could be all the way down here. Okay, so trading the futures comes with a lot of risk, whether you're trading Stocks, Futures or foreign exchange, if you're trading, what we call the underlying contract, in this case, a barrel of crude oil, you have pretty much unlimited risk for the value of this case, the crude oil or for stocks, the value of the stock. Alright, so a way to train where you can actually create what we call limited risk is using what we call options. So now going back here to our agenda, what I'm going to do is part two video and that part two video I'm gonna move fairly quickly, we're going to cover from three, all the way down to six.

Then the last video, which will be even shorter is just showing you quickly how to do all the stuff you learn. Inside quick strike software. I'm going to have a user ID and login setup for you guys. Free Software doesn't cost anything. It's actually something that the Chicago Mercantile exchange as you can play around with that and then if you want to play around with your own broker pesky trades you can do that. Alright, thanks so much