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#800 - The "Daily Call" Podcast Finale

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about why every 18 years on average, investors lose half of their money. As we kind of wrap up 2019 and we start getting towards 2020, a brand-new decade, I think it’s important that we just remind ourselves of just how volatile markets can be moving forward in the future and how good we’ve really had it over the last 13 years as far as volatility, market shocks and black swans are concerned. We really haven’t had any major market movements in the last 13 years for US markets and that is a rare thing. And so, that would lead me to believe that in the future, potentially even the near future, the next couple of years, two years, three years or so, we’re going to have a significant move in the market in one fashion or another. And so, I want to revisit some of the things that we talked about actually in our weekly podcast show number 15 which is a really, really long time ago, we started looking at market drawdowns and crashes and started to build some numbers and some data points, some references around how often and how big market moves actually happen. And the first one is that on average, every 18 years, investors lose half of their money. Now, 18 years is a long time, but a 50% drawdown every 20 years or so is a significant move and in many cases, can set you back considerably towards your financial goals. And so, my goal is to of course, avoid situations like this. This is exactly why we started implementing a more aggressive VIX hedge strategy just in the last couple of months because we’re coming up on 13 years here of no major market volatility and I am more than willing to pay a little bit of money to hedge some of this black swan risk. Now, what’s even more shocking to me is not necessarily the major drawdowns which are every 18 years, but the intermediate drawdowns of 30% and 20%, the typical bear markets if you will. Nine times in our history, we have seen stocks fall 30%. That’s basically once every 10 years. Again, I remind you, we’re coming up on 13 years of this bull market run in US equity markets. Does that mean that it’s going to stop next year? Of course not. It could continue on for another couple of years, but it’s getting long in the tooth and we just typically see a lot of cyclicality at some point in the future. 21 times in the past, we’ve seen at least a 20% drawdown in stocks. That’s once every four years. 41 times, we’ve seen a drawdown of at least 15%. That’s once every two years. Now, to be fair, we actually really had one of these drawdowns back at the end of 2018 which just goes to show you that we continue to have these 10% to 15% drawdowns on a regular basis. The 20%, 30%, 50% are more rare, but they’re not rare enough that we should consider them. And then of course, more than 90 times, we’ve had drawdowns of at least 10% which is correction territory which happens generally once every 11 months. It’s just really important that we keep these numbers in the back of our mind especially as we move forward to 2020 just to keep an eye on the risk for our positions and our portfolio moving forward. Hopefully this helps out. As always, if you guys enjoy this, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about why every 18 years on average, investors lose half of their money. As we kind of wrap up 2019 and we start getting towards 2020, a brand-new decade, I think it’s important that we just remind ourselves of just how volatile markets can be moving forward in the future and how good we’ve really had it over the last 13 years as far as volatility, market shocks and black swans are concerned. We really haven’t had any major market movements in the last 13 years for US markets and that is a rare thing. And so, that would lead me to believe that in the future, potentially even the near future, the next couple of years, two years, three years or so, we’re going to have a significant move in the market in one fashion or another. And so, I want to revisit some of the things that we talked about actually in our weekly podcast show number 15 which is a really, really long time ago, we started looking at market drawdowns and crashes and started to build some numbers and some data points, some references around how often and how big market moves actually happen. And the first one is that on average, every 18 years, investors lose half of their money. Now, 18 years is a long time, but a 50% drawdown every 20 years or so is a significant move and in many cases, can set you back considerably towards your financial goals. And so, my goal is to of course, avoid situations like this. This is exactly why we started implementing a more aggressive VIX hedge strategy just in the last couple of months because we’re coming up on 13 years here of no major market volatility and I am more than willing to pay a little bit of money to hedge some of this black swan risk. Now, what’s even more shocking to me is not necessarily the major drawdowns which are every 18 years, but the intermediate drawdowns of 30% and 20%, the typical bear markets if you will. Nine times in our history, we have seen stocks fall 30%. That’s basically once every 10 years. Again, I remind you, we’re coming up on 13 years of this bull market run in US equity markets. Does that mean that it’s going to stop next year? Of course not. It could continue on for another couple of years, but it’s getting long in the tooth and we just typically see a lot of cyclicality at some point in the future. 21 times in the past, we’ve seen at least a 20% drawdown in stocks. That’s once every four years. 41 times, we’ve seen a drawdown of at least 15%. That’s once every two years. Now, to be fair, we actually really had one of these drawdowns back at the end of 2018 which just goes to show you that we continue to have these 10% to 15% drawdowns on a regular basis. The 20%, 30%, 50% are more rare, but they’re not rare enough that we should consider them. And then of course, more than 90 times, we’ve had drawdowns of at least 10% which is correction territory which happens generally once every 11 months. It’s just really important that we keep these numbers in the back of our mind especially as we move forward to 2020 just to keep an eye on the risk for our positions and our portfolio moving forward. Hopefully this helps out. As always, if you guys enjoy this, let me know and until next time, happy trading.

#799 - Every 18 Years On Average Investors Lose Half Of Their Money

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “How is the CBOE VIX calculated?” The VIX is actually a measure of 30-day expected volatility for the S&amp;P 500. You could basically say that the VIX is a gauge for judging the implied or the expected movement in the S&amp;P 500 over the next 30 days. And so, what they do is they have a bunch of formulas and ways that they do it which they have on their site, but it basically boils down to looking at at the money and out of the money puts and calls that are more than 23 days from expiration and less than 37 days from expiration for the SPX. And so, what they do is they take all of the AM settlement SPX options along with any PM settlement weekly options that expire and they basically weight this to somewhere around 30 days of expected volatility. And so, what happens is that each week, the contracts and the calculations roll to the next maturity. As one week falls off, then they start accumulating the pricing of the options at the next week. And so, it’s this constant moving target that basically is trying to judge or calculate how much people expect market to move in the next 30 days. Now, again, just keep in mind that the VIX is a judge of just market implied volatility for the SPX. It is not based on the RUT or the Dow or any other securities. It’s not based on any tech stocks necessarily unless they’re included in the S&amp;P. It’s basically a broad market expectation of where implied volatility is going to go in the future. And so, that’s basically how they do it. Again, you can look at the details of the calculations, all of formulas. CBOE does a really good job of detailing this in a white paper. You can just search VIX calculation. But again, what they’re basically doing is just taking a weighted measurement of at the money and out of the money calls and puts no more than 23 days and less than 37 days from expiration for SPX. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “How is the CBOE VIX calculated?” The VIX is actually a measure of 30-day expected volatility for the S&amp;P 500. You could basically say that the VIX is a gauge for judging the implied or the expected movement in the S&amp;P 500 over the next 30 days. And so, what they do is they have a bunch of formulas and ways that they do it which they have on their site, but it basically boils down to looking at at the money and out of the money puts and calls that are more than 23 days from expiration and less than 37 days from expiration for the SPX. And so, what they do is they take all of the AM settlement SPX options along with any PM settlement weekly options that expire and they basically weight this to somewhere around 30 days of expected volatility. And so, what happens is that each week, the contracts and the calculations roll to the next maturity. As one week falls off, then they start accumulating the pricing of the options at the next week. And so, it’s this constant moving target that basically is trying to judge or calculate how much people expect market to move in the next 30 days. Now, again, just keep in mind that the VIX is a judge of just market implied volatility for the SPX. It is not based on the RUT or the Dow or any other securities. It’s not based on any tech stocks necessarily unless they’re included in the S&amp;P. It’s basically a broad market expectation of where implied volatility is going to go in the future. And so, that’s basically how they do it. Again, you can look at the details of the calculations, all of formulas. CBOE does a really good job of detailing this in a white paper. You can just search VIX calculation. But again, what they’re basically doing is just taking a weighted measurement of at the money and out of the money calls and puts no more than 23 days and less than 37 days from expiration for SPX. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

#798 - How Is The CBOE VIX Calculated?

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Can I buy VIX stock?” No. You cannot buy VIX stock itself. It’s actually not anything that you can trade. It’s not an ETF. It’s not an underlying stock security. The VIX is an index, but you can trade options on it and you can trade derivative products that are based on the VIX. One of the derivative products that’s very popular to trade is VXX which is an ETN that tracks the rolling 30-day level of the VIX futures contracts. The problem with a lot of these is that sometimes they have little bit different pricing structures which you’ll want to investigate and learn more about. You can do that right here at Option Alpha as well. But you can’t buy the VIX directly. You can trade options on it. You can trade the VIX futures. You can trade VIX derivative products if you want. You just can’t go out and buy VIX itself. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Can I buy VIX stock?” No. You cannot buy VIX stock itself. It’s actually not anything that you can trade. It’s not an ETF. It’s not an underlying stock security. The VIX is an index, but you can trade options on it and you can trade derivative products that are based on the VIX. One of the derivative products that’s very popular to trade is VXX which is an ETN that tracks the rolling 30-day level of the VIX futures contracts. The problem with a lot of these is that sometimes they have little bit different pricing structures which you’ll want to investigate and learn more about. You can do that right here at Option Alpha as well. But you can’t buy the VIX directly. You can trade options on it. You can trade the VIX futures. You can trade VIX derivative products if you want. You just can’t go out and buy VIX itself. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

#797 - Can I Buy VIX Stock?

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Why is back-testing important?” I actually get a lot of pushback on this and I think that many people look at back-testing as irrelevant and I think that back-testing has a lot of relevance if you use it correctly. Sure, back-testing is not perfect in the sense that a perfect back-test is not going to be the perfect expectation of what we should expect moving forward in the future. Obviously, what happened historically is not going to happen the same way in the future. We should all know this. This is a rational logical thought process that we should follow. But a lot of people think that when we say that something is going to back-test and win 70% of the time that it will exactly win 70% of the time in the future. We know this is not the case, that the future is still out there, it is unknowable, it is unpredictable, but for me, back-testing gives us parameters, bumper lanes if you will from which we should start to develop a guidepost to work towards. Now, does this mean that we have a back-tested strategy that we will exactly use just like that moving forward in the future? Definitely not because in some cases, we see that one particular back-test might just randomly be at a time period where it’s got a lot of high profitable trades. And so, it could be at the top of a peak in a series of peaks and valleys. What we look for in back-testing is we look for congruency and for clustering of performance around different metrics. And so, again, this gives us an idea or a frame of reference on guidepost, on rails, on bumper lanes, whatever you want to call it, so that we stay out of the sand traps on either side. If I know in back-testing that generally, 30 days performs better than 50 days, okay, great, that gives me a guidepost to say that we should generally enter trades around 30 days and 60 days, but maybe try to scale back the entry at 50 days. Does that mean that 50 days doesn’t work? No. It just means that 30 days or 60-day entry periods might work a little bit better and that might be on a wide breath of different strategies and ticker symbols and different expiration contracts and puts and calls and short strangles and straddles. We might see this clustering or this congruence of performance metrics around that type of data point. To me, that’s the value of back-testing. It’s getting you out of those very easy to fall in sand traps on either side of your hopefully trajectory on where you’re going with your portfolio. Well, a very easy sand trap that a lot of people fall into is short Delta short expiration periods and long calls and long puts, trading these very cheap, very close to expiration, a week or two out from expiration long calls and long puts, little lottery tickets and it’s a very easy sand trap to fall into because we know from a lot of testing that they just flat out do not work. There’s no rhyme or reason necessarily as to why they don’t work. They just don’t. In any market environment, in any time period, most of the durations in Deltas that we’ve tested in profit-taking levels or stop loss levels, they just don’t work as well as something else. That alleviates that need to find something in that little small needle in a haystack of things that work. Instead, I would rather just play in a different pool, in a different arena of things that generally work. Am I going to pick the ultimate strategy moving forward in the future? I probably doubt it because I don’t know what the future is going to bring. But can I drive on the right side of the road? Can I be in the right lane? Can I be working towards the right guidepost? I think that’s where back-testing definitely has its value. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Why is back-testing important?” I actually get a lot of pushback on this and I think that many people look at back-testing as irrelevant and I think that back-testing has a lot of relevance if you use it correctly. Sure, back-testing is not perfect in the sense that a perfect back-test is not going to be the perfect expectation of what we should expect moving forward in the future. Obviously, what happened historically is not going to happen the same way in the future. We should all know this. This is a rational logical thought process that we should follow. But a lot of people think that when we say that something is going to back-test and win 70% of the time that it will exactly win 70% of the time in the future. We know this is not the case, that the future is still out there, it is unknowable, it is unpredictable, but for me, back-testing gives us parameters, bumper lanes if you will from which we should start to develop a guidepost to work towards. Now, does this mean that we have a back-tested strategy that we will exactly use just like that moving forward in the future? Definitely not because in some cases, we see that one particular back-test might just randomly be at a time period where it’s got a lot of high profitable trades. And so, it could be at the top of a peak in a series of peaks and valleys. What we look for in back-testing is we look for congruency and for clustering of performance around different metrics. And so, again, this gives us an idea or a frame of reference on guidepost, on rails, on bumper lanes, whatever you want to call it, so that we stay out of the sand traps on either side. If I know in back-testing that generally, 30 days performs better than 50 days, okay, great, that gives me a guidepost to say that we should generally enter trades around 30 days and 60 days, but maybe try to scale back the entry at 50 days. Does that mean that 50 days doesn’t work? No. It just means that 30 days or 60-day entry periods might work a little bit better and that might be on a wide breath of different strategies and ticker symbols and different expiration contracts and puts and calls and short strangles and straddles. We might see this clustering or this congruence of performance metrics around that type of data point. To me, that’s the value of back-testing. It’s getting you out of those very easy to fall in sand traps on either side of your hopefully trajectory on where you’re going with your portfolio. Well, a very easy sand trap that a lot of people fall into is short Delta short expiration periods and long calls and long puts, trading these very cheap, very close to expiration, a week or two out from expiration long calls and long puts, little lottery tickets and it’s a very easy sand trap to fall into because we know from a lot of testing that they just flat out do not work. There’s no rhyme or reason necessarily as to why they don’t work. They just don’t. In any market environment, in any time period, most of the durations in Deltas that we’ve tested in profit-taking levels or stop loss levels, they just don’t work as well as something else. That alleviates that need to find something in that little small needle in a haystack of things that work. Instead, I would rather just play in a different pool, in a different arena of things that generally work. Am I going to pick the ultimate strategy moving forward in the future? I probably doubt it because I don’t know what the future is going to bring. But can I drive on the right side of the road? Can I be in the right lane? Can I be working towards the right guidepost? I think that’s where back-testing definitely has its value. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

#796 - Why Is Backtesting Important?

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about a very hot topic which is, “Do you allocate everything now in lump sum or do you allocate over time if you’re just getting started in investing?” The good news here is that I think that a lot of data and research has already been done on this and in particular, Vanguard did a bunch of research on this which you can find online on Vanguard’s website that has the performance of lump sum investing versus some deviation of dollar cost averaging or systematic investing in the future, basically this idea that if you have this lump sum of cash that you’re going to invest in the market, do you do it all just now and throw it into a diversified portfolio or however you build your portfolio with options or do you dollar cost average into this over time and start to average down in the market or wait for a market fall or a better entry? And what they found and what a lot of people have also found is that generally, the lump sum investment does better. And the simple explanation is that when you get the money invested sooner, it has longer time periods to compound, so that just even small holding period that you are waiting to invest is loss opportunity. At the same time, what it also alleviates is this stress that you’re going to feel in the future when you start to go into your investment cycles. If you say, “I’m going to invest at the end of every year.” when you come around to that yearly investment that you would have to make, you start to run into friction with yourself because you think to yourself, “Things have changed.” or “Now it’s different.” or “Maybe the market will fall even further because it already has rallied so high.” or “Maybe the market’s falling and it might fall even further because it’s already fallen.” Whatever the case is, you start to basically roadblock yourself into making systematic mechanical decisions, so for that reason, lump sum investment is better. I think when it comes to options trading, this makes it insanely more easy because when you start investing with options, not only do you have defined risk, defined profit, defined expectations which is unlike say a bond or stock portfolio which has a lot of downside risk, you carry a lot of market systematic risk in general market portfolios that are 60/40 bonds or 50/50 bonds and stocks, with options, you have the ability to cover and manage risk from the start and you have the ability to adjust where your portfolio is on a monthly or bimonthly basis. The reason I think that this works so well for options is because if you were to invest say all of your money into an options trading strategy and build out an entire portfolio of trades, if the market changes next month, because your options contracts that you’re trading are 30 or 60 days out, you have the ability to quickly readjust and re-center the portfolio over the new market price. That doesn’t happen with a regular stock or bond portfolio. If you invested now and the market is really, really high on a PE basis or on a valuation basis and the market goes down, you don’t have the ability to close those positions and readjust those positions lower. You’re basically going to take a loss all the way down. With options trading, you have the ability to adjust and systematically move with the market every single month. It’s really like getting both sides of this thing at the same time. You have the ability to lump sum, but you also have the ability with options trading to systematically dollar cost average or move your portfolio around where the market is trading. The market goes down, you move your portfolio down just by the sheer activity of entering new positions for the next month. The market goes up, you readjust your positions higher as you enter new positions for the month. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about a very hot topic which is, “Do you allocate everything now in lump sum or do you allocate over time if you’re just getting started in investing?” The good news here is that I think that a lot of data and research has already been done on this and in particular, Vanguard did a bunch of research on this which you can find online on Vanguard’s website that has the performance of lump sum investing versus some deviation of dollar cost averaging or systematic investing in the future, basically this idea that if you have this lump sum of cash that you’re going to invest in the market, do you do it all just now and throw it into a diversified portfolio or however you build your portfolio with options or do you dollar cost average into this over time and start to average down in the market or wait for a market fall or a better entry? And what they found and what a lot of people have also found is that generally, the lump sum investment does better. And the simple explanation is that when you get the money invested sooner, it has longer time periods to compound, so that just even small holding period that you are waiting to invest is loss opportunity. At the same time, what it also alleviates is this stress that you’re going to feel in the future when you start to go into your investment cycles. If you say, “I’m going to invest at the end of every year.” when you come around to that yearly investment that you would have to make, you start to run into friction with yourself because you think to yourself, “Things have changed.” or “Now it’s different.” or “Maybe the market will fall even further because it already has rallied so high.” or “Maybe the market’s falling and it might fall even further because it’s already fallen.” Whatever the case is, you start to basically roadblock yourself into making systematic mechanical decisions, so for that reason, lump sum investment is better. I think when it comes to options trading, this makes it insanely more easy because when you start investing with options, not only do you have defined risk, defined profit, defined expectations which is unlike say a bond or stock portfolio which has a lot of downside risk, you carry a lot of market systematic risk in general market portfolios that are 60/40 bonds or 50/50 bonds and stocks, with options, you have the ability to cover and manage risk from the start and you have the ability to adjust where your portfolio is on a monthly or bimonthly basis. The reason I think that this works so well for options is because if you were to invest say all of your money into an options trading strategy and build out an entire portfolio of trades, if the market changes next month, because your options contracts that you’re trading are 30 or 60 days out, you have the ability to quickly readjust and re-center the portfolio over the new market price. That doesn’t happen with a regular stock or bond portfolio. If you invested now and the market is really, really high on a PE basis or on a valuation basis and the market goes down, you don’t have the ability to close those positions and readjust those positions lower. You’re basically going to take a loss all the way down. With options trading, you have the ability to adjust and systematically move with the market every single month. It’s really like getting both sides of this thing at the same time. You have the ability to lump sum, but you also have the ability with options trading to systematically dollar cost average or move your portfolio around where the market is trading. The market goes down, you move your portfolio down just by the sheer activity of entering new positions for the next month. The market goes up, you readjust your positions higher as you enter new positions for the month. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#795 - Just Started Investing? Allocate Everything Now Or Over-Time

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Is VIX actually implied volatility?” The simple answer to this question is yes, it’s implied volatility, but only for the S&amp;P 500. The VIX itself is basically derived off of the expected future S&amp;P 500 move and the S&amp;P 500 index options over the next 30 days. You could look at VIX as actually the implied volatility reading on the S&amp;P 500. Now, people use the VIX as a broad barometer for market fear or market volatility because the S&amp;P 500 ends up being one of the benchmarks that everyone uses. As a result, when we talk about having high general market volatility, we’re usually referring to either a high or low VIX level as an indication of where implied volatility is in the market. Hopefully this helps out. As always, if you guys have any questions, let us know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Is VIX actually implied volatility?” The simple answer to this question is yes, it’s implied volatility, but only for the S&amp;P 500. The VIX itself is basically derived off of the expected future S&amp;P 500 move and the S&amp;P 500 index options over the next 30 days. You could look at VIX as actually the implied volatility reading on the S&amp;P 500. Now, people use the VIX as a broad barometer for market fear or market volatility because the S&amp;P 500 ends up being one of the benchmarks that everyone uses. As a result, when we talk about having high general market volatility, we’re usually referring to either a high or low VIX level as an indication of where implied volatility is in the market. Hopefully this helps out. As always, if you guys have any questions, let us know and until next time, happy trading.

#794 - Is VIX Actually Implied Volatility?

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What makes a stock volatile?” The simple answer to this question is just changes in expectation and when changes and expectation are not in alignment with what people had thought previously, that’s what causes stocks to become volatile. If you really think about how stocks get really volatile particularly around earnings events, it’s only driven by the fact that we have new information that changes our future expectation of where the stock is going to go. And so, if that new information is really good for example for a stock and people have assumed that the stock was going to have a bad year and it turns out, the stock might have a good year, then we see a dramatic change in the stock’s price. We have lots of volatility as market participants re-price the stock into a new territory. The same thing happens in reverse. If a stock’s having a really good year and then we have this new information that comes in, it could be earnings, it could be something else related in the industry, a breaking new story that’s really bad for the security and changes the outlook or the expectation, then the market participants dramatically re-price the stock into a lower territory and that’s where we see really big volatile stock moves. Again, what makes a stock really volatile? It’s just the expectation in the market. And so, if you have a company that’s new or just started up or that’s starting to gain market share or lose market share and all of this is happening very fast and the company is changing dynamically very fast, the stock naturally is going to be more volatile. The one right now that I think of all the time is Tesla because Tesla recently went through almost a 50% drawdown this summer and almost a 30% rebound since then and the company is really volatile because the company is still very much a new company. It’s very much a startup company that’s developing its brand and starting to get exposure and mass-market appeal and so, as a result, its earnings are fluctuating pretty quickly and so, as expectations in Tesla change, so does the stock price pretty violently. Compare this to something more stable like the S&amp;P or IWM which is the Russell 2000, it’s not going to change that much because all of the components are not really that heavily weighted, so as a result, small changes in the components really don’t change the major indexes that much as far as expectations go. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What makes a stock volatile?” The simple answer to this question is just changes in expectation and when changes and expectation are not in alignment with what people had thought previously, that’s what causes stocks to become volatile. If you really think about how stocks get really volatile particularly around earnings events, it’s only driven by the fact that we have new information that changes our future expectation of where the stock is going to go. And so, if that new information is really good for example for a stock and people have assumed that the stock was going to have a bad year and it turns out, the stock might have a good year, then we see a dramatic change in the stock’s price. We have lots of volatility as market participants re-price the stock into a new territory. The same thing happens in reverse. If a stock’s having a really good year and then we have this new information that comes in, it could be earnings, it could be something else related in the industry, a breaking new story that’s really bad for the security and changes the outlook or the expectation, then the market participants dramatically re-price the stock into a lower territory and that’s where we see really big volatile stock moves. Again, what makes a stock really volatile? It’s just the expectation in the market. And so, if you have a company that’s new or just started up or that’s starting to gain market share or lose market share and all of this is happening very fast and the company is changing dynamically very fast, the stock naturally is going to be more volatile. The one right now that I think of all the time is Tesla because Tesla recently went through almost a 50% drawdown this summer and almost a 30% rebound since then and the company is really volatile because the company is still very much a new company. It’s very much a startup company that’s developing its brand and starting to get exposure and mass-market appeal and so, as a result, its earnings are fluctuating pretty quickly and so, as expectations in Tesla change, so does the stock price pretty violently. Compare this to something more stable like the S&amp;P or IWM which is the Russell 2000, it’s not going to change that much because all of the components are not really that heavily weighted, so as a result, small changes in the components really don’t change the major indexes that much as far as expectations go. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

#793 - What Makes A Stock Volatile?

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What is implied volatility rank or what’s commonly referred to as IVR?” IVR is way for us to normalize implied volatility readings across different ticker symbols and ETFs to get basically an apples to apples comparison. When we are looking at a trade and we are searching for and scanning for high implied volatility setups, it’s not enough in our particular case to search just for the highest implied volatility securities because high implied volatility for one security could be low implied volatility for another. If I told you that a security’s implied volatility reading was 30%, that has no context whatsoever if I didn’t tell you where 30% laid in its historical range. For a company like Tesla, 30% implied volatility might be insanely low. For a company like ExxonMobil or GE, 30% implied volatility might be insanely high. What we do is we overlay implied volatility ranking to give us a context of where the current implied volatility reading lays in its historical range. For example, if we have one stock that has a historical range in its implied volatility of 1% to 30%, then we know that that range encompasses all of the implied volatility that it’s seen over the last year. And so, if we see a current reading of 15%, we can assume that that reading is in the 50th rank. It’s basically right in the middle of its historical range between 1% and 30%. Now, you take another stock and we see that that other stock has implied volatility that has range between 15% and 45%. Now, on the outside, you could definitely make the case that this stock has higher volatility than the first stock. However, if we see that the reading on the second stock for its implied volatility is 30%, we again, see that the reading is right at the 50th rank. Using IVR, we’ve now neutralized and put both of these stocks on the same metric and playing field which is ranking its implied volatility against itself over the last year and we see that both stocks are actually middle of the range for their implied volatility. No stock is necessarily more volatile or less volatile than the other and option pricing should reflect this. Hopefully this helps out. As always, if you guys have any questions, let us know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What is implied volatility rank or what’s commonly referred to as IVR?” IVR is way for us to normalize implied volatility readings across different ticker symbols and ETFs to get basically an apples to apples comparison. When we are looking at a trade and we are searching for and scanning for high implied volatility setups, it’s not enough in our particular case to search just for the highest implied volatility securities because high implied volatility for one security could be low implied volatility for another. If I told you that a security’s implied volatility reading was 30%, that has no context whatsoever if I didn’t tell you where 30% laid in its historical range. For a company like Tesla, 30% implied volatility might be insanely low. For a company like ExxonMobil or GE, 30% implied volatility might be insanely high. What we do is we overlay implied volatility ranking to give us a context of where the current implied volatility reading lays in its historical range. For example, if we have one stock that has a historical range in its implied volatility of 1% to 30%, then we know that that range encompasses all of the implied volatility that it’s seen over the last year. And so, if we see a current reading of 15%, we can assume that that reading is in the 50th rank. It’s basically right in the middle of its historical range between 1% and 30%. Now, you take another stock and we see that that other stock has implied volatility that has range between 15% and 45%. Now, on the outside, you could definitely make the case that this stock has higher volatility than the first stock. However, if we see that the reading on the second stock for its implied volatility is 30%, we again, see that the reading is right at the 50th rank. Using IVR, we’ve now neutralized and put both of these stocks on the same metric and playing field which is ranking its implied volatility against itself over the last year and we see that both stocks are actually middle of the range for their implied volatility. No stock is necessarily more volatile or less volatile than the other and option pricing should reflect this. Hopefully this helps out. As always, if you guys have any questions, let us know and until next time, happy trading.

#792 - What Is Implied Volatility Rank (IVR)?

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Is TD Ameritrade’s Thinkorswim free?” The short answer is that yes, the platform is free to investors and traders. However, if you do want to have options trading privileges and get the ability to trade on margin, usually, they require a $2,000 deposit. Now, this is the time of this recording, so it may be different in the future and always check TD Ameritrade’s page and their website to see if that deposit requirement has been lowered or increased in the future. But the platform itself is free. They don’t charge any platform fees. As long as you’re a customer and you have a funded account, you can actually start trading and using the platform. I think it’s a great platform not only because I’ve used it for the last 10 plus years, but also because I truly think it’s one of the better platforms out there. Not every broker platform is perfect. There’s always different features and things that I like on other broker platforms and other technology that’s not wrapped up in Thinkorswim, but as far as options trading is concerned, I think right now, it’s currently the best platform that’s out there in the market. As always, if you guys have any questions, let us know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Is TD Ameritrade’s Thinkorswim free?” The short answer is that yes, the platform is free to investors and traders. However, if you do want to have options trading privileges and get the ability to trade on margin, usually, they require a $2,000 deposit. Now, this is the time of this recording, so it may be different in the future and always check TD Ameritrade’s page and their website to see if that deposit requirement has been lowered or increased in the future. But the platform itself is free. They don’t charge any platform fees. As long as you’re a customer and you have a funded account, you can actually start trading and using the platform. I think it’s a great platform not only because I’ve used it for the last 10 plus years, but also because I truly think it’s one of the better platforms out there. Not every broker platform is perfect. There’s always different features and things that I like on other broker platforms and other technology that’s not wrapped up in Thinkorswim, but as far as options trading is concerned, I think right now, it’s currently the best platform that’s out there in the market. As always, if you guys have any questions, let us know and until next time, happy trading.

#791 - Is TD Ameritrade thinkorswim Free?

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The "Daily Call" From Option Alpha

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we are going to go through my ultimate quick guide to options trading strategies. Options trading strategies are nothing more than a combination of calls and puts, either short or long that allow you then to create a custom payoff scenario for various market conditions or expectations. Now, unlike stock which is a one-dimensional trading vehicle, you can only buy stock or sell stock, options have the beautiful advantage of being able to be crafted to your exact specifications. This is why I love options trading in general, is that whatever market expectation or whatever stock expectation you have, you can generally build an option strategy around that and that means that you don't always have to take directional bets. You don't always have to be long an underlying stock or be bullish on an underlying stock. You can be bearish. You can be bullish. You can even be neutral within a range. You can have the expectation that volatility will generally contract or expand. There's a lot of different ways that you can profit with option strategies as opposed to just trading regular stock. Now, like I said, there’s probably a couple of main categories of option strategies. There's two types that I classify them as. There’s simple strategies and then complex strategies. Simple strategies would be things like long calls and long puts, short calls and short puts, covered calls and covered puts. Complex strategies would be things like credit spreads, debit spreads, calendar spreads, diagonal spreads, iron butterflies, iron condors, straddles and strangles and the reason that they’re a little bit more complex is because they require multiple option contracts in many cases to create the specific payoff diagram that you’re looking for. Now, option strategies are also further divided into two broad categories of risk, risk defined strategies and undefined risk strategies. Again, one of the great things about options trading is that you have the ability (if you choose) to define your risk on a particular trade. If you want to make a trade on a particular stock and you want to know for sure how much money you could make or lose, you can create a defined risk spread trade and control your position size. Likewise, you can also create undefined risk strategies that allow you the opportunity to potentially generate higher levels of income on a more consistent basis, but you will take on a little bit more risk. These strategies would include things like straddles and strangles or short calls and short puts. Now, as always, we suggest that you back-test all of your option strategies to make sure that whatever strategy you ultimately end up choosing generates enough income for your account or performs the way you want it to. You can do this right through our software here at Option Alpha. If you just search the back-testing software on our toolbox, we can give you the ability to back-test any option strategy that you want out there and again, test out the strategy before you actually put your hard-earned money at risk. As always, if you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we are going to go through my ultimate quick guide to options trading strategies. Options trading strategies are nothing more than a combination of calls and puts, either short or long that allow you then to create a custom payoff scenario for various market conditions or expectations. Now, unlike stock which is a one-dimensional trading vehicle, you can only buy stock or sell stock, options have the beautiful advantage of being able to be crafted to your exact specifications. This is why I love options trading in general, is that whatever market expectation or whatever stock expectation you have, you can generally build an option strategy around that and that means that you don't always have to take directional bets. You don't always have to be long an underlying stock or be bullish on an underlying stock. You can be bearish. You can be bullish. You can even be neutral within a range. You can have the expectation that volatility will generally contract or expand. There's a lot of different ways that you can profit with option strategies as opposed to just trading regular stock. Now, like I said, there’s probably a couple of main categories of option strategies. There's two types that I classify them as. There’s simple strategies and then complex strategies. Simple strategies would be things like long calls and long puts, short calls and short puts, covered calls and covered puts. Complex strategies would be things like credit spreads, debit spreads, calendar spreads, diagonal spreads, iron butterflies, iron condors, straddles and strangles and the reason that they’re a little bit more complex is because they require multiple option contracts in many cases to create the specific payoff diagram that you’re looking for. Now, option strategies are also further divided into two broad categories of risk, risk defined strategies and undefined risk strategies. Again, one of the great things about options trading is that you have the ability (if you choose) to define your risk on a particular trade. If you want to make a trade on a particular stock and you want to know for sure how much money you could make or lose, you can create a defined risk spread trade and control your position size. Likewise, you can also create undefined risk strategies that allow you the opportunity to potentially generate higher levels of income on a more consistent basis, but you will take on a little bit more risk. These strategies would include things like straddles and strangles or short calls and short puts. Now, as always, we suggest that you back-test all of your option strategies to make sure that whatever strategy you ultimately end up choosing generates enough income for your account or performs the way you want it to. You can do this right through our software here at Option Alpha. If you just search the back-testing software on our toolbox, we can give you the ability to back-test any option strategy that you want out there and again, test out the strategy before you actually put your hard-earned money at risk. As always, if you guys have any questions, let me know and until next time, happy trading.

#350 - The Ultimate "Quick" Guide To Option Trading Strategies

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to be answering the question, “Does using multiple technical analysis indicators help or hurt?” Now, this is a question that we get often here at Option Alpha, especially since we did the long, long research, about 20 years of data on multiple technical analysis indicators, settings, parameters. You can find that all in our research report called Signals. But my assumption here is that it has to work in both cases and what I mean by both cases for technical indicators is that technical indicators should work like wheels on a bike or like wheels on a car. If you have a car that has four wheels, each of those wheels has to be strong enough to hold the car. You can't have a tire that's flat or else, the car really doesn't move down the road as well as it should or as effectively as it should. But when you have let’s say four wheels on this car and each of those wheels worked independently and then are put on the car and worked together as a team, you can get the whole car down the road. When I think about technical analysis indicators, I think about them in two dimensions. One, they have to work by themselves. If somebody tells me, “I want to use this indicator.” there’s going to be research and data and back-testing case studies that prove that that indicator is actually effective. Now, not even looking at the other indicators, not confirming signals, not other moving averages or RSIs or MACDs, if you’re going to use one indicator and even use that indicator in conjunction with some other indicators, it's got to work independently by itself first just like a wheel on a car. That wheel on the car has to be able to get down the road. If that wheel is flat, I don't care what car you put it on, it’s still not going to work. It's got to work independently by itself. Then once we have a series of technical indicators that work independently, now, we can start to figure out what kind of cross indications can we get by using multiple indicators at the same time. Now, I'm a fan of limiting this to like three or four. Probably four at the most is what you might have to use on some of your charting. You start getting over four indicators on one chart and it becomes chart overload and technical overload, analysis paralysis, whatever term you want to use. It's just less and less effective the more indicators you are looking at. In our research, what we found is that there's probably about three… In most cases, depending on if you’re going long or short different stocks, there’s probably about three indicators that end up working out pretty well independently by themselves, but then together, they give us a better picture of what might be happening. Now, the way that I use technicals is that in my case, all three of my technical indicators have to line up for me to make a strong judgment call on a direction. If I don't get all three of these indicators to lineup at the same time or very, very close to one another, then I’m probably not going to make a strong judgment call. I’ll probably just make a neutral trade. But we have used this before over the last couple of years since we did the Signals research, especially when we get assigned stock. We’ve been really kind of leaning on these indicators as a means for helping us determine if we should hold the stock long or short, depending on how we’re assigned the contracts. I think multiple indicators can help as long as you use them the right way. They’ve got to work independently by themselves and I think you should limit them to three to four and they can definitely hurt if you use too many of them or just flat out using the wrong technicals. For example, like simple moving average. Not a great technical indicator based on our research, so using that in any form or shape would not really be productive to your trading. Hopefully this helps out. As always, if you guys want to learn more information about the technical analysis that we did, head on over to optionalpha.com/signals. Again, that’s optionalpha.com/signals.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to be answering the question, “Does using multiple technical analysis indicators help or hurt?” Now, this is a question that we get often here at Option Alpha, especially since we did the long, long research, about 20 years of data on multiple technical analysis indicators, settings, parameters. You can find that all in our research report called Signals. But my assumption here is that it has to work in both cases and what I mean by both cases for technical indicators is that technical indicators should work like wheels on a bike or like wheels on a car. If you have a car that has four wheels, each of those wheels has to be strong enough to hold the car. You can't have a tire that's flat or else, the car really doesn't move down the road as well as it should or as effectively as it should. But when you have let’s say four wheels on this car and each of those wheels worked independently and then are put on the car and worked together as a team, you can get the whole car down the road. When I think about technical analysis indicators, I think about them in two dimensions. One, they have to work by themselves. If somebody tells me, “I want to use this indicator.” there’s going to be research and data and back-testing case studies that prove that that indicator is actually effective. Now, not even looking at the other indicators, not confirming signals, not other moving averages or RSIs or MACDs, if you’re going to use one indicator and even use that indicator in conjunction with some other indicators, it's got to work independently by itself first just like a wheel on a car. That wheel on the car has to be able to get down the road. If that wheel is flat, I don't care what car you put it on, it’s still not going to work. It's got to work independently by itself. Then once we have a series of technical indicators that work independently, now, we can start to figure out what kind of cross indications can we get by using multiple indicators at the same time. Now, I'm a fan of limiting this to like three or four. Probably four at the most is what you might have to use on some of your charting. You start getting over four indicators on one chart and it becomes chart overload and technical overload, analysis paralysis, whatever term you want to use. It's just less and less effective the more indicators you are looking at. In our research, what we found is that there's probably about three… In most cases, depending on if you’re going long or short different stocks, there’s probably about three indicators that end up working out pretty well independently by themselves, but then together, they give us a better picture of what might be happening. Now, the way that I use technicals is that in my case, all three of my technical indicators have to line up for me to make a strong judgment call on a direction. If I don't get all three of these indicators to lineup at the same time or very, very close to one another, then I’m probably not going to make a strong judgment call. I’ll probably just make a neutral trade. But we have used this before over the last couple of years since we did the Signals research, especially when we get assigned stock. We’ve been really kind of leaning on these indicators as a means for helping us determine if we should hold the stock long or short, depending on how we’re assigned the contracts. I think multiple indicators can help as long as you use them the right way. They’ve got to work independently by themselves and I think you should limit them to three to four and they can definitely hurt if you use too many of them or just flat out using the wrong technicals. For example, like simple moving average. Not a great technical indicator based on our research, so using that in any form or shape would not really be productive to your trading. Hopefully this helps out. As always, if you guys want to learn more information about the technical analysis that we did, head on over to <a href="http://optionalpha.com/signals" rel="nofollow" target="_blank">optionalpha.com/signals</a>. Again, that’s <a href="http://optionalpha.com/signals" rel="nofollow" target="_blank">optionalpha.com/signals</a>.

#410 - Does Using Multiple Technical Analysis Indicators Help Or Hurt?

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about trading during premarket and afterhours sessions. Premarket and afterhours sessions are the times (directly like it suggests) right before the market opens regularly around 9:30 Eastern Time in New York and then directly after the market closes which is usually 4:00 PM Eastern Time in New York. Those are those premarket or afterhours sessions. Now, we typically see and hear about these premarket and afterhours sessions because of stock earnings or announcements and we hear one stock is trading higher afterhours or trading lower afterhours. This is why we typically see these environments happen. And so, what a lot of brokers are doing is now allowing many people to start trading the underlying stocks during these time periods. And so, we’re specifically talking about the actual stocks themselves, not the options contracts. During these time periods, it's a good opportunity to quickly adjust a position or get in or out of a position when the regular market hours are not in session. Now, the caveat to this is that because it is premarket and afterhours, the liquidity is much lower, the spreads are much wider and it's much harder to get filled in these times. Not that you can’t do it, but it's a little bit harder to do it. Now, TD Ameritrade is the first one to really open this up and they open this up with what they call 24/7 contracts that can be traded all the time or stocks that can be traded all the time and this usually runs from Sunday at 8:00 PM Eastern Time to Friday at 8:00 PM Eastern Time. During this time period throughout the week, you have the ability to trade a lot of these highly liquid big-name securities, things like FXI, SPY, EEM, GLD, SLV, DIA, UNG, TLT, IWM, QQQ and USO. I think those are the ones that were initially rolled out. And so, with those tickers in particular, you have the ability to trade pretty much the entire time that there are available sessions for that during the week. Now, Robinhood on the other hand also opened this up for most tickers as well and extended this across a lot of other securities and individual stock names and with extended hours trading with Robinhood, what they allow you to do is trade basically the 30 minutes before the market opens and then the 120 minutes after the market closes, so about two hours after the market closes until 6:00 PM Eastern Time. Again, a very similar type of framework. It’s a little bit different for each, whether you’re at Robinhood or TD Ameritrade or other brokers might start rolling this out in the future, but I think this is good. I think that ultimately, more access to the markets for traders and investors like me and you is a really good thing in this market. I think it shows that we’re starting to level the playing field and we’re starting to open up the gates if you will to regular people. And so, we don't want just institutions and just major banks having the ability to move the market without some sort of influence from potential retail traders or the masses. I like the idea of doing. Hopefully it starts rolling out to other securities as well and definitely rolling out to options contracts in the future. As always, if you guys enjoy this, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about trading during premarket and afterhours sessions. Premarket and afterhours sessions are the times (directly like it suggests) right before the market opens regularly around 9:30 Eastern Time in New York and then directly after the market closes which is usually 4:00 PM Eastern Time in New York. Those are those premarket or afterhours sessions. Now, we typically see and hear about these premarket and afterhours sessions because of stock earnings or announcements and we hear one stock is trading higher afterhours or trading lower afterhours. This is why we typically see these environments happen. And so, what a lot of brokers are doing is now allowing many people to start trading the underlying stocks during these time periods. And so, we’re specifically talking about the actual stocks themselves, not the options contracts. During these time periods, it's a good opportunity to quickly adjust a position or get in or out of a position when the regular market hours are not in session. Now, the caveat to this is that because it is premarket and afterhours, the liquidity is much lower, the spreads are much wider and it's much harder to get filled in these times. Not that you can’t do it, but it's a little bit harder to do it. Now, TD Ameritrade is the first one to really open this up and they open this up with what they call 24/7 contracts that can be traded all the time or stocks that can be traded all the time and this usually runs from Sunday at 8:00 PM Eastern Time to Friday at 8:00 PM Eastern Time. During this time period throughout the week, you have the ability to trade a lot of these highly liquid big-name securities, things like FXI, SPY, EEM, GLD, SLV, DIA, UNG, TLT, IWM, QQQ and USO. I think those are the ones that were initially rolled out. And so, with those tickers in particular, you have the ability to trade pretty much the entire time that there are available sessions for that during the week. Now, Robinhood on the other hand also opened this up for most tickers as well and extended this across a lot of other securities and individual stock names and with extended hours trading with Robinhood, what they allow you to do is trade basically the 30 minutes before the market opens and then the 120 minutes after the market closes, so about two hours after the market closes until 6:00 PM Eastern Time. Again, a very similar type of framework. It’s a little bit different for each, whether you’re at Robinhood or TD Ameritrade or other brokers might start rolling this out in the future, but I think this is good. I think that ultimately, more access to the markets for traders and investors like me and you is a really good thing in this market. I think it shows that we’re starting to level the playing field and we’re starting to open up the gates if you will to regular people. And so, we don't want just institutions and just major banks having the ability to move the market without some sort of influence from potential retail traders or the masses. I like the idea of doing. Hopefully it starts rolling out to other securities as well and definitely rolling out to options contracts in the future. As always, if you guys enjoy this, let me know and until next time, happy trading.

#352 - Trading During Pre-Market & After Hours Sessions

Hey everyone. This is Kirk here again from optionalpha.com and welcome back to the daily call. Today, we are going to be talking about getting a basic understanding of a deep in the money call option strategy. There's a lot of jargon in there and so, we want to break this down for you guys if you're getting started with options or if you’re new to options trading. The term “deep in the money” basically refers generally to option contracts which are more than $10 in many cases in the money, meaning they have intrinsic value or a lot of baked in intrinsic value right now. For call options, this would be strike prices that are at least $10 lower than where the stock is trading right now. For put options, that would be strike prices that are at least $10 higher than where the stock is trading right now. In either case, the idea here is that options that are far in the money have this deep intrinsic or high intrinsic value because they're so far in the money that if they were to be exercised right now, they do have value to exercise and get rid of the stock or buy the stock and dump it in the market. Now, the call option strategy side of this is this idea that you are much better off to buy deep in the money call options than you are to outright, buy long stock in an underlying security. Now, on the general premise, I agree with the general analysis in most cases that it is much better for you to synthetically go long a stock using options than it is to go long the underlying stock itself. I feel like in most cases, stock can be insanely inefficient and can cost a lot of capital and can tie up a lot of capital in your account. And so, I want to use an example here today just to prove this point. Now, again, there's a lot of moving pieces here. There's no one way to do it. There's many contract months, there's how deep in the money do you go, how far out do you go in expiration, etcetera. I want to try to touch on as many of these as we can in the daily call and just to kind of again, get the discussion going and the dialogue going on this. But generally, I agree with the premise that you are much better off to synthetically go long a stock than you are to buy the actual underlying shares. Let's take an example of Netflix. Netflix is a popular one. Right now, it’s trading around 340. And so, to buy stock in Netflix, if you were to buy 100 shares of Netflix, it will cost you $34,000. Now, for most people, that would tie up all of their account and then some. They probably don't even have enough money to do that. But if you have enough money to actually buy Netflix which is a big hurdle in and of itself, it would tie up $34,000 to buy 100 shares. And so, one of the ways that you can trade Netflix and go long Netflix synthetically using options is to potentially buy a deep in the money call option. Now, here's where you start to have some analysis and you have to do this. It's nothing that we've done before, so it’s up to you to determine how far out you want to go in expiration time. But you can buy deep in the money calls for 30 days out, 60, 90, 120 and in some cases, you can buy them very far out. With Netflix, we’re looking at the January 2019 contracts which are over 250 days out from expiration. Let's say you’re really bullish on Netflix for whatever reason and you want to get a long position, long exposure and you're willing to hold that position for a long time. January 2019 contracts, so many, many, many months of holding these contracts. If you were to buy the 270 strike call options, again, which are more than $10 in the money, so they’re very deep in the money as it’s commonly referred to, the 270 strike call options when the stock is trading at around 340 would cost you $8,800. You could replicate a position in Netflix for about $8,800. Now, this is obviously significantly lower than the $34,000 it would cost to actually buy the stock. That's why options become so efficient because you can leverage option contracts and replicate a stock-like position without having to outlay all the money. Now, here’s where you’ll also have to make decisions on how deep do you go in the money. In this case, you want to use Delta as your approximate for how many shares that option contract will replicate or will basically mimic. In this case, the 270 call options have a Delta of 80 and so, what that means is that that call option is going to replicate about the profit and loss of 80 contracts as the stock is moving. If Netflix goes up by $1, you should assume that you’re going to make about 80% of that move, really. You’re only going to participate in 80% of that move versus if you had say 100 shares, you’d participate in a $100 move. With a Delta of 80, if Netflix goes up by $1, you’re only going to get $80. You want to use Delta to be your approximate representation of how many shares that deep in the money contract is really trying to mimic. Just to give you guys another opinion on this or another look at this, the 225 call options which are now even further in the money cost about $12,000, so still significantly lower than buying Netflix outright. But those call options now have a Delta of 90, so they’re going to replicate a 90 share type position in Netflix. It’s going to mimic Netflix like you will have 90 shares in your account or like you’re trading 90 shares of stock. As you can see, the further you go in the money, it costs more money, obviously. As you go in the money, it cost more money, but you also start to replicate more and more of the stock position. Ultimately, like I said, it’s up to you to decide how you want to do this if you're super bullish on Netflix and if you want to use this type of strategy. For full disclosure, I don't use this ever. I do not ever go into a position where I'm super bullish on anything. I prefer to just trade options the way that we teach at Option Alpha and how we trade around the market in a 30 to 60-day time period. I think it's much more effective to do that. But again, if you have some underlying major bullish assumption and you don't want to buy the stock or you can’t afford to buy the stock, I think some sort of deep in the money call option strategy is a good alternative. I don’t think it’s the best strategy to use compared to other things, but if you're dead set on doing this, if you have it set in your mind that you want to go long a stock, then this is a good way to do it using options synthetically. It's much cheaper and offers a little bit more pinpoint accuracy as to how far you think it might go and how long you want to hold the contracts, etcetera. Hopefully this helps out. I know it’s a little bit longer than our usual daily calls. But as always, if you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from <a href="http://optionalpha.com" rel="nofollow" target="_blank">optionalpha.com</a> and welcome back to the daily call. Today, we are going to be talking about getting a basic understanding of a deep in the money call option strategy. There's a lot of jargon in there and so, we want to break this down for you guys if you're getting started with options or if you’re new to options trading. The term “deep in the money” basically refers generally to option contracts which are more than $10 in many cases in the money, meaning they have intrinsic value or a lot of baked in intrinsic value right now. For call options, this would be strike prices that are at least $10 lower than where the stock is trading right now. For put options, that would be strike prices that are at least $10 higher than where the stock is trading right now. In either case, the idea here is that options that are far in the money have this deep intrinsic or high intrinsic value because they're so far in the money that if they were to be exercised right now, they do have value to exercise and get rid of the stock or buy the stock and dump it in the market. Now, the call option strategy side of this is this idea that you are much better off to buy deep in the money call options than you are to outright, buy long stock in an underlying security. Now, on the general premise, I agree with the general analysis in most cases that it is much better for you to synthetically go long a stock using options than it is to go long the underlying stock itself. I feel like in most cases, stock can be insanely inefficient and can cost a lot of capital and can tie up a lot of capital in your account. And so, I want to use an example here today just to prove this point. Now, again, there's a lot of moving pieces here. There's no one way to do it. There's many contract months, there's how deep in the money do you go, how far out do you go in expiration, etcetera. I want to try to touch on as many of these as we can in the daily call and just to kind of again, get the discussion going and the dialogue going on this. But generally, I agree with the premise that you are much better off to synthetically go long a stock than you are to buy the actual underlying shares. Let's take an example of Netflix. Netflix is a popular one. Right now, it’s trading around 340. And so, to buy stock in Netflix, if you were to buy 100 shares of Netflix, it will cost you $34,000. Now, for most people, that would tie up all of their account and then some. They probably don't even have enough money to do that. But if you have enough money to actually buy Netflix which is a big hurdle in and of itself, it would tie up $34,000 to buy 100 shares. And so, one of the ways that you can trade Netflix and go long Netflix synthetically using options is to potentially buy a deep in the money call option. Now, here's where you start to have some analysis and you have to do this. It's nothing that we've done before, so it’s up to you to determine how far out you want to go in expiration time. But you can buy deep in the money calls for 30 days out, 60, 90, 120 and in some cases, you can buy them very far out. With Netflix, we’re looking at the January 2019 contracts which are over 250 days out from expiration. Let's say you’re really bullish on Netflix for whatever reason and you want to get a long position, long exposure and you're willing to hold that position for a long time. January 2019 contracts, so many, many, many months of holding these contracts. If you were to buy the 270 strike call options, again, which are more than $10 in the money, so they’re very deep in the money as it’s commonly referred to, the 270 strike call options when the stock is trading at around 340 would cost you $8,800. You could replicate a position in Netflix for about $8,800. Now, this is obviously significantly lower than the $34,000 it would cost to actually buy the stock. That's why options become so efficient because you can leverage option contracts and replicate a stock-like position without having to outlay all the money. Now, here’s where you’ll also have to make decisions on how deep do you go in the money. In this case, you want to use Delta as your approximate for how many shares that option contract will replicate or will basically mimic. In this case, the 270 call options have a Delta of 80 and so, what that means is that that call option is going to replicate about the profit and loss of 80 contracts as the stock is moving. If Netflix goes up by $1, you should assume that you’re going to make about 80% of that move, really. You’re only going to participate in 80% of that move versus if you had say 100 shares, you’d participate in a $100 move. With a Delta of 80, if Netflix goes up by $1, you’re only going to get $80. You want to use Delta to be your approximate representation of how many shares that deep in the money contract is really trying to mimic. Just to give you guys another opinion on this or another look at this, the 225 call options which are now even further in the money cost about $12,000, so still significantly lower than buying Netflix outright. But those call options now have a Delta of 90, so they’re going to replicate a 90 share type position in Netflix. It’s going to mimic Netflix like you will have 90 shares in your account or like you’re trading 90 shares of stock. As you can see, the further you go in the money, it costs more money, obviously. As you go in the money, it cost more money, but you also start to replicate more and more of the stock position. Ultimately, like I said, it’s up to you to decide how you want to do this if you're super bullish on Netflix and if you want to use this type of strategy. For full disclosure, I don't use this ever. I do not ever go into a position where I'm super bullish on anything. I prefer to just trade options the way that we teach at Option Alpha and how we trade around the market in a 30 to 60-day time period. I think it's much more effective to do that. But again, if you have some underlying major bullish assumption and you don't want to buy the stock or you can’t afford to buy the stock, I think some sort of deep in the money call option strategy is a good alternative. I don’t think it’s the best strategy to use compared to other things, but if you're dead set on doing this, if you have it set in your mind that you want to go long a stock, then this is a good way to do it using options synthetically. It's much cheaper and offers a little bit more pinpoint accuracy as to how far you think it might go and how long you want to hold the contracts, etcetera. Hopefully this helps out. I know it’s a little bit longer than our usual daily calls. But as always, if you guys have any questions, let me know and until next time, happy trading.

#226 - Basic Understanding Of A Deep In The Money Call Option Strategy

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I’m going to talk about why broker’s platforms suck and what we are going to do about it. This honestly has become to me, a really nagging thing and that is that I have to explain to people all the time why one broker or another broker can't do something. This happens with Thinkorswim, this happens with Tastyworks, with Trade Station, with Schwab, with Robinhood, everything and I feel like I have to always explain why their broker platform to some degree and in some areas, sucks what they do really well, but what they really suck at. And it's hard because a lot of these broker platforms are not built for the full-time options trader or for the person who’s focused on full-time options trading. One of the things that we’ve been doing and we’ll be releasing very soon in the next month, month and a half here has been our own platform for auto-trading. Now, it’s not going to be just auto-trading. It’s going to have all of the capacity to scan, monitor and more importantly, auto-trade and analyze your positions moving forward. Now, we’ll have more details on this coming out, but that's literally what we’re trying to do, is we’re trying to build the platform that I know I want, that I know you guys want because I hear it all the time. I hear all the complaints about reporting. They don't know. Many platforms especially Thinkorswim right now, we don't understand if we’re really making money or not. If we are, what positions are making money and which are not? Are we doing good trading credit spreads or not? How do we know? And many of these broker platforms just kind of shrug this off and that really ticks me off now because they’re making a lot of money off of commissions and off of fees and everything and they just shrug off a lot of the stats that really could be important and could lead people to making smarter decisions and smarter trades and basically allocating their money with better information. We’re trying to build that. I think that's a big push for me lately. Now that we've got a really amazing team of developers and people leading this and helping me out with this, we’re really going to push the forefront here and build something that’s revolutionary, I mean, something that’s intuitive, easy to use and more importantly, super, super powerful, data-driven, I mean, all the things that we’ve been wanting in this industry for a long time. I would say that the point of me doing this show is not only just to tell you guys what we’ve been working on, but I think that right now, where we’re at in this industry is that a lot of people have been settling for subpar technology and that has ticked me off for the last couple of years. And so, I've been investing a lot of my own personal money. A lot of the money that we generate from Option Alpha goes right back into investing in this type of technology for you guys, so that we have something that we can catch up to a lot of other markets and industries. The brokerage industry and the investment industry is very old-school. It takes a long time to move this ship in many respects. And you look at the Thinkorswim platform which hasn't had a major update since it was basically purchased by TD Ameritrade, I mean, think about it. It has not really had a major update to that platform since it was purchased from TD Ameritrade. That's crazy. And a lot of these platforms now are just recreations of the same thing. And so, we’re doing something completely different, way more intuitive, much easier to use and of course, naturally integrates all of our auto-trading and AI technology that we’ve already built out. It’s going to be amazing. I can't wait for you guys to see it because a lot of the other platforms out there suck right now and we’re hoping to change that big time. Hopefully this helps out. If you guys have any questions or want to learn more about it, obviously just stay tuned. We’ll be doing some more shows and some more podcast as we get much closer to the launch here. But it is coming. It's very much well worth the wait and hopefully you guys are really excited about it. Until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I’m going to talk about why broker’s platforms suck and what we are going to do about it. This honestly has become to me, a really nagging thing and that is that I have to explain to people all the time why one broker or another broker can't do something. This happens with Thinkorswim, this happens with Tastyworks, with Trade Station, with Schwab, with Robinhood, everything and I feel like I have to always explain why their broker platform to some degree and in some areas, sucks what they do really well, but what they really suck at. And it's hard because a lot of these broker platforms are not built for the full-time options trader or for the person who’s focused on full-time options trading. One of the things that we’ve been doing and we’ll be releasing very soon in the next month, month and a half here has been our own platform for auto-trading. Now, it’s not going to be just auto-trading. It’s going to have all of the capacity to scan, monitor and more importantly, auto-trade and analyze your positions moving forward. Now, we’ll have more details on this coming out, but that's literally what we’re trying to do, is we’re trying to build the platform that I know I want, that I know you guys want because I hear it all the time. I hear all the complaints about reporting. They don't know. Many platforms especially Thinkorswim right now, we don't understand if we’re really making money or not. If we are, what positions are making money and which are not? Are we doing good trading credit spreads or not? How do we know? And many of these broker platforms just kind of shrug this off and that really ticks me off now because they’re making a lot of money off of commissions and off of fees and everything and they just shrug off a lot of the stats that really could be important and could lead people to making smarter decisions and smarter trades and basically allocating their money with better information. We’re trying to build that. I think that's a big push for me lately. Now that we've got a really amazing team of developers and people leading this and helping me out with this, we’re really going to push the forefront here and build something that’s revolutionary, I mean, something that’s intuitive, easy to use and more importantly, super, super powerful, data-driven, I mean, all the things that we’ve been wanting in this industry for a long time. I would say that the point of me doing this show is not only just to tell you guys what we’ve been working on, but I think that right now, where we’re at in this industry is that a lot of people have been settling for subpar technology and that has ticked me off for the last couple of years. And so, I've been investing a lot of my own personal money. A lot of the money that we generate from Option Alpha goes right back into investing in this type of technology for you guys, so that we have something that we can catch up to a lot of other markets and industries. The brokerage industry and the investment industry is very old-school. It takes a long time to move this ship in many respects. And you look at the Thinkorswim platform which hasn't had a major update since it was basically purchased by TD Ameritrade, I mean, think about it. It has not really had a major update to that platform since it was purchased from TD Ameritrade. That's crazy. And a lot of these platforms now are just recreations of the same thing. And so, we’re doing something completely different, way more intuitive, much easier to use and of course, naturally integrates all of our auto-trading and AI technology that we’ve already built out. It’s going to be amazing. I can't wait for you guys to see it because a lot of the other platforms out there suck right now and we’re hoping to change that big time. Hopefully this helps out. If you guys have any questions or want to learn more about it, obviously just stay tuned. We’ll be doing some more shows and some more podcast as we get much closer to the launch here. But it is coming. It's very much well worth the wait and hopefully you guys are really excited about it. Until next time, happy trading.

#340 - Why BROKERS Platforms Suck! (And What I'm Doing About It)

Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be talking about hidden mutual fund fees that are killing your portfolio growth curve. I assume actually, most people who are listening to this podcast probably don't have mutual funds just yet. But if you are listening or if you’re new to Option Alpha and you do have mutual funds, hopefully this will help out because undoubtedly, at least a couple of times a week, probably at least like five times a week, I get an email from somebody wanting me to review their mutual fund positions or their portfolio which I don't do. I don't do that generally unless you’re a coaching client of mine. I just don't have time to review everyone's portfolio, nor do I want to. But I get people who are always saying to me, “What about this mutual fund and what about that expense ratio?” And so, I wanted to do at least a quick chat about it because I think there are things that people don't really consider when it comes to mutual funds that might help out. First things first, I don't think that I'm actually totally shocked that people still invest in mutual funds because we know most mutual funds have higher expense ratios than say an ETF or an index fund. I think the average expense ratio is at least over 1% still for most mutual funds. At least that’s according to Morningstar right now. And that expense ratio can actually trim a lot of your nest egg. If you think about how money compounds and how just even a 1% difference, even though it doesn't sound like a lot, actually can really dramatically trim how much money you have after 30 years of investing. In many cases, it could trim hundreds of thousands of dollars and you don't even really realize it. But there's another kicker that's really not seen. Most people can see what the expense ratio is. That’s easy. But there are some things that are not seen or kind of subsurface fees that we don't even think about. One is the cost of owning a mutual fund and having money sit in cash. Actually, a lot of mutual funds have some sort of cash balance or they’ll probably always have cash because of redemptions and rollovers and what they invest in. And so, that cash balance actually sits in cash in the mutual fund, but you still pay an expense ratio because it applies to the whole fund. That's really again, trimming some of the fees. It's really bloating some of the fees that you see inside of your account. You don't really feel that necessarily, but you don't get paid for money sitting there. You get paid for money that's actually at risk in the market. In this case with many mutual funds, you’re actually paying money in an expense ratio for money that’s sitting there. The big one for me though is transactions. Transactions are not something that's typically in an expense ratio. In fact, it takes a lot of work to go back through a mutual fund’s history and the prospectus and see how many transactions or how frequently they rebalance. But let's take one of those target date funds because that's always fun and interesting. People always look to invest in a target date fund. If you’re going to retire at 50, invest in this. If you’re going to retire at 60, invest in this and we’ll automatically allocate your portfolio as you get closer. Well, all of those transactions cost money. There was a study done by Edelyn Evans and Cadillac(?) which found that the average transaction cost for mutual fund, just the buy and sell of everything was on average, 1.44% per year. Now, that’s not included in the expense ratio. You have your regular expense ratio for just basically running the fund in the expense of getting into the mutual fund, then you have these transaction cost and depending on how frequently they “rebalance” your portfolio, then you have all of these expenses that basically start adding up. The more often they rebalance, the more expenses that you see and then on top of that, if you rebalance within the same year, now you start throwing in taxable gains, short-term capital gains versus long-term capital gains. It really becomes something that… It's no wonder why actually a lot of people are still financially unsecure and are not retired even at older ages now. Even at 50s and 60s and 70 years old, people are still working because some of these things are just not seen and not really felt in your account necessarily. I think most mutual funds now really, if you add up all the expenses and the transaction cost and money sitting in cash which is unutilized, money at work right now, I think you could easily make a case to say that most mutual funds are probably in the 3% plus total cost, everything rolled in and that's insane. I think that's crazy. You’re already at such a disadvantage by just having that right there that it's really, really hard to make money because you have to make that much more money on top of just the total cost, plus inflation. It really, really becomes difficult. I actually am just shocked why people still invest in mutual funds. I don't know if this industry will last. I think it's basically dying, but it seems like it's taking a while to completely go away. Anyways, hopefully this helps out. If you thought this was helpful, please send it to somebody else that you think invest in mutual funds and would love to hear this. I think it’s just worth a conversation at least with yourself or your financial advisor or whoever else manages your money in your account to really take a hard look at these and see what you're paying and what it all adds up to. As always, hopefully this helps and until next time, happy trading.

Hey everyone. This is Kirk here again at <a href="http://optionalpha.com" rel="nofollow" target="_blank">optionalpha.com</a> and welcome back to the daily call. Today, we are going to be talking about hidden mutual fund fees that are killing your portfolio growth curve. I assume actually, most people who are listening to this podcast probably don't have mutual funds just yet. But if you are listening or if you’re new to Option Alpha and you do have mutual funds, hopefully this will help out because undoubtedly, at least a couple of times a week, probably at least like five times a week, I get an email from somebody wanting me to review their mutual fund positions or their portfolio which I don't do. I don't do that generally unless you’re a coaching client of mine. I just don't have time to review everyone's portfolio, nor do I want to. But I get people who are always saying to me, “What about this mutual fund and what about that expense ratio?” And so, I wanted to do at least a quick chat about it because I think there are things that people don't really consider when it comes to mutual funds that might help out. First things first, I don't think that I'm actually totally shocked that people still invest in mutual funds because we know most mutual funds have higher expense ratios than say an ETF or an index fund. I think the average expense ratio is at least over 1% still for most mutual funds. At least that’s according to Morningstar right now. And that expense ratio can actually trim a lot of your nest egg. If you think about how money compounds and how just even a 1% difference, even though it doesn't sound like a lot, actually can really dramatically trim how much money you have after 30 years of investing. In many cases, it could trim hundreds of thousands of dollars and you don't even really realize it. But there's another kicker that's really not seen. Most people can see what the expense ratio is. That’s easy. But there are some things that are not seen or kind of subsurface fees that we don't even think about. One is the cost of owning a mutual fund and having money sit in cash. Actually, a lot of mutual funds have some sort of cash balance or they’ll probably always have cash because of redemptions and rollovers and what they invest in. And so, that cash balance actually sits in cash in the mutual fund, but you still pay an expense ratio because it applies to the whole fund. That's really again, trimming some of the fees. It's really bloating some of the fees that you see inside of your account. You don't really feel that necessarily, but you don't get paid for money sitting there. You get paid for money that's actually at risk in the market. In this case with many mutual funds, you’re actually paying money in an expense ratio for money that’s sitting there. The big one for me though is transactions. Transactions are not something that's typically in an expense ratio. In fact, it takes a lot of work to go back through a mutual fund’s history and the prospectus and see how many transactions or how frequently they rebalance. But let's take one of those target date funds because that's always fun and interesting. People always look to invest in a target date fund. If you’re going to retire at 50, invest in this. If you’re going to retire at 60, invest in this and we’ll automatically allocate your portfolio as you get closer. Well, all of those transactions cost money. There was a study done by Edelyn Evans and Cadillac(?) which found that the average transaction cost for mutual fund, just the buy and sell of everything was on average, 1.44% per year. Now, that’s not included in the expense ratio. You have your regular expense ratio for just basically running the fund in the expense of getting into the mutual fund, then you have these transaction cost and depending on how frequently they “rebalance” your portfolio, then you have all of these expenses that basically start adding up. The more often they rebalance, the more expenses that you see and then on top of that, if you rebalance within the same year, now you start throwing in taxable gains, short-term capital gains versus long-term capital gains. It really becomes something that… It's no wonder why actually a lot of people are still financially unsecure and are not retired even at older ages now. Even at 50s and 60s and 70 years old, people are still working because some of these things are just not seen and not really felt in your account necessarily. I think most mutual funds now really, if you add up all the expenses and the transaction cost and money sitting in cash which is unutilized, money at work right now, I think you could easily make a case to say that most mutual funds are probably in the 3% plus total cost, everything rolled in and that's insane. I think that's crazy. You’re already at such a disadvantage by just having that right there that it's really, really hard to make money because you have to make that much more money on top of just the total cost, plus inflation. It really, really becomes difficult. I actually am just shocked why people still invest in mutual funds. I don't know if this industry will last. I think it's basically dying, but it seems like it's taking a while to completely go away. Anyways, hopefully this helps out. If you thought this was helpful, please send it to somebody else that you think invest in mutual funds and would love to hear this. I think it’s just worth a conversation at least with yourself or your financial advisor or whoever else manages your money in your account to really take a hard look at these and see what you're paying and what it all adds up to. As always, hopefully this helps and until next time, happy trading.

#235 - Hidden Mutual Fund Fees Are Killing Your Portfolio Growth Curve

Hey everyone, Kirk here again and welcome back to the daily call. Today, we’re going to be talking about the only two things that you can control in the stock market. I will come out right away and tell you exactly what those two things are. The only two things you can control in the stock market is the underlying in which you trade or the security and the strategy or the technique in which you trade it. That's it. Now, this might come as actually a shock to some of you guys because many people still think that they can control the market. You either try to do it… I don’t know, like Jedi mind tricks or move the market with your mind. You stare at the screen so much until your eyes bleed because you want the stock to go up or down. But I have learned a long time ago that we have no control on price and direction. The only things that we can control are the underlyings in which we trade, the tickers in which we trade and the strategy in which we trade them. That’s it. Everything else is out of your control. The political environment, what this country does or what that company does or what Amazon versus Tesla does. None of that stuff you guys can control. Unless you're leading those companies, you have absolutely no control over where the market goes, where the economy goes, where the stocks go, where bonds go. We have no control over that. And the sooner that you realize and accept that, the better off you're going to be because you’re not going to worry about it and because you’re going to focus, re-shift your attention onto the things that you can control. If you can control the underlying, great, what underlyings are you trading? Are you trading a diversified basket of tickers or are you focusing all of your attention on just one ticker which is a bad idea? And then on a strategy, what type of strategy are you using? Are you buying options which doesn't work? Are you selling options which does? Are you properly position sizing? Are you keeping your position small and increasing your frequency? Do the things that you can control and don't worry about everything else you can’t control because not having control for direction or the economy or bonds does not matter when it comes to options trading. It doesn't matter because we frequently will reset strategies every 30 days. If the market starts to go down or if the market starts to go up, we’re constantly resetting strategies and improving frequency. That's why direction is meaningless when you trade options and you do an option selling strategy the way that we do. Direction becomes meaningless. It doesn’t mean that direction can’t hurt your position. Of course if you have a huge down or a huge up move and it’s unexpected, of course, you’re going to have a little bit of a setback, but it’s not going to change the outcome of the strategy, it’s not going to derail you from being successful trading. Control the things you can control. Don't worry about everything else. Hopefully this helps out as always. Until next time, happy trading!

Hey everyone, Kirk here again and welcome back to the daily call. Today, we’re going to be talking about the only two things that you can control in the stock market. I will come out right away and tell you exactly what those two things are. The only two things you can control in the stock market is the underlying in which you trade or the security and the strategy or the technique in which you trade it. That's it. Now, this might come as actually a shock to some of you guys because many people still think that they can control the market. You either try to do it… I don’t know, like Jedi mind tricks or move the market with your mind. You stare at the screen so much until your eyes bleed because you want the stock to go up or down. But I have learned a long time ago that we have no control on price and direction. The only things that we can control are the underlyings in which we trade, the tickers in which we trade and the strategy in which we trade them. That’s it. Everything else is out of your control. The political environment, what this country does or what that company does or what Amazon versus Tesla does. None of that stuff you guys can control. Unless you're leading those companies, you have absolutely no control over where the market goes, where the economy goes, where the stocks go, where bonds go. We have no control over that. And the sooner that you realize and accept that, the better off you're going to be because you’re not going to worry about it and because you’re going to focus, re-shift your attention onto the things that you can control. If you can control the underlying, great, what underlyings are you trading? Are you trading a diversified basket of tickers or are you focusing all of your attention on just one ticker which is a bad idea? And then on a strategy, what type of strategy are you using? Are you buying options which doesn't work? Are you selling options which does? Are you properly position sizing? Are you keeping your position small and increasing your frequency? Do the things that you can control and don't worry about everything else you can’t control because not having control for direction or the economy or bonds does not matter when it comes to options trading. It doesn't matter because we frequently will reset strategies every 30 days. If the market starts to go down or if the market starts to go up, we’re constantly resetting strategies and improving frequency. That's why direction is meaningless when you trade options and you do an option selling strategy the way that we do. Direction becomes meaningless. It doesn’t mean that direction can’t hurt your position. Of course if you have a huge down or a huge up move and it’s unexpected, of course, you’re going to have a little bit of a setback, but it’s not going to change the outcome of the strategy, it’s not going to derail you from being successful trading. Control the things you can control. Don't worry about everything else. Hopefully this helps out as always. Until next time, happy trading!

#191 - The Only Two Things You Can Control In The Stock Market

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “Does unsystematic risk matter anymore?” First, let's read a description of unsystematic risk. Unsystematic risk is a unique specific risk to a company or industry. That’s also known as nonsystematic risk or specific, diversifiable or residual risk in the context of an investment portfolio. Unsystematic risk can be reduced through diversification. The idea around this is that if you have two different companies, say McDonald's and Apple, you can pretty much diversify most of the risk away from owning those companies by investing in other companies that are non-correlated to Apple and McDonald's, maybe a utility company, maybe an oil and gas company, a financial services company. There’s a lot of ways that you can diversify around it. The question that everyone is asking though is, “With the advent of indexes and a lot of these ETFs, should it matter what unsystematic risk is still present in the market?” I think the answer to this question is of course, we should because even though we can diversify away from most of the unsystematic risk in the market through a portfolio or a basket of ticker symbols whether you’re trading stocks or options, it’s still really important to position size accordingly because of the recent big moves that we've seen in even some of the bigger ETFs that cover entire countries and their markets. Recently, we saw EWZ, RSX, EWY… A lot of these ETFs have made major overnight moves, in some cases, 15%, 20% down which represents an entire market or an entire industry moving down and having a massive systematic risk impact on the rest of the portfolio or in many cases, the global economy. I think that unsystematic risk is being put to the back table because many people think it's easily diversified out of with a lot of these ETFs and investment indexes, but the underlying truth is that most of these ETFs and indexes are still made up of real companies. And so, if that basket of ticker symbols or companies that the ETF is tracking or investing in is still made up of something that carries a lot of unsystematic risk, then that's not necessarily a good thing. I think it’s something that we have to keep an eye out always with what we do here at Option Alpha as far as options trading. I always like to keep a diversified basket of tickers. In fact, just the other night as I was going through the weekly strategy call with elite members, we talked about adding some tickers to our portfolio that had lower implied volatility than other things that we had on our watch list, but the reality is that adding those tickers would add a little bit more diversity to our portfolio. And so, we weren’t going to keep cramming in a bunch of high IV tickers into our positions if we already had five or six different positions already and similar or related ETFs. Instead, we’re going to try to diversify things out. Even though it might mean trading something with a slightly lower implied volatility rating, I think the diversification benefit of doing that is far greater than trying to pigeonhole ourselves into one industry. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “Does unsystematic risk matter anymore?” First, let's read a description of unsystematic risk. Unsystematic risk is a unique specific risk to a company or industry. That’s also known as nonsystematic risk or specific, diversifiable or residual risk in the context of an investment portfolio. Unsystematic risk can be reduced through diversification. The idea around this is that if you have two different companies, say McDonald's and Apple, you can pretty much diversify most of the risk away from owning those companies by investing in other companies that are non-correlated to Apple and McDonald's, maybe a utility company, maybe an oil and gas company, a financial services company. There’s a lot of ways that you can diversify around it. The question that everyone is asking though is, “With the advent of indexes and a lot of these ETFs, should it matter what unsystematic risk is still present in the market?” I think the answer to this question is of course, we should because even though we can diversify away from most of the unsystematic risk in the market through a portfolio or a basket of ticker symbols whether you’re trading stocks or options, it’s still really important to position size accordingly because of the recent big moves that we've seen in even some of the bigger ETFs that cover entire countries and their markets. Recently, we saw EWZ, RSX, EWY… A lot of these ETFs have made major overnight moves, in some cases, 15%, 20% down which represents an entire market or an entire industry moving down and having a massive systematic risk impact on the rest of the portfolio or in many cases, the global economy. I think that unsystematic risk is being put to the back table because many people think it's easily diversified out of with a lot of these ETFs and investment indexes, but the underlying truth is that most of these ETFs and indexes are still made up of real companies. And so, if that basket of ticker symbols or companies that the ETF is tracking or investing in is still made up of something that carries a lot of unsystematic risk, then that's not necessarily a good thing. I think it’s something that we have to keep an eye out always with what we do here at Option Alpha as far as options trading. I always like to keep a diversified basket of tickers. In fact, just the other night as I was going through the weekly strategy call with elite members, we talked about adding some tickers to our portfolio that had lower implied volatility than other things that we had on our watch list, but the reality is that adding those tickers would add a little bit more diversity to our portfolio. And so, we weren’t going to keep cramming in a bunch of high IV tickers into our positions if we already had five or six different positions already and similar or related ETFs. Instead, we’re going to try to diversify things out. Even though it might mean trading something with a slightly lower implied volatility rating, I think the diversification benefit of doing that is far greater than trying to pigeonhole ourselves into one industry. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

#342 - Does Unsystematic Risk Matter Anymore?

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about trading big stock moves with options the right way. This really comes down to what we've seen just in the last couple of months. It could be individual ticker symbols like SLV or GDX or TLT. They’ve had really big moves in the last couple of months. And what people tend to default to do when they expect a big move in a stock is they tend to want to buy options and they think that buying options leads to potentially the biggest payout because they have limited risk and all this upside potential. What they fail to remember is that in all cases long-term, the buying power that options provides prices in the expected move that should happen in the stock. And so, what we see is that when stocks are about to make a big move or have already made a big move, all of that stuff is priced in and long-term, stocks underperform their expectation. Now, this doesn't mean that you couldn’t find yourself in a situation where you buy an option and you make money because the stock moves more than expected. That happens all the time. But the long-term whole outcome of option buying is already pricing in the expected move. It’s already pricing in the expectation that the stock is either going to make a big move or has had a big move and it usually never moves more than the expected outcome long-term. The right way to trade big moves with options is to trade them by selling options around those big moves. Typically, we see this around earnings trades. We saw this just last year in 2018 when we actually sold a ton of naked options in UNG after a massive move in natural gas. We posted all those videos. They’re all public and live on YouTube, so you can see all of our positions that we got into, but this was counterintuitive. Most people would’ve thought, “Why are you selling options? UNG just had this huge move. It's potentially going to make an even bigger move.” But we knew that option pricing was way too expensive, had priced in a massive move that we expected not to happen long-term and we ended up trading around that situation and making some pretty good money. And so, that's the right way to trade some of these big moves, is not actually to buy strategies, but to use option selling strategies. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about trading big stock moves with options the right way. This really comes down to what we've seen just in the last couple of months. It could be individual ticker symbols like SLV or GDX or TLT. They’ve had really big moves in the last couple of months. And what people tend to default to do when they expect a big move in a stock is they tend to want to buy options and they think that buying options leads to potentially the biggest payout because they have limited risk and all this upside potential. What they fail to remember is that in all cases long-term, the buying power that options provides prices in the expected move that should happen in the stock. And so, what we see is that when stocks are about to make a big move or have already made a big move, all of that stuff is priced in and long-term, stocks underperform their expectation. Now, this doesn't mean that you couldn’t find yourself in a situation where you buy an option and you make money because the stock moves more than expected. That happens all the time. But the long-term whole outcome of option buying is already pricing in the expected move. It’s already pricing in the expectation that the stock is either going to make a big move or has had a big move and it usually never moves more than the expected outcome long-term. The right way to trade big moves with options is to trade them by selling options around those big moves. Typically, we see this around earnings trades. We saw this just last year in 2018 when we actually sold a ton of naked options in UNG after a massive move in natural gas. We posted all those videos. They’re all public and live on YouTube, so you can see all of our positions that we got into, but this was counterintuitive. Most people would’ve thought, “Why are you selling options? UNG just had this huge move. It's potentially going to make an even bigger move.” But we knew that option pricing was way too expensive, had priced in a massive move that we expected not to happen long-term and we ended up trading around that situation and making some pretty good money. And so, that's the right way to trade some of these big moves, is not actually to buy strategies, but to use option selling strategies. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#480 - Trading Big Stock Moves With Options (The Right Way)

Hey everyone, Kirk here at Option Alpha and welcome back to the daily call. Today, we are going to answer a question from one of our members which is basically, “How do corporate earnings and dividends impact our options trading decisions?” The real question here was that somebody sent in… Again, thanks for submitting questions because it helps out on this podcast in topics and things that we cover. But the question that was submitted was, “Can you talk more about how these corporate actions like corporate earnings and dividends affect trading decisions? For instance, if you’re trading in a security that has a dividend being announced before a contract expiration or is going through an earnings event, do you wait until after that announcement or that dividend to pull the trigger?” I think this is a really good topic. It’s one that we've covered before, but it's worth covering again. When we start looking at trades, we do look into the future for any trades that we’re doing in individual stocks and we want to have a frame of reference for where dividends and earnings come up. Now, in most brokerage platforms, you can actually see into the future a little bit by just adjusting your chart settings and actually showing dividends and corporate earnings. On the Option Alpha website, what we have with our watch list and our software is we have little tags that show you if earnings or dividends are coming up in the future, so that helps out with the watch list. But you just want to be aware that those things are in the future because they could impact your trading decision. For example: I think earnings are probably the biggest one that impacts our trading decision to either get into a trade or not. We generally know that heading into earnings, though it doesn't happen all the time. But generally, heading into earnings, we start to see implied volatility start to slowly tick up. The stock might be a little bit more volatile than usual because it's coming into this earnings event. It could have great earnings. It could have bad earnings. There could be something missing in there, great revenue, bad revenue, the whole deal. And so, the stock is likely to make a big move after earnings, so we start to see implied volatility start to tick up as we head into that event. How that would impact us was that we would not then start trading a short premium trade heading into that earnings event because if we’re going to start selling options, we want implied volatility to either stay low or go lower and that's the total opposite of what would typically happen in that environment. We would rather just wait for the actual earnings announcement itself and trade that one time IV crush that happens or IV collapse that happens around earnings versus trying to get it right heading into the earnings event and taking a lot of risk in the meantime. That's really how it impacts us for trades. That's why you typically see if you’re a pro or elite member that we do a lot of trading and a lot of auto-trading on some of the ETFs and some of the larger indexes because they don't have that corporate action coming up every 30 or 60 or 90 days, depending on what industry you're in. The other thing that we look at is dividends. Dividends for us are not a huge decision-maker. We recognize that dividends are on the horizon for something. That doesn't mean that we won't do the right strategy at that time because by the time we get to the dividend announcement, it does not mean necessarily that we’ll always be assigned by the dividend or we’ll have any assignment risk. If we get to that dividend event and we are in a position where we could be assigned, then we can adjust or close or roll the position. I've never really found it to be this detrimental thing to trading. Again, I'm aware of the dividends, I know when they're coming up. They’re scheduled out and I can see them in the future and as they come closer, we get announcements for them and updates for them, but it doesn't really impact my trading decision because the trade I make today if dividends are 45 days out, I might be out of in 30 days, so it might have no impact at all. I think for me, it's more of the corporate earnings that impact things versus dividends. But hopefully this helps out. As always, if you guys have any questions or want to hear different topics, please submit a question like this person did. You can submit it on email or at optionalpha.com/ask and leave me a private voicemail. You can also just send us a tweet or a message on Facebook, Twitter, YouTube, Instagram, any of the social networks out there. We’ll definitely respond to it and get it queued up for the daily call. Until next time, happy trading!

Hey everyone, Kirk here at Option Alpha and welcome back to the daily call. Today, we are going to answer a question from one of our members which is basically, “How do corporate earnings and dividends impact our options trading decisions?” The real question here was that somebody sent in… Again, thanks for submitting questions because it helps out on this podcast in topics and things that we cover. But the question that was submitted was, “Can you talk more about how these corporate actions like corporate earnings and dividends affect trading decisions? For instance, if you’re trading in a security that has a dividend being announced before a contract expiration or is going through an earnings event, do you wait until after that announcement or that dividend to pull the trigger?” I think this is a really good topic. It’s one that we've covered before, but it's worth covering again. When we start looking at trades, we do look into the future for any trades that we’re doing in individual stocks and we want to have a frame of reference for where dividends and earnings come up. Now, in most brokerage platforms, you can actually see into the future a little bit by just adjusting your chart settings and actually showing dividends and corporate earnings. On the Option Alpha website, what we have with our watch list and our software is we have little tags that show you if earnings or dividends are coming up in the future, so that helps out with the watch list. But you just want to be aware that those things are in the future because they could impact your trading decision. For example: I think earnings are probably the biggest one that impacts our trading decision to either get into a trade or not. We generally know that heading into earnings, though it doesn't happen all the time. But generally, heading into earnings, we start to see implied volatility start to slowly tick up. The stock might be a little bit more volatile than usual because it's coming into this earnings event. It could have great earnings. It could have bad earnings. There could be something missing in there, great revenue, bad revenue, the whole deal. And so, the stock is likely to make a big move after earnings, so we start to see implied volatility start to tick up as we head into that event. How that would impact us was that we would not then start trading a short premium trade heading into that earnings event because if we’re going to start selling options, we want implied volatility to either stay low or go lower and that's the total opposite of what would typically happen in that environment. We would rather just wait for the actual earnings announcement itself and trade that one time IV crush that happens or IV collapse that happens around earnings versus trying to get it right heading into the earnings event and taking a lot of risk in the meantime. That's really how it impacts us for trades. That's why you typically see if you’re a pro or elite member that we do a lot of trading and a lot of auto-trading on some of the ETFs and some of the larger indexes because they don't have that corporate action coming up every 30 or 60 or 90 days, depending on what industry you're in. The other thing that we look at is dividends. Dividends for us are not a huge decision-maker. We recognize that dividends are on the horizon for something. That doesn't mean that we won't do the right strategy at that time because by the time we get to the dividend announcement, it does not mean necessarily that we’ll always be assigned by the dividend or we’ll have any assignment risk. If we get to that dividend event and we are in a position where we could be assigned, then we can adjust or close or roll the position. I've never really found it to be this detrimental thing to trading. Again, I'm aware of the dividends, I know when they're coming up. They’re scheduled out and I can see them in the future and as they come closer, we get announcements for them and updates for them, but it doesn't really impact my trading decision because the trade I make today if dividends are 45 days out, I might be out of in 30 days, so it might have no impact at all. I think for me, it's more of the corporate earnings that impact things versus dividends. But hopefully this helps out. As always, if you guys have any questions or want to hear different topics, please submit a question like this person did. You can submit it on email or at <a href="http://optionalpha.com/ask" rel="nofollow" target="_blank">optionalpha.com/ask</a> and leave me a private voicemail. You can also just send us a tweet or a message on Facebook, Twitter, YouTube, Instagram, any of the social networks out there. We’ll definitely respond to it and get it queued up for the daily call. Until next time, happy trading!

#174 - How Do Corporate Earnings & Dividends Impact Options Trading Decisions?

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question that has to do with short selling basics and how you can sell stock that you don't even own. When people start trading options and start trading stocks, they undoubtedly run across the concept of going short or short selling. And so, it’s really confusing at first because the idea is, “Well, how do I sell something that I don't even own?” And that’d be like selling a car without even having a car. How do you do this? Well, the concept is actually really easy and I'll try to explain it very simply for you guys here today on the show because I want you to understand just the basics of it. We’re not going to get into the nitty-gritty and the actual behind the scenes of who's doing what, but just the basic concept of how short selling works is actually really easy. If you think about option buying or stock buying just to use the other side of it here real quickly, you would buy shares in the open market and then to complete your trade, to close the trading loop, you have to sell those shares at some point. If you buy shares and then you outlay money, you have to then sell those shares in the open market to get back the money that you had invested or money you invested with profits. There's no other way to do it. To complete the entire trading loop and close the position, you’ve got to sell what you bought originally. Well, in short selling, it works in the total inverse. When you sell something short, you’re basically borrowing shares from the broker or the market and selling them in the open market to somebody else. The idea is that when you sell those shares, you’re hoping that they go down in value, so that when you close the trading loop and you buy back those shares, you buy them back for a lower price than what you sold them to somebody else. It's the same concept. It’s just taken from the other side. Now, the difficulty in selling stock short is just having the availability of shares to borrow from the brokerage or from the company to be able to sell short stock because you have to borrow shares and sell them to somebody else, hopefully closing the trading loop by buying back the actual stock at a later date for a cheaper price. This is a way that you can actually speculate or hedge against a potential stock going down. That's what some people do a lot. In fact, you hear a lot of these terms called short squeezes and short interest on the stock and we’ll talk about all of those in future shows. But just this idea is actually very easy, is that you don't own the stock, you’re kind of borrowing it and you do have to complete the trading loop. You have to at some point, buy back the stock, hopefully at a lower price, but it could potentially be at a higher price. Here's a really good analogy that I've used before in coaching and some of our trading which I think might help even drive home this point even more and that's the idea of a homebuilder. See, a homebuilder is actually somebody who is selling the home short. That's really what they’re doing. They’re a short seller of housing. When a homebuilder comes up to you and you contract with them to build a home for say $100,000, well, that homebuilder has now sold you something that they don't even own yet or they don't even have to give you. You’ve written an agreement and you say, “You know what, Mr. Homebuilder? I will pay you $100,000 to build my home.” Well, the homebuilder hasn't done anything. They haven’t built a home. They haven't laid the foundation or built the walls yet. They’re selling short. They’re borrowing, basically future time in your agreement in money hoping that they can actually build the home for less than $100,000 because then, that’s how they make their money. They are contracted to only get $100,000. If it cost them $110,000, he's got to go hire his own people, he's got to spend time and gas and buy wood and roofing and everything. If it cost him $110,000, well, he loses $10,000 on that. Now, that doesn’t make him a bad guy for being a short seller of homes. It’s just a really kind of life example of how this works in the regular market. This happens all the time all over the place. It's not that short selling happens just in the stock or the options market. Again, a homebuilder is a short seller of housing. They’re selling you a house for $100,000 and if he can build it for $90,000 and you’re happy with it, then he makes his $10,000 profit. He's hoping he can build it for less than the cost that he sold it to you for. Hopefully it helps out. As always, if you guys have questions even as simple as the ones that we got here today from one of our members in an email, please let me know. Shoot me an email, send us a tweet. Post it on Facebook, whatever you have to do to get your question in here to the daily call. Until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question that has to do with short selling basics and how you can sell stock that you don't even own. When people start trading options and start trading stocks, they undoubtedly run across the concept of going short or short selling. And so, it’s really confusing at first because the idea is, “Well, how do I sell something that I don't even own?” And that’d be like selling a car without even having a car. How do you do this? Well, the concept is actually really easy and I'll try to explain it very simply for you guys here today on the show because I want you to understand just the basics of it. We’re not going to get into the nitty-gritty and the actual behind the scenes of who's doing what, but just the basic concept of how short selling works is actually really easy. If you think about option buying or stock buying just to use the other side of it here real quickly, you would buy shares in the open market and then to complete your trade, to close the trading loop, you have to sell those shares at some point. If you buy shares and then you outlay money, you have to then sell those shares in the open market to get back the money that you had invested or money you invested with profits. There's no other way to do it. To complete the entire trading loop and close the position, you’ve got to sell what you bought originally. Well, in short selling, it works in the total inverse. When you sell something short, you’re basically borrowing shares from the broker or the market and selling them in the open market to somebody else. The idea is that when you sell those shares, you’re hoping that they go down in value, so that when you close the trading loop and you buy back those shares, you buy them back for a lower price than what you sold them to somebody else. It's the same concept. It’s just taken from the other side. Now, the difficulty in selling stock short is just having the availability of shares to borrow from the brokerage or from the company to be able to sell short stock because you have to borrow shares and sell them to somebody else, hopefully closing the trading loop by buying back the actual stock at a later date for a cheaper price. This is a way that you can actually speculate or hedge against a potential stock going down. That's what some people do a lot. In fact, you hear a lot of these terms called short squeezes and short interest on the stock and we’ll talk about all of those in future shows. But just this idea is actually very easy, is that you don't own the stock, you’re kind of borrowing it and you do have to complete the trading loop. You have to at some point, buy back the stock, hopefully at a lower price, but it could potentially be at a higher price. Here's a really good analogy that I've used before in coaching and some of our trading which I think might help even drive home this point even more and that's the idea of a homebuilder. See, a homebuilder is actually somebody who is selling the home short. That's really what they’re doing. They’re a short seller of housing. When a homebuilder comes up to you and you contract with them to build a home for say $100,000, well, that homebuilder has now sold you something that they don't even own yet or they don't even have to give you. You’ve written an agreement and you say, “You know what, Mr. Homebuilder? I will pay you $100,000 to build my home.” Well, the homebuilder hasn't done anything. They haven’t built a home. They haven't laid the foundation or built the walls yet. They’re selling short. They’re borrowing, basically future time in your agreement in money hoping that they can actually build the home for less than $100,000 because then, that’s how they make their money. They are contracted to only get $100,000. If it cost them $110,000, he's got to go hire his own people, he's got to spend time and gas and buy wood and roofing and everything. If it cost him $110,000, well, he loses $10,000 on that. Now, that doesn’t make him a bad guy for being a short seller of homes. It’s just a really kind of life example of how this works in the regular market. This happens all the time all over the place. It's not that short selling happens just in the stock or the options market. Again, a homebuilder is a short seller of housing. They’re selling you a house for $100,000 and if he can build it for $90,000 and you’re happy with it, then he makes his $10,000 profit. He's hoping he can build it for less than the cost that he sold it to you for. Hopefully it helps out. As always, if you guys have questions even as simple as the ones that we got here today from one of our members in an email, please let me know. Shoot me an email, send us a tweet. Post it on Facebook, whatever you have to do to get your question in here to the daily call. Until next time, happy trading.

#295 - Short Selling Basics: How Can You Sell Stock That You Don't Even Own?

Hey everyone, Kirk here again at optionalpha.com. Welcome back to the daily call. Today, we're going to answer a user question that was basically submitted which is “Are buying stocks for free via Robinhood easy or hard?” I do have a Robinhood account. I’m very familiar with the platform. We actually interviewed their cofounder, Baiju just a couple of weeks ago depending on when you’re listening to this podcast. You can listen to that over on our weekly show where we talked about the history of Robinhood and where they're going with their new free options trading that they’re going to be releasing. I still have not gotten the free options trading on my end, so I'm signed up on the wait list because I want to see what it looks like and how it functions. I still have not got any up, but maybe I will here in the future. But I think that buying stocks on Robinhood for free is actually very, very easy. I think they've nailed the stock side of what they do. It's incredibly easy, incredibly intuitive. There's not too much open for interpretation on how you would buy securities. And for most I guess regular investors who just want to buy a couple of stocks or hold some stocks, I think it’s totally an option to do because of the commission cost. You can basically have no commission cost in it. You maybe lose a little bit to margin and slippage I think which is really not talked about that often because you can't set a price. Basically, everything is market orders for what they do. I can’t go in and say, “Okay. I just want to buy Apple stock at 92.” I might buy it at 92.15. If I buy it at 92.15 or whatever price is now times 100 shares, that could be the difference in commissions right there. I don't think that that's talked about a lot, but as far as like true commissions, no, they don't charge it. There's probably a lot of slippage in there because of market orders that people just don't expect. You can probably shave some pennies off of the prices all the time by just being a little bit patient and placing limit orders versus market orders. But it is what it is. The platform is not meant to be a huge advanced trading platform. I think the charting is very basic. It’s all line graphs. You can’t really decipher anything from it. I will say that the one dispute I have with their platform (and I brought this up many times to their developers) is that most of the data in there is actually not accurate at the time that the markets opened. We oftentimes see dividend stocks… I check a lot of REITs in there that my wife owns in her account. I checked those in there and the dividend information is not correct and sometimes very, very far off. That means that PEs are wrong, it means that sometimes I see the highs and lows being wrong or the volume being wrong or delayed. There are some things in there that when you dig through it, I think maybe it's not the best platform for the sake of analysis or looking into a security and determining a position, but as far as actually buying the stock or selling securities and getting into it, they have made that very, very intuitive and easy. I look forward to seeing what they can do with options trading. I've done a couple of reviews on that after our podcast and interview with Baiju that you can go back and take a look at. We’ll talk about it more here in the future as we get access to Robinhood’s free options trading. I think it’s going to be very, very simple and very straightforward which I do think is not necessarily that good for regular investors. I worry that they’re going to be releasing options trading out to the marketplace without any of the education and opening people up to do options trading and I think initially, it’s just long calls, long puts, covered calls, etcetera which ultimately, we know from our research is not the best way to generate money. I hope that they release advanced strategies very soon because that is going to be one of the keys for people to control their risk and actually generate some money, is some of these spread strategies which I don't believe they’re releasing at the moment. We’ll see where it goes in the future. But as always, if you guys have any questions or comments, let me know. If you thought this was helpful, if you thought any of our daily podcast are helpful, again, please let us know on Facebook, Twitter, Instagram, YouTube, wherever you follow us at and give us a rating and a review. Until next time, happy trading!

Hey everyone, Kirk here again at <a href="http://optionalpha.com" rel="nofollow" target="_blank">optionalpha.com</a>. Welcome back to the daily call. Today, we're going to answer a user question that was basically submitted which is “Are buying stocks for free via Robinhood easy or hard?” I do have a Robinhood account. I’m very familiar with the platform. We actually interviewed their cofounder, Baiju just a couple of weeks ago depending on when you’re listening to this podcast. You can listen to that over on our weekly show where we talked about the history of Robinhood and where they're going with their new free options trading that they’re going to be releasing. I still have not gotten the free options trading on my end, so I'm signed up on the wait list because I want to see what it looks like and how it functions. I still have not got any up, but maybe I will here in the future. But I think that buying stocks on Robinhood for free is actually very, very easy. I think they've nailed the stock side of what they do. It's incredibly easy, incredibly intuitive. There's not too much open for interpretation on how you would buy securities. And for most I guess regular investors who just want to buy a couple of stocks or hold some stocks, I think it’s totally an option to do because of the commission cost. You can basically have no commission cost in it. You maybe lose a little bit to margin and slippage I think which is really not talked about that often because you can't set a price. Basically, everything is market orders for what they do. I can’t go in and say, “Okay. I just want to buy Apple stock at 92.” I might buy it at 92.15. If I buy it at 92.15 or whatever price is now times 100 shares, that could be the difference in commissions right there. I don't think that that's talked about a lot, but as far as like true commissions, no, they don't charge it. There's probably a lot of slippage in there because of market orders that people just don't expect. You can probably shave some pennies off of the prices all the time by just being a little bit patient and placing limit orders versus market orders. But it is what it is. The platform is not meant to be a huge advanced trading platform. I think the charting is very basic. It’s all line graphs. You can’t really decipher anything from it. I will say that the one dispute I have with their platform (and I brought this up many times to their developers) is that most of the data in there is actually not accurate at the time that the markets opened. We oftentimes see dividend stocks… I check a lot of REITs in there that my wife owns in her account. I checked those in there and the dividend information is not correct and sometimes very, very far off. That means that PEs are wrong, it means that sometimes I see the highs and lows being wrong or the volume being wrong or delayed. There are some things in there that when you dig through it, I think maybe it's not the best platform for the sake of analysis or looking into a security and determining a position, but as far as actually buying the stock or selling securities and getting into it, they have made that very, very intuitive and easy. I look forward to seeing what they can do with options trading. I've done a couple of reviews on that after our podcast and interview with Baiju that you can go back and take a look at. We’ll talk about it more here in the future as we get access to Robinhood’s free options trading. I think it’s going to be very, very simple and very straightforward which I do think is not necessarily that good for regular investors. I worry that they’re going to be releasing options trading out to the marketplace without any of the education and opening people up to do options trading and I think initially, it’s just long calls, long puts, covered calls, etcetera which ultimately, we know from our research is not the best way to generate money. I hope that they release advanced strategies very soon because that is going to be one of the keys for people to control their risk and actually generate some money, is some of these spread strategies which I don't believe they’re releasing at the moment. We’ll see where it goes in the future. But as always, if you guys have any questions or comments, let me know. If you thought this was helpful, if you thought any of our daily podcast are helpful, again, please let us know on Facebook, Twitter, Instagram, YouTube, wherever you follow us at and give us a rating and a review. Until next time, happy trading!

#183 - Buying Stocks For Free Via Robinhood.com - Easy Or Hard?

Hey everyone, Kirk here again and welcome back to the daily call from Option Alpha. Today, we are going to be talking about why when you trade options, patience pays five times more over time. Now, I think the easy and simple way to describe this is to use the analogy of reaping what you sow. Basically, the concept here is when you plant or when you’re a farmer and you start to plant seeds or crops, it takes a long time for those crops to mature. You have to patiently wait for them. You plant, you water, you’re watering, you’re watering, you’re waiting, you're waiting and then boom! It’s like overnight, they pop. And then after they pop, then they just go bananas. We see this in our area where we live. There's a lot of cornfields. It’s truly like I didn't think I'd ever live in an area like this because I grew up in Northern Virginia and DC and lived in New York, so that was totally different to me. But now, there's a lot of cornfields and man, when you see the corn pop out of the ground, it literally feels like the next day, it's like four feet tall. It goes bananas once it actually starts to mature and hit and gain some traction. I think this concept is very, very similar in options trading. Options traders I think… Let’s say the default options trader who is new to trading thinks that when they place a trade, immediately like snap of a fingers that it’s going to be profitable two days or three days later. That's why people actually are very, very attracted to weekly options in most case because they feel like they could get quick profits. They want quick money. They want to get rich overnight. The reality is that patience in options trading pays way more to just wait for profits to come to you. Our whole framework is built upon selling options and then sitting back generally and waiting for time decay and IV’s over-expectation to play out, to basically mature over time. We know that option pricing and most pricing is generally fair and efficient at the time of trade entry. At the time of trade entry, there's no real edge that can be gained in the market, there's no arbitrage opportunity that you can gain. Where the opportunity comes is by sitting back and waiting for pricing to mature. I talk about pricing maturing all the time because that's what happens. Volatility is not as high as people expected on trade entry, you also have time decay, the market doesn’t move as far as people expected. All of this stuff works out in favor of the option seller long-term, so that's why we just have to be patient. You just have to sit back a little bit more and wait for the corn to grow. That's really how I think about it. Hopefully that helps out. Again, just be more patient. Try to be more patient with your strategies. Realize that it's not an overnight get rich quick type of thing. It’s a long-term wealth building process and that takes time. That's why it's called a long-term wealth building process because it takes time. Sit back and wait for the corn to grow. Until next time, happy trading!

Hey everyone, Kirk here again and welcome back to the daily call from Option Alpha. Today, we are going to be talking about why when you trade options, patience pays five times more over time. Now, I think the easy and simple way to describe this is to use the analogy of reaping what you sow. Basically, the concept here is when you plant or when you’re a farmer and you start to plant seeds or crops, it takes a long time for those crops to mature. You have to patiently wait for them. You plant, you water, you’re watering, you’re watering, you’re waiting, you're waiting and then boom! It’s like overnight, they pop. And then after they pop, then they just go bananas. We see this in our area where we live. There's a lot of cornfields. It’s truly like I didn't think I'd ever live in an area like this because I grew up in Northern Virginia and DC and lived in New York, so that was totally different to me. But now, there's a lot of cornfields and man, when you see the corn pop out of the ground, it literally feels like the next day, it's like four feet tall. It goes bananas once it actually starts to mature and hit and gain some traction. I think this concept is very, very similar in options trading. Options traders I think… Let’s say the default options trader who is new to trading thinks that when they place a trade, immediately like snap of a fingers that it’s going to be profitable two days or three days later. That's why people actually are very, very attracted to weekly options in most case because they feel like they could get quick profits. They want quick money. They want to get rich overnight. The reality is that patience in options trading pays way more to just wait for profits to come to you. Our whole framework is built upon selling options and then sitting back generally and waiting for time decay and IV’s over-expectation to play out, to basically mature over time. We know that option pricing and most pricing is generally fair and efficient at the time of trade entry. At the time of trade entry, there's no real edge that can be gained in the market, there's no arbitrage opportunity that you can gain. Where the opportunity comes is by sitting back and waiting for pricing to mature. I talk about pricing maturing all the time because that's what happens. Volatility is not as high as people expected on trade entry, you also have time decay, the market doesn’t move as far as people expected. All of this stuff works out in favor of the option seller long-term, so that's why we just have to be patient. You just have to sit back a little bit more and wait for the corn to grow. That's really how I think about it. Hopefully that helps out. Again, just be more patient. Try to be more patient with your strategies. Realize that it's not an overnight get rich quick type of thing. It’s a long-term wealth building process and that takes time. That's why it's called a long-term wealth building process because it takes time. Sit back and wait for the corn to grow. Until next time, happy trading!

#190 - When Trading Options Patience Pays 5X More Overtime

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I’m going to go on a little bit of a rant and tell you why I think this 9:00 to 5:00 collective social agreement is completely ridiculous. What am I talking about? I’m talking about this idea that everyone in the entire world, all the people in the world somehow should get their work done between 9:00 and 5:00 and that seems to be the collective social agreement that work starts at 9:00 and it ends at 5:00. And while I understand the need to separate church and state, meaning the need to separate work from family and life, there's no possible way that everybody in the entire world gets all of their work done in the exact same time block every day, week after week, year after year. It's not possible. I do not believe that this is going to be how many companies are run in the future and I think we’re already starting to see that this transition is starting to pick up a lot of steam and the transition is really away from this 9:00 to 5:00 working schedule to just basically getting stuff done however long it takes to get done. So, of all the people that work now at Option Alpha and we have 12 people who work at Option Alpha now, contractors, developers, people who help out with support now, back-testing team. We have 12 people on the staff right now, basically and of all the people that now work at Option Alpha, nobody is on a regimented 9:00 to 5:00 schedule. In fact, it's one of the things that I really talk about and preach as I'm getting people onboard and showing them the systems and tools that we use to kind of run Option Alpha and help you guys and I tell everyone, “Look. This is not a typical 9:00 to 5:00 job.” And that could be good for some people or maybe who’s not used to for other people, but all I really care about is making sure that what we need to get done in a given day gets done. If it gets done in three hours, great. If it gets done in five hours, great. If maybe one or two days, you need to work longer into the evening and take the afternoon off to recharge, great, that's fine. It is not possible for us to totally focus immediately every single day on the most important work just between 9:00 and 5:00 and in fact, me, myself, like I wake up many days very early. As you guys know, my routine is to wake up very early, do all of my emails and all of my most important stuff early in the morning and then for the later part of the morning, I spend with my wife and kids. We go to the gym, we go to the pool or hang out and then I come back in the afternoon and kind of finish up tidying up things that I need to do in the afternoon. For me, that works out really well and I can't just say to all the people that we have here working on our team, “You have to do the same thing as me.” or “You have to be here at 9:00 to 5:00.” I really don't care. I think that in many respects, as long as work is getting done, if it can be done in 20 minutes or an hour and they can take the rest of the day off, fine, I'm good with that and I think that that mentality is a lot more attractive to people and leads to I think more productivity because what you end up finding is that the people who are most productive, most efficient and most eager to grow and learn and develop rise to the top naturally. It's kind of this self-selection process that you put everybody through. I think it’s just fascinating because where I live in Pennsylvania now with my wife, this area as a whole is really still stuck on this 9:00 to 5:00 I would guess like workers assembly line mode. In fact, many places here because of unions and contracts around working prohibit people from leaving the building one minute before 5:00 o'clock. I mean, they literally have to just sit there locked in a cage, in my opinion until 5:00 o'clock and then they are allowed to leave because God forbid, they would leave one minute before, they could get written up, they could have their contract canceled with the employer. I mean, it's really just a bad… It just feels like it's such a David and Goliath type of situation all the time and that's not what it should be. It should be everyone collectively working together, people choosing to be at that job or not be at that job and employers understanding that it doesn't require just 9:00 to 5:00 to get things done. Sometimes it may require less, sometimes it may require more, but ultimately, I think this whole social agreement on 9:00 to 5:00 is ridiculous and I think it's totally outdated. Feel free to send this to any of your employers or bosses if you want to and I would be happy to argue on your behalf as to why people are actually more productive if you don't give them strict boundaries. Hopefully this helps out. As always, if you guys have any questions, let me know. Until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I’m going to go on a little bit of a rant and tell you why I think this 9:00 to 5:00 collective social agreement is completely ridiculous. What am I talking about? I’m talking about this idea that everyone in the entire world, all the people in the world somehow should get their work done between 9:00 and 5:00 and that seems to be the collective social agreement that work starts at 9:00 and it ends at 5:00. And while I understand the need to separate church and state, meaning the need to separate work from family and life, there's no possible way that everybody in the entire world gets all of their work done in the exact same time block every day, week after week, year after year. It's not possible. I do not believe that this is going to be how many companies are run in the future and I think we’re already starting to see that this transition is starting to pick up a lot of steam and the transition is really away from this 9:00 to 5:00 working schedule to just basically getting stuff done however long it takes to get done. So, of all the people that work now at Option Alpha and we have 12 people who work at Option Alpha now, contractors, developers, people who help out with support now, back-testing team. We have 12 people on the staff right now, basically and of all the people that now work at Option Alpha, nobody is on a regimented 9:00 to 5:00 schedule. In fact, it's one of the things that I really talk about and preach as I'm getting people onboard and showing them the systems and tools that we use to kind of run Option Alpha and help you guys and I tell everyone, “Look. This is not a typical 9:00 to 5:00 job.” And that could be good for some people or maybe who’s not used to for other people, but all I really care about is making sure that what we need to get done in a given day gets done. If it gets done in three hours, great. If it gets done in five hours, great. If maybe one or two days, you need to work longer into the evening and take the afternoon off to recharge, great, that's fine. It is not possible for us to totally focus immediately every single day on the most important work just between 9:00 and 5:00 and in fact, me, myself, like I wake up many days very early. As you guys know, my routine is to wake up very early, do all of my emails and all of my most important stuff early in the morning and then for the later part of the morning, I spend with my wife and kids. We go to the gym, we go to the pool or hang out and then I come back in the afternoon and kind of finish up tidying up things that I need to do in the afternoon. For me, that works out really well and I can't just say to all the people that we have here working on our team, “You have to do the same thing as me.” or “You have to be here at 9:00 to 5:00.” I really don't care. I think that in many respects, as long as work is getting done, if it can be done in 20 minutes or an hour and they can take the rest of the day off, fine, I'm good with that and I think that that mentality is a lot more attractive to people and leads to I think more productivity because what you end up finding is that the people who are most productive, most efficient and most eager to grow and learn and develop rise to the top naturally. It's kind of this self-selection process that you put everybody through. I think it’s just fascinating because where I live in Pennsylvania now with my wife, this area as a whole is really still stuck on this 9:00 to 5:00 I would guess like workers assembly line mode. In fact, many places here because of unions and contracts around working prohibit people from leaving the building one minute before 5:00 o'clock. I mean, they literally have to just sit there locked in a cage, in my opinion until 5:00 o'clock and then they are allowed to leave because God forbid, they would leave one minute before, they could get written up, they could have their contract canceled with the employer. I mean, it's really just a bad… It just feels like it's such a David and Goliath type of situation all the time and that's not what it should be. It should be everyone collectively working together, people choosing to be at that job or not be at that job and employers understanding that it doesn't require just 9:00 to 5:00 to get things done. Sometimes it may require less, sometimes it may require more, but ultimately, I think this whole social agreement on 9:00 to 5:00 is ridiculous and I think it's totally outdated. Feel free to send this to any of your employers or bosses if you want to and I would be happy to argue on your behalf as to why people are actually more productive if you don't give them strict boundaries. Hopefully this helps out. As always, if you guys have any questions, let me know. Until next time, happy trading.

#317 - The "9 To 5" Collective Social Agreement Is Completely Ridiculous

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about the basic business model behind options trading as a professional. Here's the thing. Every business has a definable profit or edge that they are going after and all it comes down to is effectively spread. You can think about every single business, every single possible business out there and what they’re all going after is some conceivable spread between cost and revenue, so somewhere where they can make money as a profit. In case of trading, specifically as options traders and option sellers, what we are going after, our primary advantage is implied volatility and the edge that is derived between the expectation and the actual volatility of underlying prices. We have no discernible edge in market direction, so that’s something that people oftentimes don't understand, is that we’re not trying to go after a directional edge in the market, we’re trying to go after an implied volatility edge in option pricing. Now, fundamental stock investors are trying to go after an edge that is different between market price and the fundamental value of the company. It's no different. They’re just going after it potentially a different way and they're not necessarily going after it all in a directional fashion of like only the stock could go up. Sometimes they might sell stock that is overpriced compared to its fundamental value which could be much lower. That's where most trading happens, is within this edge. Now, I just want to give you some other examples, so that you understand that it's all the same thing. It's all just trying to go after the spread or this edge in many businesses. Now, a service-based business like a painter or homebuilder is trying to go after an edge between the cost of labor and tools and supplies and how much somebody would pay to have their house built or their house painted. It's all the same thing. They’re just trying to go after that spread. In e-commerce, if you're selling towels or chairs or jeans or something online, you’re trying to capture a spread between how much you have to manufacture or buy or build a product and how much you can sell it for in the market. In restaurants, the food and the service and the experience allows you to charge a premium or a spread above and beyond the actual cost or raw ingredients of the food and the actual entertainment or whatever is associated with the restaurant, like the napkins and the silverware. Restaurants are just trying to charge a premium compared to what it actually cost to prepare the meal. In insurance, we see the same thing with policy pricing. Insurance companies will price an insurance policy at a likelihood that you're going to get in a car accident or your house is going to burn down and you’re going to die sooner than it might actually end up happening. That edge in pricing comes from the expectation that you have an event happen sooner than what they know might actually happen in the long run. Casinos do the same thing where they have an odds edge in the game. They have some sort of mechanism in all of the games that gives the casino a slight edge in pricing or a slight edge in the win rate or the payout, something that allows them to create a spread between you and them and allows them to generate a profit long-term. Now, what you can see in all of these things if you really look at all of these disciplines, every type of business out there, is that no business is based on one transaction, no business is based on one particular person making a transaction and then causing a huge profit. It's all based on repetition, selling a lot of homes, selling a lot of chairs or towels if you're in e-commerce, feeding a lot of people if you’re in the restaurant business, writing a lot of insurance policies if you’re in insurance, getting a lot of people to play games if you're in the casino business. It's all based on probabilities and numbers, the expected outcome of what you're trying to go after. And so, please don't think that options trading is any different. It's the same basic business fundamentals and the same basic business model applied to just a different area and all we’re trying to do is go after again, the implied volatility spread and the option pricing differential. Hopefully this helps out in kind of understanding it. Maybe you might even try to explain it to somebody else, maybe a colleague or a family member. It always is a good idea to try to explain some of these topics to them and hopefully reinforce the learning in your own mind. As always, if you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about the basic business model behind options trading as a professional. Here's the thing. Every business has a definable profit or edge that they are going after and all it comes down to is effectively spread. You can think about every single business, every single possible business out there and what they’re all going after is some conceivable spread between cost and revenue, so somewhere where they can make money as a profit. In case of trading, specifically as options traders and option sellers, what we are going after, our primary advantage is implied volatility and the edge that is derived between the expectation and the actual volatility of underlying prices. We have no discernible edge in market direction, so that’s something that people oftentimes don't understand, is that we’re not trying to go after a directional edge in the market, we’re trying to go after an implied volatility edge in option pricing. Now, fundamental stock investors are trying to go after an edge that is different between market price and the fundamental value of the company. It's no different. They’re just going after it potentially a different way and they're not necessarily going after it all in a directional fashion of like only the stock could go up. Sometimes they might sell stock that is overpriced compared to its fundamental value which could be much lower. That's where most trading happens, is within this edge. Now, I just want to give you some other examples, so that you understand that it's all the same thing. It's all just trying to go after the spread or this edge in many businesses. Now, a service-based business like a painter or homebuilder is trying to go after an edge between the cost of labor and tools and supplies and how much somebody would pay to have their house built or their house painted. It's all the same thing. They’re just trying to go after that spread. In e-commerce, if you're selling towels or chairs or jeans or something online, you’re trying to capture a spread between how much you have to manufacture or buy or build a product and how much you can sell it for in the market. In restaurants, the food and the service and the experience allows you to charge a premium or a spread above and beyond the actual cost or raw ingredients of the food and the actual entertainment or whatever is associated with the restaurant, like the napkins and the silverware. Restaurants are just trying to charge a premium compared to what it actually cost to prepare the meal. In insurance, we see the same thing with policy pricing. Insurance companies will price an insurance policy at a likelihood that you're going to get in a car accident or your house is going to burn down and you’re going to die sooner than it might actually end up happening. That edge in pricing comes from the expectation that you have an event happen sooner than what they know might actually happen in the long run. Casinos do the same thing where they have an odds edge in the game. They have some sort of mechanism in all of the games that gives the casino a slight edge in pricing or a slight edge in the win rate or the payout, something that allows them to create a spread between you and them and allows them to generate a profit long-term. Now, what you can see in all of these things if you really look at all of these disciplines, every type of business out there, is that no business is based on one transaction, no business is based on one particular person making a transaction and then causing a huge profit. It's all based on repetition, selling a lot of homes, selling a lot of chairs or towels if you're in e-commerce, feeding a lot of people if you’re in the restaurant business, writing a lot of insurance policies if you’re in insurance, getting a lot of people to play games if you're in the casino business. It's all based on probabilities and numbers, the expected outcome of what you're trying to go after. And so, please don't think that options trading is any different. It's the same basic business fundamentals and the same basic business model applied to just a different area and all we’re trying to do is go after again, the implied volatility spread and the option pricing differential. Hopefully this helps out in kind of understanding it. Maybe you might even try to explain it to somebody else, maybe a colleague or a family member. It always is a good idea to try to explain some of these topics to them and hopefully reinforce the learning in your own mind. As always, if you guys have any questions, let me know and until next time, happy trading.

#393 - The Basic Business Model Behind Options Trading As A Professional

Hey everyone. This is Kirk here again and welcome back to the daily call. Today, we are going to be talking about our TLT rolling trade that took three months to turn a profit. Now, if you want to get a copy of the video version of this which is sent out to our members, the one that was sent out to our pro and elite members when we actually completed the trade and did the analysis visually on a video, you can just search on our YouTube channel, TLT option assignment case study, $700 loser to $96 winner and again, you can get another version of this. But we’re going to be going over it here today in the daily call, the highlights of this trade that we did. The basis of the trade that we did it TLT was just a simple iron butterfly trade in TLT that we entered into back in the beginning, January of 2018. We ended up closing the full position finally for a win, a $96 win after all adjustments back on April 2nd. It was a long trade. It was more than three months basically of holding this position and having to roll it twice through two different expiration cycles before we were able to finally turn a profit. The point of doing this and talking about it and nausea, not only on the YouTube video that we linked up here, but also on the daily call podcast is the concept of rolling for duration and extending the timeline of a trade when possible. This TLT trade, literally from the first day that we entered into it went totally sideways on us. If you go pull up a chart of TLT from January of 2018 to basically April of 2018, you can see in January and then in February, TLT basically tanked and it went down significantly and blew through our strike prices. We really didn't even have a chance in the first expiration month. But as soon as we started reaching that first expiration month at the end of February, we knew that we were able to roll for a total credit, for a net credit because TLT tanked and implied volatility went higher. That’s something that a lot of people don't do. They usually just take the loss and move onto the next trade. They don’t look at adjust. They figure your first loss is your best loss. It’s a common thing that we hear all the time. But I really don't subscribe to that. I think there are a lot of things that you can do with a trade, to roll and extend duration and turn something around from potentially a crappy situation into either a less crappy situation or potentially, a profitable trade. As we got to February expiration, obviously, our position was way in the money, but we were able to roll for a total credit. The reason that that's important is because if we can roll for a credit and not increase our position size, we never added more contracts, we never made our spread width wider, (you can see that on the video when you search it on YouTube) we never did any of that. We basically kept our position size small and all we did was roll for a credit. When you roll for a credit, you reduce risk because if your position size doesn't increase and you’re taking in more money, that means you have less risk if the trade continues to go sideways. My thought on that is always that if I can roll for a credit and reduce risk, why not also give myself another 30 days or so to potentially see the trade turn around because if it doesn't turn around in another 30 days, at least I’ve reduced risk in the process. If TLT stays lower, then at least I’ve reduced the amount of money that I would potentially lose. Well, fast forward to March expiration now, so we rolled the contracts from February to March, we got to March expiration and sure enough, TLT did not move. Again, you pull up a chart of TLT, you saw basically between February and March expiration, TLT traded dead sideways and for us, that was terrible. We still wanted TLT to rally back up to where we had originally sold our first iron butterfly position and it never really did in March. Again, we were able to though, roll our contracts to the April expiration and rolling those contracts again, gave us a net credit. We didn’t increase our position size, didn't increase the spread width. We just simply rolled the contracts from one month to the next and took in a credit, again, reducing risk along the way and giving ourselves another 30 days to potentially see some sort of market cyclicality play out. And sure enough, after we rolled those contracts, about two weeks after we’ve rolled those, the market did rally for bonds shortly before it started tanking again, but we were able to get the position off on a quick rally up in TLT and we closed the whole thing for a net $96 win after all adjustments. The key here with this type of case study and the reason I again, want to talk it about so much is because a lot of people just give in and throw in the towel with trades and that's really the worst thing you can do. You want to be able to roll trades for a credit, extend the duration on trades and have a little bit more patience that market cyclicality is going to come back around. Now, some people said and people always say this every time we post a video like this. “Oh, we just got lucky. Oh, it was just a one-off scenario.” I think I’ve counted before, there are probably 35 different cases, at least 35 different cases where this has happened before to us in the past, most recently in IWM. It happened in OIH. It happened in XLU and XRT and EWZ. It happens all the time. Markets are cyclical. And so, as long as you can give yourself enough time for some sort of cyclicality to come into play and up-and-down movements to happen over time, if you can extend your trading duration and reduce risk in the process, I think you’ll be a better trader overall. In this case, this took one of those huge potential losses and actually turned it around into a winner, so it was another good example of how extending trades and rolling for duration helps break the zero-sum game that most people assume happens with trading. Yes, if we would’ve just let the position expire and took the full loss the first month, that would’ve been totally what happens in a typical zero-sum game. You win a couple of small winners, but then you have a really big loser. But we took this potentially big bad trade and by extending and rolling, we’re able to turn it around into a winning trade. It’s a really cool little case study. Again, you can search for it on YouTube. Just search TLT option assignment case study and you should be able to pull it up. As always, hopefully you guys enjoy these. Until next time, happy trading.

Hey everyone. This is Kirk here again and welcome back to the daily call. Today, we are going to be talking about our TLT rolling trade that took three months to turn a profit. Now, if you want to get a copy of the video version of this which is sent out to our members, the one that was sent out to our pro and elite members when we actually completed the trade and did the analysis visually on a video, you can just search on our YouTube channel, TLT option assignment case study, $700 loser to $96 winner and again, you can get another version of this. But we’re going to be going over it here today in the daily call, the highlights of this trade that we did. The basis of the trade that we did it TLT was just a simple iron butterfly trade in TLT that we entered into back in the beginning, January of 2018. We ended up closing the full position finally for a win, a $96 win after all adjustments back on April 2nd. It was a long trade. It was more than three months basically of holding this position and having to roll it twice through two different expiration cycles before we were able to finally turn a profit. The point of doing this and talking about it and nausea, not only on the YouTube video that we linked up here, but also on the daily call podcast is the concept of rolling for duration and extending the timeline of a trade when possible. This TLT trade, literally from the first day that we entered into it went totally sideways on us. If you go pull up a chart of TLT from January of 2018 to basically April of 2018, you can see in January and then in February, TLT basically tanked and it went down significantly and blew through our strike prices. We really didn't even have a chance in the first expiration month. But as soon as we started reaching that first expiration month at the end of February, we knew that we were able to roll for a total credit, for a net credit because TLT tanked and implied volatility went higher. That’s something that a lot of people don't do. They usually just take the loss and move onto the next trade. They don’t look at adjust. They figure your first loss is your best loss. It’s a common thing that we hear all the time. But I really don't subscribe to that. I think there are a lot of things that you can do with a trade, to roll and extend duration and turn something around from potentially a crappy situation into either a less crappy situation or potentially, a profitable trade. As we got to February expiration, obviously, our position was way in the money, but we were able to roll for a total credit. The reason that that's important is because if we can roll for a credit and not increase our position size, we never added more contracts, we never made our spread width wider, (you can see that on the video when you search it on YouTube) we never did any of that. We basically kept our position size small and all we did was roll for a credit. When you roll for a credit, you reduce risk because if your position size doesn't increase and you’re taking in more money, that means you have less risk if the trade continues to go sideways. My thought on that is always that if I can roll for a credit and reduce risk, why not also give myself another 30 days or so to potentially see the trade turn around because if it doesn't turn around in another 30 days, at least I’ve reduced risk in the process. If TLT stays lower, then at least I’ve reduced the amount of money that I would potentially lose. Well, fast forward to March expiration now, so we rolled the contracts from February to March, we got to March expiration and sure enough, TLT did not move. Again, you pull up a chart of TLT, you saw basically between February and March expiration, TLT traded dead sideways and for us, that was terrible. We still wanted TLT to rally back up to where we had originally sold our first iron butterfly position and it never really did in March. Again, we were able to though, roll our contracts to the April expiration and rolling those contracts again, gave us a net credit. We didn’t increase our position size, didn't increase the spread width. We just simply rolled the contracts from one month to the next and took in a credit, again, reducing risk along the way and giving ourselves another 30 days to potentially see some sort of market cyclicality play out. And sure enough, after we rolled those contracts, about two weeks after we’ve rolled those, the market did rally for bonds shortly before it started tanking again, but we were able to get the position off on a quick rally up in TLT and we closed the whole thing for a net $96 win after all adjustments. The key here with this type of case study and the reason I again, want to talk it about so much is because a lot of people just give in and throw in the towel with trades and that's really the worst thing you can do. You want to be able to roll trades for a credit, extend the duration on trades and have a little bit more patience that market cyclicality is going to come back around. Now, some people said and people always say this every time we post a video like this. “Oh, we just got lucky. Oh, it was just a one-off scenario.” I think I’ve counted before, there are probably 35 different cases, at least 35 different cases where this has happened before to us in the past, most recently in IWM. It happened in OIH. It happened in XLU and XRT and EWZ. It happens all the time. Markets are cyclical. And so, as long as you can give yourself enough time for some sort of cyclicality to come into play and up-and-down movements to happen over time, if you can extend your trading duration and reduce risk in the process, I think you’ll be a better trader overall. In this case, this took one of those huge potential losses and actually turned it around into a winner, so it was another good example of how extending trades and rolling for duration helps break the zero-sum game that most people assume happens with trading. Yes, if we would’ve just let the position expire and took the full loss the first month, that would’ve been totally what happens in a typical zero-sum game. You win a couple of small winners, but then you have a really big loser. But we took this potentially big bad trade and by extending and rolling, we’re able to turn it around into a winning trade. It’s a really cool little case study. Again, you can search for it on YouTube. Just search TLT option assignment case study and you should be able to pull it up. As always, hopefully you guys enjoy these. Until next time, happy trading.

#236 - This TLT Rolling Trade Took 3 Months To Turn A Profit

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, I’m going to talk about how I became an options trader and just a little bit of my path and journey basically since I graduated college and what I started doing and how I took this path and becoming now a full-time options trader for over 10 years. I originally started in college as a finance major. I’ve always been a finance major in college. And when I graduated from the University of Virginia, I decided that I wanted to be an investment banker. Now, all full disclosure, looking back on it now, everybody in my class decided they wanted to be an investment banker or a hedge fund analyst or an equities trader. I mean, it was literally the only thing that you did. I mean, if you said you did anything else, it was kind of looked down upon to some degree that you are deciding to take a different path. All of my friends were getting interviews in New York and going back and forth to New York to become investment bankers or work on Wall Street. Naturally, I thought, “Well, yeah. This is what I want to do.” I love numbers, I love math, I love the markets. I’ve always had a love for understanding business and finance and so, I thought to myself, “Well, yeah, of course. This is what everybody wants to do, is work on Wall Street and become an investment banker.” I eventually got a job, an internship and job at Deutsche Bank and worked at Deutsche Bank for a while which was right on 60 Wall Street. In fact, I still think that the company is still there, although I think their stock has been tanking over the last couple of years. But it was a great place and I really enjoyed my time there. I think the people there were great. I learned a ton and I was in the mergers and acquisitions group which is one of the probably better groups that you can be in because you see a lot of stuff. It's on the private side of the Chinese wall, so you have very much private information, companies that are coming together that the market doesn’t know about, people are talking secretly, they’re trying to merge with each other or buy each other out and it’s just a really fascinating time to be part of this and this was all well before the markets kind of collapsed. Things were going crazy. There was leverage buyouts all over the place, but again, very, very fascinating. What I absolutely hated about that job, however, was the hours and time commitment and trajectory of my life at that point. I originally saw one of my managing directors come in one weekend, obviously coming in on the weekend which is not something I thought should be really kind of the norm for some guy who was leading this group. But he came in on the weekend and worked pretty much all day. We were in there on the weekend all the time. I mean, it was kind of a social norm to come in at 6:00 and don’t leave until midnight, basically. And he called his kids and tucked them into bed on the phone and I remember asking him, saying, “How many nights do you see your kids?” And he said, “Maybe two nights a week, I see my kids.” And he spent most of his time actually in the city. He would rent a hotel. The company would pay for him to stay in a hotel a couple of blocks away, so that when he left the city and went to New Jersey for a day or two, that's when he would see this kids and I thought to myself like, “That is absolutely the worst possible thing in the world. I couldn’t even imagine even at that point that’d be my life trajectory, working so hard every single day and that's the type of success level that I reach.” All else being said, I learned a lot being at Deutsche Bank, got an opportunity to do a rotation on the derivatives trading desk. Now, what I loved about Deutsche Bank unlike maybe some of the other banks out there is that they actually, I think to some degree like wanted you to kind of move around and find your own fit. And so, when I had a chance to move over and do a rotation on trading desk, that’s where I really learned a little bit and kind of got my feet really wet in understanding how the markets worked and how an institutional bank like Deutsche Bank saw the equity markets, saw the derivatives market and saw options trading in general from the institutional side. And even though I was there for a short amount of time and kind of rotating around to different groups, I really, really got sucked into that. I mean, that's really what I consider to be my official start. I mean, I learned about options trading and calculated Black Scholes models by hand in college, but from an understanding and just like watching and witnessing how they thought about markets and expected value and pricing and position sizing, how they thought about all of that stuff was really, really interesting to me. Following that, I left New York and moved back to DC. At that time, I was dating my wife. Well, now wife and mother of three kids, but fiancé, girlfriend at the time. I had an opportunity to work as a REIT analyst for a capital markets bank, regional bank outside of DC. Again, really good opportunity, I want to try something different. I wanted to be on the other side of the Chinese wall, if you will, so I wanted to be on the public side. In mergers and acquisitions, I was on the private side, so I couldn’t say anything to anybody. On the other side, I was a REIT analyst, so I could ask questions, I could dive deeper, I could try to understand how these REITs were operating, how their business model was structured, how they thought about capital and how they thought about allocating resources. It was really, really interesting and still why I really like real estate and REITs even to this day. I just understand and love that business as well. But even during that time period, I realized that this is still not something I want to do. It always seemed like I was just chasing this proverbial tail or it’s just always just updating models and improving systems and trying to figure out what the growth rates were and even though we have no idea where companies are going to be in the future and we don't know how fast technology is evolving. I mean, it was just this constant like cat and dog chasing each other around. The company would say one thing. How does that change our model? The industry published a new growth expectation. How does that change our model? I mean, it was just this constant bereavement that I just really, really hated and seemed like it served really no value to the outside world, nor to myself really. I left that business and decided to them start trading at home at that point and thankfully, my wife was able to help facilitate this. She was a teacher and so, she was able to support us as we started trading at home. But you know, when I went home and started trading and as many of you guys know, it was not like a very easy journey. I mean, in fact, the first week, I lost a couple of thousand dollars and I remember my wife saying like, “If that's going to be how it’s going to be, you better start polishing up that resume.” But I started doing basically what everyone else was doing at that time and very, very quickly learned how not to do things and that's okay and I kind of moved past those. I tried day trading. That didn’t work. I tried Forex trading. That definitely didn't work. I tried futures trading. That didn’t work. I tried swing trading and using chart patterns and drawing lines all over the place. I looked like I was a 13-year-old kid drawing colors on charts. I mean, it was crazy. And I quickly learned and kind refocused my attention back onto options trading. I kind of sat down after a couple of weeks and said, “Look. None of this crap is working. What works?” And then that's where I really started to dig in and what I believe to be the very start of a very long journey that I'm still on now in understanding exactly how the options market works. At that time, when I started digging down, I said, “Okay. What are the numbers? What can I really hang my hat on as far as the math behind trading? What can I use as far as a system that can produce predictable results or some sort of model or template that I can use?” And that really started my journey into understanding the options market in all facets. And what we started doing even a couple of years ago with our Signals and profit matrix research, to our back-testing software, to our upcoming auto-trading software has all been in an attempt to basically from that day forward, understand more and solidify more how the options market works. It's been for me a very, very long journey, but a very fulfilling journey because it's a labor of love. I truly love trying to figure out the markets, trying to improve even incrementally how we’re doing things and understanding the psychology all around it. I would say that my start in becoming an options trader got started many, many years ago, over 10 years ago now, but the process and journey has been a constant improvement. I mean, it really has. I consider myself to be not yet fully there and I don't think I will ever be there to like consider myself to be a great trader. I think there's always room for improvement and I’m always looking for the next iteration, the next edge, the next thing I can change or tweak or adapt to make myself a little bit better. Hopefully that helps out. I’d love to hear your guys’ story if you do have a story of how you got started in trading options. I know it’s probably always a little bit different, but seriously, I really want to hear this, so please shoot me an email, post on Facebook, on Twitter, LinkedIn, YouTube, wherever you follow us online. I’d love to know your story of how you came to the markets, how they found you, how you found the markets, kind of that serendipitous love story between you and options trading and please share it with us. As always, hopefully you guys enjoyed this and until next time, happy trading.

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, I’m going to talk about how I became an options trader and just a little bit of my path and journey basically since I graduated college and what I started doing and how I took this path and becoming now a full-time options trader for over 10 years. I originally started in college as a finance major. I’ve always been a finance major in college. And when I graduated from the University of Virginia, I decided that I wanted to be an investment banker. Now, all full disclosure, looking back on it now, everybody in my class decided they wanted to be an investment banker or a hedge fund analyst or an equities trader. I mean, it was literally the only thing that you did. I mean, if you said you did anything else, it was kind of looked down upon to some degree that you are deciding to take a different path. All of my friends were getting interviews in New York and going back and forth to New York to become investment bankers or work on Wall Street. Naturally, I thought, “Well, yeah. This is what I want to do.” I love numbers, I love math, I love the markets. I’ve always had a love for understanding business and finance and so, I thought to myself, “Well, yeah, of course. This is what everybody wants to do, is work on Wall Street and become an investment banker.” I eventually got a job, an internship and job at Deutsche Bank and worked at Deutsche Bank for a while which was right on 60 Wall Street. In fact, I still think that the company is still there, although I think their stock has been tanking over the last couple of years. But it was a great place and I really enjoyed my time there. I think the people there were great. I learned a ton and I was in the mergers and acquisitions group which is one of the probably better groups that you can be in because you see a lot of stuff. It's on the private side of the Chinese wall, so you have very much private information, companies that are coming together that the market doesn’t know about, people are talking secretly, they’re trying to merge with each other or buy each other out and it’s just a really fascinating time to be part of this and this was all well before the markets kind of collapsed. Things were going crazy. There was leverage buyouts all over the place, but again, very, very fascinating. What I absolutely hated about that job, however, was the hours and time commitment and trajectory of my life at that point. I originally saw one of my managing directors come in one weekend, obviously coming in on the weekend which is not something I thought should be really kind of the norm for some guy who was leading this group. But he came in on the weekend and worked pretty much all day. We were in there on the weekend all the time. I mean, it was kind of a social norm to come in at 6:00 and don’t leave until midnight, basically. And he called his kids and tucked them into bed on the phone and I remember asking him, saying, “How many nights do you see your kids?” And he said, “Maybe two nights a week, I see my kids.” And he spent most of his time actually in the city. He would rent a hotel. The company would pay for him to stay in a hotel a couple of blocks away, so that when he left the city and went to New Jersey for a day or two, that's when he would see this kids and I thought to myself like, “That is absolutely the worst possible thing in the world. I couldn’t even imagine even at that point that’d be my life trajectory, working so hard every single day and that's the type of success level that I reach.” All else being said, I learned a lot being at Deutsche Bank, got an opportunity to do a rotation on the derivatives trading desk. Now, what I loved about Deutsche Bank unlike maybe some of the other banks out there is that they actually, I think to some degree like wanted you to kind of move around and find your own fit. And so, when I had a chance to move over and do a rotation on trading desk, that’s where I really learned a little bit and kind of got my feet really wet in understanding how the markets worked and how an institutional bank like Deutsche Bank saw the equity markets, saw the derivatives market and saw options trading in general from the institutional side. And even though I was there for a short amount of time and kind of rotating around to different groups, I really, really got sucked into that. I mean, that's really what I consider to be my official start. I mean, I learned about options trading and calculated Black Scholes models by hand in college, but from an understanding and just like watching and witnessing how they thought about markets and expected value and pricing and position sizing, how they thought about all of that stuff was really, really interesting to me. Following that, I left New York and moved back to DC. At that time, I was dating my wife. Well, now wife and mother of three kids, but fiancé, girlfriend at the time. I had an opportunity to work as a REIT analyst for a capital markets bank, regional bank outside of DC. Again, really good opportunity, I want to try something different. I wanted to be on the other side of the Chinese wall, if you will, so I wanted to be on the public side. In mergers and acquisitions, I was on the private side, so I couldn’t say anything to anybody. On the other side, I was a REIT analyst, so I could ask questions, I could dive deeper, I could try to understand how these REITs were operating, how their business model was structured, how they thought about capital and how they thought about allocating resources. It was really, really interesting and still why I really like real estate and REITs even to this day. I just understand and love that business as well. But even during that time period, I realized that this is still not something I want to do. It always seemed like I was just chasing this proverbial tail or it’s just always just updating models and improving systems and trying to figure out what the growth rates were and even though we have no idea where companies are going to be in the future and we don't know how fast technology is evolving. I mean, it was just this constant like cat and dog chasing each other around. The company would say one thing. How does that change our model? The industry published a new growth expectation. How does that change our model? I mean, it was just this constant bereavement that I just really, really hated and seemed like it served really no value to the outside world, nor to myself really. I left that business and decided to them start trading at home at that point and thankfully, my wife was able to help facilitate this. She was a teacher and so, she was able to support us as we started trading at home. But you know, when I went home and started trading and as many of you guys know, it was not like a very easy journey. I mean, in fact, the first week, I lost a couple of thousand dollars and I remember my wife saying like, “If that's going to be how it’s going to be, you better start polishing up that resume.” But I started doing basically what everyone else was doing at that time and very, very quickly learned how not to do things and that's okay and I kind of moved past those. I tried day trading. That didn’t work. I tried Forex trading. That definitely didn't work. I tried futures trading. That didn’t work. I tried swing trading and using chart patterns and drawing lines all over the place. I looked like I was a 13-year-old kid drawing colors on charts. I mean, it was crazy. And I quickly learned and kind refocused my attention back onto options trading. I kind of sat down after a couple of weeks and said, “Look. None of this crap is working. What works?” And then that's where I really started to dig in and what I believe to be the very start of a very long journey that I'm still on now in understanding exactly how the options market works. At that time, when I started digging down, I said, “Okay. What are the numbers? What can I really hang my hat on as far as the math behind trading? What can I use as far as a system that can produce predictable results or some sort of model or template that I can use?” And that really started my journey into understanding the options market in all facets. And what we started doing even a couple of years ago with our Signals and profit matrix research, to our back-testing software, to our upcoming auto-trading software has all been in an attempt to basically from that day forward, understand more and solidify more how the options market works. It's been for me a very, very long journey, but a very fulfilling journey because it's a labor of love. I truly love trying to figure out the markets, trying to improve even incrementally how we’re doing things and understanding the psychology all around it. I would say that my start in becoming an options trader got started many, many years ago, over 10 years ago now, but the process and journey has been a constant improvement. I mean, it really has. I consider myself to be not yet fully there and I don't think I will ever be there to like consider myself to be a great trader. I think there's always room for improvement and I’m always looking for the next iteration, the next edge, the next thing I can change or tweak or adapt to make myself a little bit better. Hopefully that helps out. I’d love to hear your guys’ story if you do have a story of how you got started in trading options. I know it’s probably always a little bit different, but seriously, I really want to hear this, so please shoot me an email, post on Facebook, on Twitter, LinkedIn, YouTube, wherever you follow us online. I’d love to know your story of how you came to the markets, how they found you, how you found the markets, kind of that serendipitous love story between you and options trading and please share it with us. As always, hopefully you guys enjoyed this and until next time, happy trading.

#279 - How I Became An Options Trader

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I want to go through the snowball strategy for increasing your wealth. Today’s question actually comes from one of our community members inside Facebook. They asked the following questions, so I’ll read it first and then we’ll talk through it together. They said, “How to generate the snowball effect?” They said, “If you have a $5,000 to $10,000 account size, what steps are required to increase the account on a consistent basis? Example: Do we reduce or kill debt? Do we reduce or kill monthly allocation of capital? Do we trade as much of the account as possible? Do we pick proper strategies, we don't withdraw money, try to collect extra money, etcetera? I’d like to trade every day, but the account size won't let me do it, specifically if I follow any of your recommendations to have between 40% and 50% in cash.” They said, “If you could help me with this topic, it would be great. Thanks.” First of all, I think the concept of snowballing your wealth is an important one. And when you think about a snowball which is the perfect analogy for this, you start with this very small snowball and you just continue to roll it and it starts to gain momentum and speed and size as it goes down the hill, hopefully. And so, what I think most people have to understand is that you can't remove pieces from that snowball. If I was to start over all over again and continue to snowball my wealth, I would try even harder than I did initially to not remove or draw from that initial pot of capital. When you start even with a small amount of money, say $5,000 or $10,000, you want to use that capital to grow additional capital. And money cannot magically appear once it’s removed from the account. If you start withdrawing on that money or you start taking distributions on that money too early, you basically are crippling it from the ability to grow and increase in size. The second thing you have to understand about snowballing your wealth, in my opinion, is that it’s all tied to a positive expected outcome scenario. And so, even though in the way that I trade options, I keep a lot of cash on hand, we’re using the leverage that's embodied in an options contract to gain an outsized return on a smaller portion of our account and that cash is there as a cushion, so that we don't blow ourselves up or run out of capital to increase our trading capacity. And so, when you deal with a system like options trading in which you’re using leverage, you need to make sure that you have a positive expected outcome in whatever trading strategy you’re using because if you have a positive expected outcome, you know that that positive expected outcome is going to work eventually, you just don't know what the sequence of returns are going to be on the road to getting there. It's very similar, just in the opposite way to running a casino. If I ran a casino and if I was the casino manager and everyone came in to place their trades and their bets and I was the one basically selling bets as a casino, then I know I have an edge built into every single game that's in my casino. I know that there's a positive expected outcome for all of these games. Now, I don't know what sequence of returns I’m going to have as the casino manager. Somebody could come in and they can literally hit jackpot the first coin that gets dropped into a machine. And does that mean that the system is broken and that the machine is broken and the whole casino is going to fall over and fall under? No. But it does mean that I might have to wait a little bit longer for more people to play and for more bets to be placed before I see my edge start to materialize. The best advice I could give somebody that wants to increase their wealth, snowball their capital account is just to give it time and don't draw from it. Work the system. Find a positive expected outcome strategy. You can do this through our back-tester. You can read research. There's other people who’ve put out research about it as well. Find a strategy that has a positive expected outcome and then give it enough time to actually work. Making 10 trades is not going to give it enough time to potentially see success. Making 20 trades may not be enough. 100 trades may not be enough. But if you have a positive expected outcome, you know your strategy is going to work, it's just a matter of time and patience. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I want to go through the snowball strategy for increasing your wealth. Today’s question actually comes from one of our community members inside Facebook. They asked the following questions, so I’ll read it first and then we’ll talk through it together. They said, “How to generate the snowball effect?” They said, “If you have a $5,000 to $10,000 account size, what steps are required to increase the account on a consistent basis? Example: Do we reduce or kill debt? Do we reduce or kill monthly allocation of capital? Do we trade as much of the account as possible? Do we pick proper strategies, we don't withdraw money, try to collect extra money, etcetera? I’d like to trade every day, but the account size won't let me do it, specifically if I follow any of your recommendations to have between 40% and 50% in cash.” They said, “If you could help me with this topic, it would be great. Thanks.” First of all, I think the concept of snowballing your wealth is an important one. And when you think about a snowball which is the perfect analogy for this, you start with this very small snowball and you just continue to roll it and it starts to gain momentum and speed and size as it goes down the hill, hopefully. And so, what I think most people have to understand is that you can't remove pieces from that snowball. If I was to start over all over again and continue to snowball my wealth, I would try even harder than I did initially to not remove or draw from that initial pot of capital. When you start even with a small amount of money, say $5,000 or $10,000, you want to use that capital to grow additional capital. And money cannot magically appear once it’s removed from the account. If you start withdrawing on that money or you start taking distributions on that money too early, you basically are crippling it from the ability to grow and increase in size. The second thing you have to understand about snowballing your wealth, in my opinion, is that it’s all tied to a positive expected outcome scenario. And so, even though in the way that I trade options, I keep a lot of cash on hand, we’re using the leverage that's embodied in an options contract to gain an outsized return on a smaller portion of our account and that cash is there as a cushion, so that we don't blow ourselves up or run out of capital to increase our trading capacity. And so, when you deal with a system like options trading in which you’re using leverage, you need to make sure that you have a positive expected outcome in whatever trading strategy you’re using because if you have a positive expected outcome, you know that that positive expected outcome is going to work eventually, you just don't know what the sequence of returns are going to be on the road to getting there. It's very similar, just in the opposite way to running a casino. If I ran a casino and if I was the casino manager and everyone came in to place their trades and their bets and I was the one basically selling bets as a casino, then I know I have an edge built into every single game that's in my casino. I know that there's a positive expected outcome for all of these games. Now, I don't know what sequence of returns I’m going to have as the casino manager. Somebody could come in and they can literally hit jackpot the first coin that gets dropped into a machine. And does that mean that the system is broken and that the machine is broken and the whole casino is going to fall over and fall under? No. But it does mean that I might have to wait a little bit longer for more people to play and for more bets to be placed before I see my edge start to materialize. The best advice I could give somebody that wants to increase their wealth, snowball their capital account is just to give it time and don't draw from it. Work the system. Find a positive expected outcome strategy. You can do this through our back-tester. You can read research. There's other people who’ve put out research about it as well. Find a strategy that has a positive expected outcome and then give it enough time to actually work. Making 10 trades is not going to give it enough time to potentially see success. Making 20 trades may not be enough. 100 trades may not be enough. But if you have a positive expected outcome, you know your strategy is going to work, it's just a matter of time and patience. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#556 - The "Snowball" Strategy For Increasing Your Wealth

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to be talking about why I’ve traded a lot more iron butterflies during low IV markets. This is always one for people who are new to Option Alpha. It’s a little bit of a confusing concept because we see low implied volatility which we’re generally and most of the time, although we had some high volatility spikes here in March and in February which were good and good trading opportunities, but most of the time, we’re in low volatility. Why have I started trading a lot more iron butterflies? I think there's a couple of reasons why and I want to go through this in the podcast just to help share what we've been doing. The first thing is when we go back and we look at research on what works just generally using our profit matrix research which you guys can all get to at optionalpha.com/profit. But when we go back and look at back-tested option strategies, we’d know that in low implied volatility environments, option selling still works. It’s just as simple as that. Option selling still generates nice expected returns, profitable trading strategies, but the key is finding premium. I think it’s really what it comes down to. One of the better strategies that we found in low volatility was a variation of either a straddle or a wide strangle. Wide strangles, although I love to trade them in low volatility, like really wide iron condors, basically, you just don't get enough premium to do them in low volatility, especially on some of the lower ETF values. If there's an ETF under $50, selling an iron condor during low implied volatility might generate say $30. It's not a lot of money per contract, per spread and it’s a lot of commission to do that. Now, we have to start thinking to ourselves, “Okay. Well, if we know that we still need to be selling options, how do we replicate to some degree, a strangle type payoff diagram where you have wide breakeven points without doing an iron condor that doesn't make any money or basically doesn't collect enough premium to do it?” The way that we that is by doing a very wide straddle and using a synthetic iron butterfly. The inside of an iron butterfly is basically a straddle. You’re selling at the money options. During low implied volatility, at the money option contracts still have significant amounts of value. In some cases, a couple of dollars worth of value. Now, we start selling these at the money straddles and then because implied volatility is so low, what we have the ability to do is buy wings on these straddles very far out or in some cases, actually not that far out for very cheap amounts or very cheap premiums. One example of this just to use a very standard example which helps out is let’s say that the stock is trading at $100. We might sell the 100 strike put, 100 strike call, basically the at the money straddle and collect say $6 of premiums. Now, our breakeven points are $6 out on either end. Now, even though we were selling at the money strikes, because of the premium that we collected which was $6, now our real breakeven points are 94 on the bottom side and 106 on the top side. Now, it actually replicates to some degree, a strangle or an iron condor type breakeven points, like those further out breakeven points. And even though we sold the at the money straddle at 100, we now maybe able to buy say the 95 puts and the 110 calls or something around there, something further out on either end for very, very cheap premium. Say we bought these options for say $.8 or $.10, so basically $20 we give up of our entire premium. That's really the case. In low volatility, it does not cost a lot of money to buy these further out legs. Even though we collected a $6 credit, so $600 of notional value, it might cost us $20 to buy these further out legs for protection and basically to reduce margin, but if we’re still taking in say $580, it's worth it to pay the $20 or $30 or $40 in some cases to buy all of the legs on the outside to give ourselves defined risk, so that if volatility does spike, we’re not caught basically holding a bag of positions that have undefined risk with a lot of huge spike in volatility, etcetera. That’s why we’re starting to do a lot of iron butterflies. It mimics a lot of the strangle, iron condor type breakeven points while giving us the ability to collect enough premium to make the trading worth it and we’re using those out of the money options as protection against black swan type of events, market spikes of volatility and it's really, really cheap. Because implied volatility is so low, those out of the money options are very, very cheap. You don't have to go that far out of the money to buy those and they end up becoming very, very cheap insurance. This worked out very, very well during the recent move down that the market had back in February because we were under-allocated, we kept our allocation size small, kept our overall allocations down and we had a lot of iron butterflies on, so we could afford to wait for the market to bounce before we took a lot of these things off because we had that protection in place and it was very, very cheap. In some cases, we paid $4 or $5 for some of these protections and these out of the money options on the long side. And yes, they were far out when we entered them, but then, when the market started to mini-crash, those really gave us a lot of protection for margin and allowed us to then scale into some of the higher probability, higher payoff trades during high implied volatility. I think they work really well during this environment. We’re going to be setting up as we release our auto-trading software. We’re going to be setting up some of these iron butterfly auto-trading bots that you guys will be able to use and clone over and that’ll help honestly me in just setting up this low volatility strategy on a consistent basis. As always, hopefully this helps out. Until next time, happy trading!

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to be talking about why I’ve traded a lot more iron butterflies during low IV markets. This is always one for people who are new to Option Alpha. It’s a little bit of a confusing concept because we see low implied volatility which we’re generally and most of the time, although we had some high volatility spikes here in March and in February which were good and good trading opportunities, but most of the time, we’re in low volatility. Why have I started trading a lot more iron butterflies? I think there's a couple of reasons why and I want to go through this in the podcast just to help share what we've been doing. The first thing is when we go back and we look at research on what works just generally using our profit matrix research which you guys can all get to at <a href="http://optionalpha.com/profit" rel="nofollow" target="_blank">optionalpha.com/profit</a>. But when we go back and look at back-tested option strategies, we’d know that in low implied volatility environments, option selling still works. It’s just as simple as that. Option selling still generates nice expected returns, profitable trading strategies, but the key is finding premium. I think it’s really what it comes down to. One of the better strategies that we found in low volatility was a variation of either a straddle or a wide strangle. Wide strangles, although I love to trade them in low volatility, like really wide iron condors, basically, you just don't get enough premium to do them in low volatility, especially on some of the lower ETF values. If there's an ETF under $50, selling an iron condor during low implied volatility might generate say $30. It's not a lot of money per contract, per spread and it’s a lot of commission to do that. Now, we have to start thinking to ourselves, “Okay. Well, if we know that we still need to be selling options, how do we replicate to some degree, a strangle type payoff diagram where you have wide breakeven points without doing an iron condor that doesn't make any money or basically doesn't collect enough premium to do it?” The way that we that is by doing a very wide straddle and using a synthetic iron butterfly. The inside of an iron butterfly is basically a straddle. You’re selling at the money options. During low implied volatility, at the money option contracts still have significant amounts of value. In some cases, a couple of dollars worth of value. Now, we start selling these at the money straddles and then because implied volatility is so low, what we have the ability to do is buy wings on these straddles very far out or in some cases, actually not that far out for very cheap amounts or very cheap premiums. One example of this just to use a very standard example which helps out is let’s say that the stock is trading at $100. We might sell the 100 strike put, 100 strike call, basically the at the money straddle and collect say $6 of premiums. Now, our breakeven points are $6 out on either end. Now, even though we were selling at the money strikes, because of the premium that we collected which was $6, now our real breakeven points are 94 on the bottom side and 106 on the top side. Now, it actually replicates to some degree, a strangle or an iron condor type breakeven points, like those further out breakeven points. And even though we sold the at the money straddle at 100, we now maybe able to buy say the 95 puts and the 110 calls or something around there, something further out on either end for very, very cheap premium. Say we bought these options for say $.8 or $.10, so basically $20 we give up of our entire premium. That's really the case. In low volatility, it does not cost a lot of money to buy these further out legs. Even though we collected a $6 credit, so $600 of notional value, it might cost us $20 to buy these further out legs for protection and basically to reduce margin, but if we’re still taking in say $580, it's worth it to pay the $20 or $30 or $40 in some cases to buy all of the legs on the outside to give ourselves defined risk, so that if volatility does spike, we’re not caught basically holding a bag of positions that have undefined risk with a lot of huge spike in volatility, etcetera. That’s why we’re starting to do a lot of iron butterflies. It mimics a lot of the strangle, iron condor type breakeven points while giving us the ability to collect enough premium to make the trading worth it and we’re using those out of the money options as protection against black swan type of events, market spikes of volatility and it's really, really cheap. Because implied volatility is so low, those out of the money options are very, very cheap. You don't have to go that far out of the money to buy those and they end up becoming very, very cheap insurance. This worked out very, very well during the recent move down that the market had back in February because we were under-allocated, we kept our allocation size small, kept our overall allocations down and we had a lot of iron butterflies on, so we could afford to wait for the market to bounce before we took a lot of these things off because we had that protection in place and it was very, very cheap. In some cases, we paid $4 or $5 for some of these protections and these out of the money options on the long side. And yes, they were far out when we entered them, but then, when the market started to mini-crash, those really gave us a lot of protection for margin and allowed us to then scale into some of the higher probability, higher payoff trades during high implied volatility. I think they work really well during this environment. We’re going to be setting up as we release our auto-trading software. We’re going to be setting up some of these iron butterfly auto-trading bots that you guys will be able to use and clone over and that’ll help honestly me in just setting up this low volatility strategy on a consistent basis. As always, hopefully this helps out. Until next time, happy trading!

#172 - Why I've Traded A Lot More Iron Butterflies During Low IV Markets

Hey everyone. This is Kirk here again and welcome back to the daily call. Today, we are going to be talking about the difference between being broke and staying broke. This one's an interesting one for me because although I don't publicly talk about this all the time, I have very strong opinions about people's perception of money and wealth. Again, I'm a student of the game if you will. I read and I study and I love thinking about finance and thinking about wealth and returns. It’s just how my brain is wired. I'm just weird like that. But I have a really strong opinion about it because I've seen two different areas or many areas I guess in my short time on this earth and hopefully, I think those themes are going to present itself over time in where I live and the people that I interact with. I think there's a true difference between people who choose to be broke, that being broke at a certain time or a certain moment in their life and there's people who choose to stay broke and I think there's a difference between that. I think being broke is just having no money. That's really what it is. If you're broke and you don't have any money because of whatever circumstances, you’re just getting out of college, had a debt, a job that went bad, that's one thing. That doesn't define who you are. Not having money at any particular time doesn't make you a bad person. But if you choose to stay broke and not do anything about it and not improve your circumstances, then it's your own fault. I got a problem with that. I have a problem with people who choose to stay broke and then choose to either harass or try to take money from other people, try to feel down on themselves, try to feel like they're the victim. Everybody in this world has had something happen to them. I've had different experiences and you’ve had, but ultimately, we all have generally the same opportunities. Now, I get it. Some people grow up in different areas or different races or ethnicities and that may put them one step back or one step forward in many cases. But we all have an opportunity to do something different and if you choose to stay where you are right now, that’s your own choice. Don't push that on me and don't cry to me or cry to anybody else about the choices you make. You can either be broke for a moment in time which is just a moment in time where you don't have money or you had a downturn in your account or you had a job that you lost or you can choose to move past that and start increasing your wealth, start learning how to trade options or invest or manage your finances better, budgeting, whatever the cases is. I think there is a difference between being broke and staying broke. Now, for full disclosure, when me and my wife got married and when we were engaged, we were pretty much broke. This was over 10 years ago now. We were broke. When I proposed to my wife, I really didn't have that much money. At that time, I was basically living in New York and then I moved to DC and both of those cities are terribly expensive to live in, so I always say saving money in New York or DC is like holding water in your hands. It's just not going to happen. It’s just gone and slips through your hands even though you want to hold so much of it as possible. But at that time, I consider myself broke. I had a little bit of money saved, but I didn’t have a lot of money saved. And so, that's where I started my journey in understanding really markets and wealth generation and income streams, all of this stuff that led me to where I am now. But that was a choice at that point. I don't consider myself to be somebody who was looking at other people and saying I'm mad at you or I’m mad at this group of people or this political class or whatever it is for where I’m at. It was only my doing. It was where I was raised and what I was doing and what path I chose to take. I could choose to take a different path. Again, I don’t know where I’d end this, but I know that there is a difference between just being broke for a moment in time and staying broke is a choice. If you choose to stay broke, that’s your choice. If you choose to do something else with your life, that’s your choice as well. Alright, hopefully this helps out as always. Until next, time happy!

Hey everyone. This is Kirk here again and welcome back to the daily call. Today, we are going to be talking about the difference between being broke and staying broke. This one's an interesting one for me because although I don't publicly talk about this all the time, I have very strong opinions about people's perception of money and wealth. Again, I'm a student of the game if you will. I read and I study and I love thinking about finance and thinking about wealth and returns. It’s just how my brain is wired. I'm just weird like that. But I have a really strong opinion about it because I've seen two different areas or many areas I guess in my short time on this earth and hopefully, I think those themes are going to present itself over time in where I live and the people that I interact with. I think there's a true difference between people who choose to be broke, that being broke at a certain time or a certain moment in their life and there's people who choose to stay broke and I think there's a difference between that. I think being broke is just having no money. That's really what it is. If you're broke and you don't have any money because of whatever circumstances, you’re just getting out of college, had a debt, a job that went bad, that's one thing. That doesn't define who you are. Not having money at any particular time doesn't make you a bad person. But if you choose to stay broke and not do anything about it and not improve your circumstances, then it's your own fault. I got a problem with that. I have a problem with people who choose to stay broke and then choose to either harass or try to take money from other people, try to feel down on themselves, try to feel like they're the victim. Everybody in this world has had something happen to them. I've had different experiences and you’ve had, but ultimately, we all have generally the same opportunities. Now, I get it. Some people grow up in different areas or different races or ethnicities and that may put them one step back or one step forward in many cases. But we all have an opportunity to do something different and if you choose to stay where you are right now, that’s your own choice. Don't push that on me and don't cry to me or cry to anybody else about the choices you make. You can either be broke for a moment in time which is just a moment in time where you don't have money or you had a downturn in your account or you had a job that you lost or you can choose to move past that and start increasing your wealth, start learning how to trade options or invest or manage your finances better, budgeting, whatever the cases is. I think there is a difference between being broke and staying broke. Now, for full disclosure, when me and my wife got married and when we were engaged, we were pretty much broke. This was over 10 years ago now. We were broke. When I proposed to my wife, I really didn't have that much money. At that time, I was basically living in New York and then I moved to DC and both of those cities are terribly expensive to live in, so I always say saving money in New York or DC is like holding water in your hands. It's just not going to happen. It’s just gone and slips through your hands even though you want to hold so much of it as possible. But at that time, I consider myself broke. I had a little bit of money saved, but I didn’t have a lot of money saved. And so, that's where I started my journey in understanding really markets and wealth generation and income streams, all of this stuff that led me to where I am now. But that was a choice at that point. I don't consider myself to be somebody who was looking at other people and saying I'm mad at you or I’m mad at this group of people or this political class or whatever it is for where I’m at. It was only my doing. It was where I was raised and what I was doing and what path I chose to take. I could choose to take a different path. Again, I don’t know where I’d end this, but I know that there is a difference between just being broke for a moment in time and staying broke is a choice. If you choose to stay broke, that’s your choice. If you choose to do something else with your life, that’s your choice as well. Alright, hopefully this helps out as always. Until next, time happy!

#185 - Being Broke vs. Staying Broke

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