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Animal Cuts Review – 15 Things You Need to Know
Why are people talking about Animal Cuts and its proprietary blend? We did one of our in-depth reviews, focusing strictly on the ingredients, side effects, scientific research and level of customer service. Moreover, we examined plenty of user responses posted all over the web. Finally, we summed up all the info we found to give you the bottom line.
Animal Cuts can be purchased through their Official Site.
What is Animal Cuts?
Animal Cuts is a fat burner touted as a “complete cutting stack,” and it’s geared toward men. Universal Nutrition makes this supplement. Ingredients include:
- Caffeine anhydrous
- Kota nut
- Raspberry ketones
- Green tea extract
- Coleus forskohlii
- Dandelion root
- Coffee bean
- Uva ursi leaf
Other ingredients included in the supplement are juniper berry, DMAE, huperzine A, magnolia bark, ashwagandha, hoodia gordonii, synephrine, naringin, ginger root, cayenne, buchu leaf, and cha de bugre.
Animal Cuts claims to shred body fat, support a healthy appetite, boost thermogenesis and reduce excess water weight.
Animal Cuts Competitors
This is how much it costs to start on the respective program. We always recommend trying a product before making a large investment.
= Initial product cost is less than $5 = Initial product cost is between $6 and $50 = Initial product cost is between $51 and $150 = Initial product cost is $151 or more
How Did Animal Cuts Start?
A company called Universal Nutrition makes Animal Cuts. They are responsible for some weight-loss, fat-burning, and muscle-building supplements. They got their start in 1977 and are based out of New Brunswick, NJ.
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Animal Cuts Claims
If you want claims – you got them. This company doesn’t shy away from making extravagant promises to customers. Some of the more common claims for Animal Cuts are:
- Helps to enhance strength and patience in gym.
- Increases brain chemistry.
- Deducts body fat in the body.
- Decreases appetite.
- Design supplement to produce professional results for bodybuilders.
- Boost energy level.
- Reduce weight within a few days.
- Product is a proprietary blend that includes ingredients such as Caffeine Anhydrous Raspberry Ketones and Guarana.
- Improves the level of insulin.
- Enhancement of lipolysis.
- Useful in the regulation of thyroid of hormones.
That is quite the list, but we’ll dive deeper into the science behind these claims in a little bit.
Animal Cuts Ingredients
Here, we looked to investigate the ingredients of this supplement. We’ll be listing a handful of components and taking a closer look at what science has to say about them. We noticed some solid ingredients, but with customer comments on the ineffectiveness and the potential for side effects – we had to dig a bit deeper.
Comes from red raspberries and several other fruits, Biotechnology Journal states. It’s taken by mouth for weight-loss.
After appearing on the Dr. Oz show, it blew up in popularity. If you’re wondering why this is, the name of the episode was called, “Raspberry ketone: Miracle fat-burner in a bottle.”
According to BioMed Research International, this plant is used to make medicine. Among its uses are weight loss, stress, gingivitis, and plaque – but the research is lacking in support of these benefits.
This ingredient is claimed to help the signs of aging. It’s also said to increase the mitochondria’s potential to burn fat, says Drug Discovery Today: Disease Mechanisms.
While many claims are surrounding this ingredient, and some are backed by science – Current Drug Metabolism wrote that more research is needed to understand its effectiveness fully. “Further research is warranted to evaluate the biochemical, pharmacological, and physiological determinants of the response to carnitine supplementation, as well as to determine the potential benefits of carnitine supplements in selected categories of individuals who do not have fatty acid oxidation defects.”
This is dehydrated caffeine.
Caffeine is said to increase energy and even burn fat. Medicine and Science in Sports Exercise linked caffeine to more significant results when ingested before a workout session. “The additional 22% reduction in body weight, 25% reduction in epididymal fat-cell size, and 5 and 6% reductions in epididymal and retroperitoneal fat-pad weights, respectively, in the caf-ex group beyond the no caf-ex group support the hypothesis that fat loss with aerobic exercise can be increased when caffeine is ingested prior to the training sessions.”
More caffeine? You bet. Guarana is extremely high in caffeine, which makes us start to wonder about the stimulants used in this supplement. Guarana has one of the highest concentrations of caffeine than any other plant species. It contains 3.6% to 5.8% caffeine by weight, while coffee only has 2%, as per Dow University of Health Sciences.
Theanine is a non-dietary amino acid said to help stress and anxiety by relaxing the body without sedation. Found mostly in teas (more specifically, green tea), theanine can also be used to treat high blood pressure, says BioScience, Biotechnology, Biochemistry.
Yerba Mate is dried leaves used to make tea. Although this ingredient is used in many supplements, Dr. Anthony Dugarte warns,”Yerba mate is a stimulant. Using this product in addition to your typical coffee routine may be unsafe.”
Green Tea Extract
Green tea comes from the Camellia sinensis plant and can be taken to improve mental alertness, as well as treat depression, high cholesterol, and many other ailments, according to Chinese Medicine.
This ingredient has also been used to treat obesity. The American Journal of Clinical Nutrition wrote, “Green tea has thermogenic properties and promotes fat oxidation beyond that explained by its caffeine content per se. The green tea extract may play a role in the control of body composition via sympathetic activation of thermogenesis, fat oxidation, or both.”
It seems a bit strange to us that so many customers would comment on the ineffectiveness of this product when we notice some solid ingredients. Green tea and caffeine are shown to cause weight loss – but raspberry ketones, according to our research, are said to be a “fad ingredient.” If you have winning ingredients, you need to have a winning formula.
How to Take Animal Cuts
For maximum results, you need to take two packs per day for about three weeks. Taking the supplement with a meal is essential. Keep its usage for three weeks with one week off cycle. After one week off starts its usage again Take complex stimulant capsule red in color and water shedding complex capsule in blue.
Does Animal Cuts Work?
The product is designed from the perspective of bodybuilders who are putting immense efforts to achieve their targets within a few weeks.
Universal Nutrition describes Animal Cuts as an effective product for users to enhance focus and endurance during exercise. The reviews are mixed, but to us, the critical factor is the science behind the formula. Universal Nutrition doesn’t provide any such evidence…this bums us out. Due to it being a proprietary blend, there’s no way to know proper doses of ingredients or how effective the product is.
Animal Cuts Benefits and Results
There are many claimed benefits of Animal Cuts, and some ingredients are backed by research – but their lack of information on their formula is alarming. We can’t fully understand if the product works when we don’t have any research on the formula behind it.
Animal Cuts has claimed a lot regarding the effectiveness of the product. But numerous users are not satisfied with its results. The goal of the product is geared more towards bodybuilders than ordinary users.
The other thing which does not persuade the customer is the lack of information provided on the website. This makes users reluctant to buy the product.
Dandelion root (Taraxacum officinale)
Dandelion root is said to be a powerful antioxidant among some other things. The Journal of Ethnopharmacology wrote that “Taraxacum officinale contains anti-angiogenic, anti-inflammatory and anti-nociceptive activities through its inhibition of NO production and COX-2 expression and its antioxidative activity.”
The fruit of the kola tree, this ingredient is said to have a bitter flavor. It’s also said to contain caffeine, which raises some red flags with us – how many of these ingredients contain caffeine?!
The Nigerian Journal of Physiological Sciences linked the kola nut to weight loss (when consumed with caffeine) “The results showed that chronic consumption of kola nut and caffeine diets caused a decrease in food intake and body weight. Consumption of caffeine-diet also significantly decreased water intake and locomotor activity. The effect of kola nut-diets on water intake and locomotor activity was not significant. Hence, the effect of kola nut on locomotor behavior and water intake may not be due to caffeine only.” The study was completed on mice.
Details on Animal Cuts and Weight Loss
Animal Cuts claims that it boosts metabolism and suppresses appetite. The biggest reason why customers buy this product is to shed pounds and look great. Some of the ingredients in the formula are shown to work (green tea), but there is such a lack of information on this product that it’s hard to tell whether the rest of the ingredients can do the job.
The International Journal of Obesity linked the catechins in green tea to weight loss. “Catechins significantly decreased body weight and significantly maintained body weight after a period of WL (microcirc=-1.31 kg; P 300 mg per day) failed to reach significance (microcirc=-0.27 kg for high and microcirc=-1.60 kg for low habitual caffeine intake; P=0.09). Also, the seemingly smaller effect of catechins in Caucasian (microcirc=-0.82 kg) subjects compared with Asians (microcirc=-1.51 kg; P=0.37) did not reach significance. Interaction of ethnicity and caffeine intake was a significant moderator (P=0.04).”
The University of Maryland Medical Center wrote, “Clinical studies suggest that green tea extract may boost metabolism and help burn fat. One study found that the combination of green tea and caffeine improved weight loss and maintenance in people who were overweight and moderately obese.”
The International Journal of Obesity showed the beneficial effects of caffeine on weight loss. “In this 6-month placebo-controlled trial, herbal ephedra/caffeine (90/192 mg/day) promoted body weight and body fat reduction and improved blood lipids without significant adverse events.”
But again, not having the science behind the formula is a bummer, since some of the ingredients are known to work. Also, too much of a good thing could be an issue here. Caffeine can be useful when using the right amount – if you overdo it, it could lead to unwanted side effects and lack of results.
Potential Animal Cuts Side Effects
Animal Cuts isn’t free from customer complaints in this department. While many of their ingredients are safe to use, there’s always a chance for an adverse reaction. With the number of stimulants in the product, it’s no shock that some users are feeling a bit icky.
The NFS Journal says that Raspberry ketones are generally considered safe … in foods. They go on to say that, “no one knows what short- or long-term effect raspberry ketone supplements could have on your overall health. No study has been done to document potential side effects. There are also no studies that look at potential drug or food interactions.” To us, this means that the lack of information should raise some flags here.
Large doses of Ashwagandha can cause:
Also called “bitter orange,” this ingredient comes along with several potential side effects that you need to be aware of. According to the National Center for Complementary and Integrative, bitter orange can cause:
The International Journal of Medical Sciences also wrote an article touching on the dangers of this ingredient, warning that it may be just as dangerous (and less effective) than ephedra.
Furthermore, people who have a history of glaucoma, heart conditions, recurrent headaches, hypertension, seizures, depression, thyroid, enlarged prostates, and trouble urine are highly advised to keep themselves away. Those who are on blood thinning prescriptions may also receive a negative impact. Women who are pregnant or nursing or users under the age of 18 should also steer clear of this product.
Animal Cuts Product Warnings
It has been highly advised that people under 18 should consult their doctors before taking Animal Cuts.
If you are consuming monoamine oxidase or dietary supplement, you must consult with your physician before using. It’s also highly recommended to stop its usage two weeks before any surgery. Avoid use during pregnancy and nursing. It is strictly prohibited to exceed the recommended dose. It contains caffeine. Avoid its usage with other carbohydrate products.
Any Animal Cuts Lawsuits?
We love to see a supplement company free from legal troubles. Universal Nutrition (the company behind Animal Cuts) is unfortunately not one of those companies.
Universal Nutrition was sued for mislabeling their products as “Made in the USA,” which violated California state law. “The plaintiffs in this lawsuit allege that Universal Nutrition violated California state law by improperly labeling and selling its products as being “Made Proudly in the USA,” when, in fact, the products are not made in the United States.” Top Class Actions and Class Actions Reporter wrote.
In 2003, a professional tennis player, Guillermo Coria, sued Universal Nutrition after being suspended for failing a steroid test. “The Argentine player’s family had the multivitamins tested by a lab, which found them to be contaminated with steroids,” ESPN reports.
Animal Cuts Cost
You can buy Animal Cuts on the official website and other retail websites like Amazon, bodybuilding.com and Vitamin Shoppe.
Animal Cuts sells for $36.95 through most of these retailers.
Animal Cuts Alternatives
If you aren’t a fan of tons of stimulants, mixed customer reviews and lawsuits – there are plenty of alternatives out there that promise the same results. Some popular options include:
What Users Are Saying
“I’ve been taking Animal Cuts for 3 weeks now and working out twice a day eating right and consuming the right amount of water and no results. I have not lost 1 lb or even a millimeter off my gut. This was an expensive waste of time. And yes I’ve been working out with a personal trainer.”
“With a diet (low carbs and high protein) and exercises (40min static bike everyday + weight lifting) I lost 35lbs! Animal Cuts give me enough energy to do the exercises! It’s my 3rd Animal Cut box that I purchase. I love you guys! Great product!”
“I am used to taking pre-workouts and protein. I wanted to do some cutting and switched up my workouts and bought two bottles of this. I ate healthy but honestly could not tell if Animal Cuts did anything for me. I find I am better off just eating healthy and taking pre-workout to push harder at the gym. I feel this product is only for those who are already pretty cut and need every little extra boost.”
The Bottom Line on Animal Cuts
So, should you hop in the car to go out for a bottle of Animal Cuts? There are several common ingredients in the formula. There’s just no science to say this product is better than the one on the shelf next to it. Also, there are some fads to worry about. Not to mention, users have complained of no real results.
Animal Cuts Cons:
- We don’t like reading about those lawsuits
- Potential for way too many stimulants
- Customer comments on lack of results
- The price tag is up there
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More Pet Insurance Policies Are Being Sold. But Are They Worth the Cost?
Americans are increasingly treating their pets as members of the family, feeding them gourmet food, paying for day care and throwing them birthday parties. Family sleepwear sets sold on PajamaGram.com even include matching jammies for the dog.
So it’s not surprising that an increasing number of “pet parents,” as they are known in the pet care industry, are seeking sophisticated medical treatments for their animals.
Enter pet health insurance, marketed as a way to help defray rising veterinary expenses and avoid “economic euthanasia” — the necessity of putting a pet down because the owner can’t afford treatment. More than two million pets in the United States and Canada (most of them in the United States) were insured at the end of 2020, up about 17 percent from the year before, according to the North American Pet Health Insurance Association.
But consumer advocates say that pet owners should make sure they understand how the policies work before buying them.
More than two-thirds of households in the United States own a pet, according to the American Pet Products Association. Americans spent about $70 billion on pets in 2020, including purchases of animals, food, veterinary care, medicines and other services.
“People are much more inclined to think of their animals like children, and treat them accordingly,” said James Serpell, a professor of ethics and animal welfare at the University of Pennsylvania’s School of Veterinary Medicine.
J. Robert Hunter, director of insurance with the Consumer Federation of America, said pet owners should bring a healthy skepticism when shopping for pet insurance. Purchase of the product is “often motivated by a combination of love and fear,” he said. “So the buyer may be particularly vulnerable.”
Details vary by insurer and policy, but premiums for pet insurance typically depend on factors like the cost of veterinary care where you live and the age and breed of the pet. The average annual premium for “accident and illness” coverage was $516 per pet in 2020, while the average claim paid was $278, according to the pet health insurance association.
Jeff Blyskal, a senior writer with Consumers’ Checkbook, a nonprofit group that rates services in major urban markets, said pet owners should compare policies with a critical eye. When years of payments are taken into account, he said, buying insurance could end up being more expensive for some pet owners than going without it, if their animal doesn’t require much care.
Pet policies typically don’t cover pre-existing conditions, Mr. Blyskal said, so premiums are generally lower when your pet is young and healthy. Even if you start early, though, you may end up paying more over time, he said, because some policies raise premiums as pets get older. This can increase costs substantially, he said, and cause owners to drop their policies as the animals get older — just when they are more likely to need the coverage. Industrywide, the average pet policy is maintained for three years or less, according to an insurer regulatory filing in 2020 in Washington State.
The expenses tied to pet health coverage usually include not only a regular premium but also other out-of-pocket costs, like a deductible — an amount that you must pay before insurance begins paying. Insurance may cover less than 100 percent of costs after the deductible, so you’ll still have to pay for part of the treatment. Some policies may cap payments, so ask if there’s a limit.
Rob Jackson, chief executive of Healthy Paws Pet Insurance, said insurance could protect against budget-busting events costing thousands of dollars. (Healthy Paws said a pet’s age affects premiums at initial enrollment, and also as the pet ages.) The Healthy Paws website cites examples like Fridgey the Bengal cat, who had a $4,600 hip replacement, and Lupa the German shepherd, who needed $52,000 in treatment for tetanus exposure.
One way to pay lower premiums, and possibly get broader coverage, is to buy pet insurance through your employer. Eleven percent of employers in the United States offer pet health insurance benefits, according to a 2020 survey by the Society for Human Resource Management, up from 6 percent in 2020. Typically, companies offer pet insurance as a “voluntary” benefit. It’s uncommon for employers to contribute to the cost of premiums, as they do with human health insurance. But insurers may give employees a break on premiums, or offer better coverage, because their marketing costs are lower.
Employees at Ollie, a specialty dog food company, receive a 15 percent discount on premiums from the insurer Healthy Paws, said Gabby Slome, a co-founder of Ollie. (Ollie also offers workers benefits like “pawternity” leave when they take a new dog home.)
“We had a strong belief that pets are a part of one’s family,” she said.
Scott Liles, president and chief pet insurance officer with Nationwide, said half of Fortune 500 companies offer their employees pet insurance from his company. Nationwide’s employer-based plans now underwrite by species — canines vs. felines — but not by age or breed, Mr. Liles said. That means, he said, you won’t pay a higher premium if your pet is older, or if its breed is prone to certain illnesses, unlike policies sold in the open market.
Here are some questions and answers about pet health insurance:
Do some animals cost more to insure than others?
Cats are generally less expensive to insure than dogs. The average accident and illness premium in 2020 was about $45 a month for dogs and $28 a month for cats, according to the pet health insurance association. Because some purebred animals are prone to certain health problems, some insurers may charge higher premiums for them.
Most, but not all, insurers limit coverage to common household pets. Nationwide, Mr. Liles said, offers coverage for birds, hamsters and more exotic pets, including tarantulas and even hedgehogs.
What if I can’t afford pet insurance?
Local animal shelters may offer basic services, like rabies vaccinations or spaying and neutering operations, at a discounted rate. The Humane Society of the United States lists groups that can help owners who can’t afford medical care for their pets.
Another option is to put money away each month — perhaps the amount of the premium you would pay — into a dedicated savings account so you will have some funds available for pet care if you need it.
What if I’m unhappy with my pet insurance policy?
Insurance products are generally regulated by state governments, so you may want to contact your state insurance commissioner about your concern. The National Association of Insurance Commissioners offers information about pet insurance and links to regulators in each state.
Essential Options Trading Guide
Options trading may seem overwhelming at first, but it’s easy to understand if you know a few key points. Investor portfolios are usually constructed with several asset classes. These may be stocks, bonds, ETFs, and even mutual funds. Options are another asset class, and when used correctly, they offer many advantages that trading stocks and ETFs alone cannot.
- An option is a contract giving the buyer the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) the underlying asset at a specific price on or before a certain date.
- People use options for income, to speculate, and to hedge risk.
- Options are known as derivatives because they derive their value from an underlying asset.
- A stock option contract typically represents 100 shares of the underlying stock, but options may be written on any sort of underlying asset from bonds to currencies to commodities.
What Are Options?
Options are contracts that give the bearer the right, but not the obligation, to either buy or sell an amount of some underlying asset at a pre-determined price at or before the contract expires. Options can be purchased like most other asset classes with brokerage investment accounts.
Options are powerful because they can enhance an individual’s portfolio. They do this through added income, protection, and even leverage. Depending on the situation, there is usually an option scenario appropriate for an investor’s goal. A popular example would be using options as an effective hedge against a declining stock market to limit downside losses. Options can also be used to generate recurring income. Additionally, they are often used for speculative purposes such as wagering on the direction of a stock.
There is no free lunch with stocks and bonds. Options are no different. Options trading involves certain risks that the investor must be aware of before making a trade. This is why, when trading options with a broker, you usually see a disclaimer similar to the following:
Options involve risks and are not suitable for everyone. Options trading can be speculative in nature and carry substantial risk of loss.
Options as Derivatives
Options belong to the larger group of securities known as derivatives. A derivative’s price is dependent on or derived from the price of something else. As an example, wine is a derivative of grapes ketchup is a derivative of tomatoes, and a stock option is a derivative of a stock. Options are derivatives of financial securities—their value depends on the price of some other asset. Examples of derivatives include calls, puts, futures, forwards, swaps, and mortgage-backed securities, among others.
Call and Put Options
Options are a type of derivative security. An option is a derivative because its price is intrinsically linked to the price of something else. If you buy an options contract, it grants you the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date.
A call option gives the holder the right to buy a stock and a put option gives the holder the right to sell a stock. Think of a call option as a down-payment for a future purpose.
Call Option Example
A potential homeowner sees a new development going up. That person may want the right to purchase a home in the future, but will only want to exercise that right once certain developments around the area are built.
The potential home buyer would benefit from the option of buying or not. Imagine they can buy a call option from the developer to buy the home at say $400,000 at any point in the next three years. Well, they can—you know it as a non-refundable deposit. Naturally, the developer wouldn’t grant such an option for free. The potential home buyer needs to contribute a down-payment to lock in that right.
With respect to an option, this cost is known as the premium. It is the price of the option contract. In our home example, the deposit might be $20,000 that the buyer pays the developer. Let’s say two years have passed, and now the developments are built and zoning has been approved. The home buyer exercises the option and buys the home for $400,000 because that is the contract purchased.
The market value of that home may have doubled to $800,000. But because the down payment locked in a pre-determined price, the buyer pays $400,000. Now, in an alternate scenario, say the zoning approval doesn’t come through until year four. This is one year past the expiration of this option. Now the home buyer must pay the market price because the contract has expired. In either case, the developer keeps the original $20,000 collected.
Call Option Basics
Put Option Example
Now, think of a put option as an insurance policy. If you own your home, you are likely familiar with purchasing homeowner’s insurance. A homeowner buys a homeowner’s policy to protect their home from damage. They pay an amount called the premium, for some amount of time, let’s say a year. The policy has a face value and gives the insurance holder protection in the event the home is damaged.
What if, instead of a home, your asset was a stock or index investment? Similarly, if an investor wants insurance on his/her S&P 500 index portfolio, they can purchase put options. An investor may fear that a bear market is near and may be unwilling to lose more than 10% of their long position in the S&P 500 index. If the S&P 500 is currently trading at $2500, he/she can purchase a put option giving the right to sell the index at $2250, for example, at any point in the next two years.
If in six months the market crashes by 20% (500 points on the index), he or she has made 250 points by being able to sell the index at $2250 when it is trading at $2000—a combined loss of just 10%. In fact, even if the market drops to zero, the loss would only be 10% if this put option is held. Again, purchasing the option will carry a cost (the premium), and if the market doesn’t drop during that period, the maximum loss on the option is just the premium spent.
Put Option Basics
Buying, Selling Calls/Puts
There are four things you can do with options:
- Buy calls
- Sell calls
- Buy puts
- Sell puts
Buying stock gives you a long position. Buying a call option gives you a potential long position in the underlying stock. Short-selling a stock gives you a short position. Selling a naked or uncovered call gives you a potential short position in the underlying stock.
Buying a put option gives you a potential short position in the underlying stock. Selling a naked, or unmarried, put gives you a potential long position in the underlying stock. Keeping these four scenarios straight is crucial.
People who buy options are called holders and those who sell options are called writers of options. Here is the important distinction between holders and writers:
- Call holders and put holders (buyers) are not obligated to buy or sell. They have the choice to exercise their rights. This limits the risk of buyers of options to only the premium spent.
- Call writers and put writers (sellers), however, are obligated to buy or sell if the option expires in-the-money (more on that below). This means that a seller may be required to make good on a promise to buy or sell. It also implies that option sellers have exposure to more, and in some cases, unlimited, risks. This means writers can lose much more than the price of the options premium.
Why Use Options
Speculation is a wager on future price direction. A speculator might think the price of a stock will go up, perhaps based on fundamental analysis or technical analysis. A speculator might buy the stock or buy a call option on the stock. Speculating with a call option—instead of buying the stock outright—is attractive to some traders since options provide leverage. An out-of-the-money call option may only cost a few dollars or even cents compared to the full price of a $100 stock.
Options were really invented for hedging purposes. Hedging with options is meant to reduce risk at a reasonable cost. Here, we can think of using options like an insurance policy. Just as you insure your house or car, options can be used to insure your investments against a downturn.
Imagine that you want to buy technology stocks. But you also want to limit losses. By using put options, you could limit your downside risk and enjoy all the upside in a cost-effective way. For short sellers, call options can be used to limit losses if wrong—especially during a short squeeze.
How Options Work
In terms of valuing option contracts, it is essentially all about determining the probabilities of future price events. The more likely something is to occur, the more expensive an option would be that profits from that event. For instance, a call value goes up as the stock (underlying) goes up. This is the key to understanding the relative value of options.
The less time there is until expiry, the less value an option will have. This is because the chances of a price move in the underlying stock diminish as we draw closer to expiry. This is why an option is a wasting asset. If you buy a one-month option that is out of the money, and the stock doesn’t move, the option becomes less valuable with each passing day. Since time is a component to the price of an option, a one-month option is going to be less valuable than a three-month option. This is because with more time available, the probability of a price move in your favor increases, and vice versa.
Accordingly, the same option strike that expires in a year will cost more than the same strike for one month. This wasting feature of options is a result of time decay. The same option will be worth less tomorrow than it is today if the price of the stock doesn’t move.
Volatility also increases the price of an option. This is because uncertainty pushes the odds of an outcome higher. If the volatility of the underlying asset increases, larger price swings increase the possibilities of substantial moves both up and down. Greater price swings will increase the chances of an event occurring. Therefore, the greater the volatility, the greater the price of the option. Options trading and volatility are intrinsically linked to each other in this way.
On most U.S. exchanges, a stock option contract is the option to buy or sell 100 shares; that’s why you must multiply the contract premium by 100 to get the total amount you’ll have to spend to buy the call.
|What happened to our option investment|
|May 1||May 21||Expiry Date|
The majority of the time, holders choose to take their profits by trading out (closing out) their position. This means that option holders sell their options in the market, and writers buy their positions back to close. Only about 10% of options are exercised, 60% are traded (closed) out, and 30% expire worthlessly.
Fluctuations in option prices can be explained by intrinsic value and extrinsic value, which is also known as time value. An option’s premium is the combination of its intrinsic value and time value. Intrinsic value is the in-the-money amount of an options contract, which, for a call option, is the amount above the strike price that the stock is trading. Time value represents the added value an investor has to pay for an option above the intrinsic value. This is the extrinsic value or time value. So, the price of the option in our example can be thought of as the following:
|Premium =||Intrinsic Value +||Time Value|
In real life, options almost always trade at some level above their intrinsic value, because the probability of an event occurring is never absolutely zero, even if it is highly unlikely.
Types of Options
American and European Options
American options can be exercised at any time between the date of purchase and the expiration date. European options are different from American options in that they can only be exercised at the end of their lives on their expiration date. The distinction between American and European options has nothing to do with geography, only with early exercise. Many options on stock indexes are of the European type. Because the right to exercise early has some value, an American option typically carries a higher premium than an otherwise identical European option. This is because the early exercise feature is desirable and commands a premium.
There are also exotic options, which are exotic because there might be a variation on the payoff profiles from the plain vanilla options. Or they can become totally different products all together with “optionality” embedded in them. For example, binary options have a simple payoff structure that is determined if the payoff event happens regardless of the degree. Other types of exotic options include knock-out, knock-in, barrier options, lookback options, Asian options, and Bermudan options. Again, exotic options are typically for professional derivatives traders.
Options Expiration & Liquidity
Options can also be categorized by their duration. Short-term options are those that expire generally within a year. Long-term options with expirations greater than a year are classified as long-term equity anticipation securities or LEAPs. LEAPS are identical to regular options, they just have longer durations.
Options can also be distinguished by when their expiration date falls. Sets of options now expire weekly on each Friday, at the end of the month, or even on a daily basis. Index and ETF options also sometimes offer quarterly expiries.
Reading Options Tables
More and more traders are finding option data through online sources. (For related reading, see “Best Online Stock Brokers for Options Trading 2020”) While each source has its own format for presenting the data, the key components generally include the following variables:
- Volume (VLM) simply tells you how many contracts of a particular option were traded during the latest session.
- The “bid” price is the latest price level at which a market participant wishes to buy a particular option.
- The “ask” price is the latest price offered by a market participant to sell a particular option.
- Implied Bid Volatility (IMPL BID VOL) can be thought of as the future uncertainty of price direction and speed. This value is calculated by an option-pricing model such as the Black-Scholes model and represents the level of expected future volatility based on the current price of the option.
- Open Interest (OPTN OP) number indicates the total number of contracts of a particular option that have been opened. Open interest decreases as open trades are closed.
- Delta can be thought of as a probability. For instance, a 30-delta option has roughly a 30% chance of expiring in-the-money.
- Gamma (GMM) is the speed the option is moving in or out-of-the-money. Gamma can also be thought of as the movement of the delta.
- Vega is a Greek value that indicates the amount by which the price of the option would be expected to change based on a one-point change in implied volatility.
- Theta is the Greek value that indicates how much value an option will lose with the passage of one day’s time.
- The “strike price” is the price at which the buyer of the option can buy or sell the underlying security if he/she chooses to exercise the option.
Buying at the bid and selling at the ask is how market makers make their living.
The simplest options position is a long call (or put) by itself. This position profits if the price of the underlying rises (falls), and your downside is limited to loss of the option premium spent. If you simultaneously buy a call and put option with the same strike and expiration, you’ve created a straddle.
This position pays off if the underlying price rises or falls dramatically; however, if the price remains relatively stable, you lose premium on both the call and the put. You would enter this strategy if you expect a large move in the stock but are not sure which direction.
Basically, you need the stock to have a move outside of a range. A similar strategy betting on an outsized move in the securities when you expect high volatility (uncertainty) is to buy a call and buy a put with different strikes and the same expiration—known as a strangle. A strangle requires larger price moves in either direction to profit but is also less expensive than a straddle. On the other hand, being short either a straddle or a strangle (selling both options) would profit from a market that doesn’t move much.
Below is an explanation of straddles from my Options for Beginners course:
And here’s a description of strangles:
How to use Straddle Strategies
Spreads & Combinations
Spreads use two or more options positions of the same class. They combine having a market opinion (speculation) with limiting losses (hedging). Spreads often limit potential upside as well. Yet these strategies can still be desirable since they usually cost less when compared to a single options leg. Vertical spreads involve selling one option to buy another. Generally, the second option is the same type and same expiration, but a different strike.
A bull call spread, or bull call vertical spread, is created by buying a call and simultaneously selling another call with a higher strike price and the same expiration. The spread is profitable if the underlying asset increases in price, but the upside is limited due to the short call strike. The benefit, however, is that selling the higher strike call reduces the cost of buying the lower one. Similarly, a bear put spread, or bear put vertical spread, involves buying a put and selling a second put with a lower strike and the same expiration. If you buy and sell options with different expirations, it is known as a calendar spread or time spread.
Combinations are trades constructed with both a call and a put. There is a special type of combination known as a “synthetic.” The point of a synthetic is to create an options position that behaves like an underlying asset, but without actually controlling the asset. Why not just buy the stock? Maybe some legal or regulatory reason restricts you from owning it. But you may be allowed to create a synthetic position using options.
A butterfly consists of options at three strikes, equally spaced apart, where all options are of the same type (either all calls or all puts) and have the same expiration. In a long butterfly, the middle strike option is sold and the outside strikes are bought in a ratio of 1:2:1 (buy one, sell two, buy one).
If this ratio does not hold, it is not a butterfly. The outside strikes are commonly referred to as the wings of the butterfly, and the inside strike as the body. The value of a butterfly can never fall below zero. Closely related to the butterfly is the condor – the difference is that the middle options are not at the same strike price.
Because options prices can be modeled mathematically with a model such as the Black-Scholes, many of the risks associated with options can also be modeled and understood. This particular feature of options actually makes them arguably less risky than other asset classes, or at least allows the risks associated with options to be understood and evaluated. Individual risks have been assigned Greek letter names, and are sometimes referred to simply as “the Greeks.”
Below is a very basic way to begin thinking about the concepts of Greeks:
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