The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

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 for options traders, this one thing is the gift that keeps on giving. And so, again, welcome back and happy holidays for those of you guys who are celebrating the holidays during this time. And so, I want to talk about gifts because it's around that kind of Christmas season. And so, for options traders, I was wondering what is the gift that options trading gives us and I the gift that options trading gives us that nobody can ever take away from us is the future and what I mean by that is not some mushy stuff about – “Oh, the future’s bright, the future’s this.” I’m talking about the expectation of the future and the fact that the future is unknowable. And so, for options traders and particularly option sellers, the fact that the future is unknowable is truly the best gift for an options trading system, especially an option selling system because we know and we can prove that i

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, “Is there any validity to “The trend is your friend”? If you've probably heard the term or the saying, “The trend is your friend” and the idea behind it is that we generally want to trade or move our positions in the direction of the overall or prevailing trend. The question of the day is – “Is there any validity to this trend is your friend talk?” And I think in many respects, there probably is a lot of validity to it when it comes to maybe longer-term trends as opposed to shorter-term trends. We all know that it's incredibly hard to predict where the market’s going to be in an afternoon or a day or even a couple of weeks, but the further we go out in time, there's definitely trends that start to form. We have bullish trends, we have bearish trends, we have cyclical trends in markets and I think that those are something that you should definitely be aware of and you can

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, “Which options have the fastest time decay?” This podcast comes on the heel of yesterday’s podcast where we were talking about options with different maturities and why they were priced differently. Now, the question is – Okay. If there's options that are priced differently because of their time until expiration, which option contracts have the fastest time decay? And naturally, the options with the fastest time decay would be the options that theoretically are closing or expiring the soonest. That could be today if you’re trading options during the week of expiration or during the day of options expiration. Those contracts would theoretically have the most possible time decay because there’s only one day left or zero days left. They basically expire at the end of the day. Or if you’re trading option contracts that are a week out, if those are the closest to expiration, they w

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 are options with different maturities priced differently?” The reason that options with different maturities are priced in really is simply because of time. All other things being equal, when you have more time until expiration, you generally get more value in option contracts and the reason is simply because there's more time for the position to move in a favorable direction or a direction that you want it to move. For that reason, there's an added time premium the further and further you go out in time. Now, this has a little bit of a diminishing effect when you go say two years out versus three years out. There’s not that much of a difference compared if you were say five weeks out versus two years out. As you get closer and closer to expiration, the time value of option contracts starts to diminish at a much more quick pace and so, that's reflected in the price of dif

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 Beta neutral versus Delta neutral options trading portfolios. And I think this is really important because I think that a lot of people actually do not understand the difference between a Delta neutral portfolio and a Beta neutral portfolio. And while they sound very similar, there’s actually a big difference between the two. Let's start with a Delta neutral portfolio. When we look at a Delta neutral portfolio, what we’re talking about is we’re talking about the net Deltas of the underlying options positions that we’re trading. If we’ve got some iron butterflies and credit spreads and strangles, maybe naked options, basically just totaling up all of those Deltas and then trying to figure out – Okay. What are the total Deltas in my portfolio? Now, many times, people will say, “Oh. Well, I want to be Delta neutral which means that I want to have a portfolio that has an equal balance

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 best way to use protective put options. And the best way to use protective put options is actually not to use them at all. How about that? That's actually a little bit of a reversal from the title. But look. The reality is that when we go back through and back-test put buying strategies and specifically like single long put buying strategies, there is no put buying strategy that actually is better than just not using a put buying strategy. Yes, there's probably certain time periods during a market crash where using protective put options works for a very small zoomed in time of reference, but the problem with that is that we never actually go through a market situation where you know exactly when you need to use that put protection buying strategy and when not to use it. The one microscopic time that a put buying strategy would actually work and help the portfolio is almost im

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 earn money fast with options trading?” And the short answer to it is not likely. Is it possible to earn money fast with options trading? 100% it’s possible to do. But is it likely to happen? Probably not. And in fact, if you do earn money fast with options, maybe you bought some option contracts and the stock moved or the ETF moved in the direction you thought it was going to move very quickly, yes, you can very quickly make some money. You can double, triple, quadruple your investment very quickly. But again, what I'm planning and I am more than happy to play the long-term game here is the overall expected payout of trades like that versus trades that I’m making. As a net option seller, I know that the expected outcome of my strategy is a profitable position and a profitable outcome for my portfolio, but as an option buyer, I would highly, highly suggest that you reeva

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 uncertainty is the only cause of market volatility. This is really important because I think a lot of people get this wrong. But the only reason why stocks, options, bonds, real estate, anything is volatile is because of one thing and one thing only and that is uncertainty of the future. When the future is more uncertain than not, things will become very volatile and in many cases, will just go down. When the future is certain or close to being as certain as possible, then we see that many, many times, markets or securities or industries and sectors actually rally. Even though the news could be bad, even though it could be detrimental, it's still certain news. We know it’s going to happen. The markets know how to adjust and know how to react. And I find this very fascinating because if you actually go back and you watch many times where a news announcement has come out and mor

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 20% volatility in stock prices should be expected by all investors. In fact, you could even substitute stock prices for portfolios, options trading strategy, basically any investment strategy at all. It pretty much is the standard that most investment strategies on a long enough time horizon are going to go through some sort of drawdown or drawdown period and probably a minimum, we’re going to see a 20% drawdown at some point. In fact, most of the strategies that we back-test through our back-testing software and in the profit matrix research where we put together, went through a period of 20% drawdowns at some point in the cycle. It may have been 25%, may have been 18%, but somewhere around 20% drawdowns. And so, for most stocks in general, 20% volatility is kind of the normal. I feel like people actually worry about a 20% move in a stock, but the reality is that if a stock m

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 great depression stock market recovery timeline and more importantly, I think this is an interesting topic because as I’ve been reading a lot more about dead cycles, the great depression, the Weimar German Republic and hyperinflation, I think it's interesting because of the timeline that we’re on right now where we could be entering into the next phase of this market which could potentially be recession/depression/some sort of consolidation and sideways movement. And so, I think it's important that we understand a little bit more about history and how long things might take to recover because the fact remains is that many of us have not gone through basically decades or even multi-decades of no growth or zero growth or low growth in the markets. When you look back at the great depression stock market recovery timeline and the timeline that it took the market to get back up to

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 strategies never change, but tactics do. Now, this is something I think is really powerful and if you take the time to understand it, I think it has a lot of different similarities to things that we are used to in our lives or in our world. Well, I don’t know if I heard this originally from… Maybe I read it in a book or saw it somewhere or maybe went to a presentation and somebody said this, but I think it was just so powerful, it’s kind of stayed with me and I want to talk about it today. But the idea is that most of the time, we see people and they talk about this new hot thing that they’re doing or a new investing thing that they’re doing, but it’s actually nothing new. It’s just that they’re using a different tactic to go about this same old strategy from before. A lot of times, most people call it a new strategy or a new way of doing things, but it's really not. It’s just

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 does low volatility mean?” You might have heard this before, whether we say it or somebody else says it online, but this idea of low volatility is a relative term in my opinion. Low volatility generally means a lower level of overall market volatility than we might traditionally see in a high volatility market or extreme market. Now, most of the time, most stocks and most indexes and markets experience a lot of low volatility which means that stocks are generally moving in a fairly compressed or tight range. That doesn't necessarily mean that stocks can’t have large moves, but most of those moves are kind of muted. We see very small up-days or very small down-days. There’s not too much going on. Now, this would be in comparison to a high volatility market where you’re seeing lots of volatility not only on the intraday price, but also on the daily moves in the market. Rec

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “Does volatility increase option values?” Volatility as a standalone is actually a double-edged sword and what I mean by this is that implied volatility can either help option values or it can hurt option values depending on which way implied volatility is moving. As a general rule, remember that when implied volatility is increasing, meaning the expectation that the stock will have a greater move in the future than it currently has or is expected to have, then we see option values on both sides, calls and put options increase in value to compensate for the higher expected move of the underlying stock. Again, when implied volatility is increasing, that does help increase the value of options on both sides. On the other side or on the flipside of the coin, when implied volatility is decreasing as we typically see after say an earnings event or a corporate announcement, then

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What is a technical trader?” To me, a technical trader is somebody who trades mostly based on chart patterns, based on technical indicators, based on price action, implied volatility metrics or some other form of data entry. And so, in my case, I think that I probably lean towards more of a technical trader because I care much less about the fundamentals of a company or what the earnings report of a company is going to be or what the growth rate of an industry is than I do about what the chart is actually showing, how far the stock or underlying ETF has moved recently, is it reaching any new technical levels of being overbought or oversold based on back-testing research that we have and what indicators we use. And so, I’ll use this in conjunction with implied volatility levels to make decisions on which trades we ultimately end up getting into. And this is what we’re going to b

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, “Are option contracts always 100 shares?” The idea behind this question of wondering if option contracts are always 100 shares is basically talking about the option contract multiplier and how many shares an options contract typically controls because remember, options contracts are not a position in the underlying stock, but yet, they control shares of the underlying stock or potential shares of the underlying stock. Now, while most traditional option contracts do control 100 shares of the underlying stock or ETF or security, that doesn't mean that it's always the case and you should absolutely check the specific product that you’re trading to make sure. With the introduction of mini options in the recent years, we’ve seen that actually, some option contracts control as little as just 10 shares for higher-priced and more liquid securities, things like Apple, Google, Amazon, e

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re answering the question, “Is a put option the same as short stock?” We get this question always and people are often confused when they start looking into or exploring options trading, wondering if a put option is the same as short stock. Now, while both of these things might behave very similar, they of course are not the same thing. Short stock carries a lot of additional capital requirements and is truly short the underlying stock security which means that it has a negative Delta of one which means that if the stock goes down by $1, then the short stock should profit by $1 as well. With a put option on the other hand, you're basically taking a leveraged position in potentially short stock and it doesn't necessarily mean that the put option will move in parity with the short stock. Oftentimes, we find put options that have a Delta of say 50 and so, as a result, when the stock goes down by $1, the put opti

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 day trading illegal?” The short answer to this question, “Is day trading illegal?” is that day trading is neither illegal nor unethical. In fact, the SEC defines it as both neither illegal nor unethical, but actually, just highly risky. And so, as a result, people should just be cautious of how they use their funds and what type of approach they take when they are trying to day trade. Now, truth be told, I tried to be a day trader myself more than 10 years ago when I started in this business and found out very quickly that day trading is a very hard process to follow and a very hard system to get right on a reoccurring basis and takes a lot of time and a lot of effort. Not that there are not people out there who could be great day traders or who are great day traders, but I just never found that it fit well with what I wanted to do lifestyle wise and where I wanted to be w

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 happens if your option contract expires in the money?” If your option expires in the money and you get through the expiration process, you will be going through now, the assignment or the exercise process for option contracts and this also depends on which side of the trade you’re on and which type of option contract that you have. But generally, there's only two things that are going to happen. If you are long option contracts, meaning you owned a long put option or a long call option, then you will go through the exercise process automatically with your broker. Your broker will assume that by you leaving the contract on through expiration and leaving it on to expire in the money, that you wanted to either take delivery of long or short stock depending on what side of the contract you’re on. The other side is if you are short an option contract. Whether you’re short a c

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 you trade options on Robinhood?” If you’re not familiar, Robinhood is a fairly new brokerage that came out that has zero commission fees and they recently launched and one of their public announcements was actually on one of our podcast as I interviewed one of the cofounders, Baiju on the podcast just a couple of months ago, that they allow people now to trade options commission-free on their platform. So, to answer the question broadly, “Can you trade options on Robinhood?” Yes. Is it easy to trade options on Robinhood? Yes, it is easy to get into single contracts, but it's probably not so easy to create very high probability spreads and high probability rolling situations. I find that the complex type orders on Robinhood to be much more confusing, very less intuitive at least right now at the time that we’re doing this podcast. Although you get a platform for free and c

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be covering the four ways you can control your trading emotions. Again, I believe that there's only four ways that you can control your trading emotions and those four ways include the following. Number one, experience. I can't argue with the fact that if you've been in the market for any set amount of time, it gives you a little bit of an edge up the longer that you survive and watch and experience different market environments. I’ve been doing this now for over 10 years and so, I have a lot more experience than most people who are starting though I know that there's other traders out there who have traded longer than me. But the idea is that I've seen a lot of different setups occur in very similar fashions, in very similar industries and I've seen implied volatility expand really fast and contract really fast. I’ve seen markets go down fast, markets go up fast and things just trade sideways. An