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 answer the question, “What is the value of a call option on its expiry date?” This is a very simple answer. The value of any option contract at expiration, whether it’s a call or whether it’s a put option, is simply the intrinsic value. Once you get to expiration, there’s no more extrinsic value component left in the option contract. That means no more time value, no more volatility value, no more interest rate value. There’s just value left intrinsically in the difference between the strike price and where the stock price is right now. For the value of a call option, if a call option expires in the money, then it would have value between the strike price and the stock price. If you have a call option at a $99 strike and the stock expires at $100, then the intrinsic value is simply $1, the difference between $99 and $100 for your call option. If the stock expires at $100 and you have a call option

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I want to answer the question, “Can I have multiple brokerage accounts?” I think the short answer to this is yes, you can and should have multiple brokerage accounts. Now, don’t go crazy with this, obviously. But because all brokers are now effectively at zero commissions, there’s no reason why you can’t have multiple accounts and therefore, have the ability if you need it, to more quickly transfer funds from one account to the other. A lot of the pain for most people when starting to trade is actually the process of opening up a brokerage account. Now, this process has been made easy by the likes of Robinhood and some of the other brokerages that are out there that really do make the process a lot more streamlined, but this still becomes a big hurdle for many people to actually go down the path of starting to trade options. My opinion is when you start trading of even if you’ve been trading for a little bit now

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 buy to open mean in options?” Buy to open, buy to close, sell to open, sell to close, all very confusing terminology when you start getting into the world of options trading. Now, this is different than stock trading because what most people are used to is simply just buy stock at a low price and sell stock at a high price. But in the world of options trading, you have all these different terminologies for how the account position is starting to change and evolve. Buy to open basically means exactly what it sounds like. That is you are buying options, either net options, a spread, you’re buying a spread or you’re buying individual option contracts and you are opening a position and you have a new position open that needs to be closed in the future. Now, this is important because in the world of options trading as in the world of stock trading though it’s just not as

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, “Do penny stocks ever go up?” And this is really a two-part thing. It’s more of a question that we’re going to try to answer on my side, just what I’ve seen before and then two, just the solicitation of feedback and resources. If anybody’s out there that has seen any conclusive research, real research on penny stocks, I’d be interested just to see it. I don’t think it’s anything we’ll ever do here at Option Alpha. I have no intentions of ever doing research in penny stocks, but I would always be interested to see what the research is. Every time I try to go search for a penny stock research and just dig around, I really come up with just a bunch of scam sites that are just trying to sell me next best pick every single day, but I haven’t really seen any research that says, “Yes, this is how penny stocks perform or not.” I think it’d just be interesting to see. If you’ve seen it

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, “Should I pay for a financial advisor?” I know this is going to be a touchy subject and it’s going to probably ruffle some feathers for some people, but I have all the world of respect for financial advisors, I just frankly don’t think that people are using them the right way. I think that the value of a financial advisor is more on the strategic planning side, the tax planning side, making sure that all of the components of your financial picture are put together, not just your investment portfolio. Well, where people I think usually overpay is in the side of the investment portfolio where they’re paying 1%, 2% in some cases for management fees for something that they could do by themselves. Now, again, this is not to knock any financial advisor or planner, but generally speaking, we have access to as retail investors, all of the same products, all of the same resources, all

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, “What does out of the money mean?” When we’re talking about stock options and in particular, the strike price of an option contract relative to where the underlying stock price is, you will often hear the terms “out of the money” or “in the money” be talked about. And so, what out of the money means is that there’s no intrinsic value in that contract. It means that if the stock was to move, it would have to move dramatically in the direction of that strike price in order for the option contract to go in the money. And in the money means that basically, there’s value in that contract when it reaches expiration, there’s intrinsic value that if you were to exercise that contract, you could generate a profit or a differential between the stock price and the strike price of your option contract. Typically with call options, any call option that has a strike price that is high

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 in a short squeeze?” A short squeeze is actually a really popular thing with people to talk about. You often hear about a short squeeze happening or potentially happening after a stock has had a big run down and then potentially gets some news that could turn it the other way. All that really happens in a short squeeze is that there becomes a lack of supply of the stock available and then excess demand for the stock and this is where the shorting really comes into interest because when you short a stock, you have to have supply of that stock available to borrow from the brokerages or from the market itself. If somebody wants to short stock, they have to borrow it from somewhere. If there’s a lack of supply, now there’s this demand, what happens is that short sellers have to cover their positions on the stock. If they get good news or if the company has a good ann

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, “Do you pay capital gains on stock options?” And we’re specifically talking about stock options that an employee might get in a company. If you’re an employee of a company and you get stock options, how do they get taxed as gains? Well, there’s two kinds of stock options for employees. There’s nonqualified stock options which are called NSOs and those are usually granted to people who are employees, advisors or potentially consultants to the company and then you have other ones which are incentive stock options which are ISOs which are really only for employees. This might incentivize you to reach a certain quota or to be there a certain amount of time or for your team or your group or your division to reach a certain level or a production level. These are really what kind of tie people’s incentive to the company and to the overall company profitability to their own pay struct

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 the difference between a full-service broker and a discount broker?” This question came up recently because of the podcast we just did a couple of days ago which is talking about all these commission-free brokers and now, we’re starting to see differentiations in marketing between one broker and another. Some brokers are saying, “Hey. We’re a full-service broker, so you definitely want to be with us.” Other brokers are saying, “Look. We’re a discount broker. You definitely want to be with us.” What’s the difference, right? Ultimately, every broker is a broker. It’s just the services that they offer and how they distinguish themselves or what names they call themselves. Full-service brokers tend to offer a more wide array of services and products, so they might offer financial planning or retirement planning or tax advice or regular portfolio updates and modeling or re

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, “How is SPX calculated?” SPX is the ticker symbol that basically tracks the S&P 500 index. That ticker symbol is calculated using the S&P 500 index as the base. The S&P 500 index is a floating adjusted market cap weighted index. What does that really mean? It just means that it continuously adjusts and it also means that it’s market capped, so it’s based on the capitalization of the individual components that make up the S&P 500. This means that companies like Microsoft, Apple, Amazon, Facebook, etcetera which have higher capitalization than the rest of the components have higher weightings. Microsoft for example I think as of right now has a weighting of 4.32. Apple has a weighting of 4.06. Amazon has a weighting of 2.93. Because they’re higher valued companies based on market capitalization, they therefore get a higher weighting index. That’s probably the flo

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 impact of Interactive Brokers, Charles Schwab and TD Ameritrade now all going commission-free. If you have been living under a rock for the last two weeks or so in the options trading industry, the big news that you may not have seen is that pretty much all of the major brokers have capitulated and have now gone to a commission-free pricing structure. And this is something that we predicted here many years ago at Option Alpha. In fact, a lot of people have already messaged me and said, “Hey. You guys said that this was going to happen.” But I don’t think it’s actually done. I think what is happening right now is just literally the very beginnings of a true commission-free structure for all of these major broker platforms. Actually, a lot of these broker platforms capitulated within a 36-hour window. We had Interactive Brokers and their new IV edge program or edge trading softw

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, “How do I avoid paying taxes on stock gains?” Well, the first way that you can avoid paying taxes or really, the only way that you can avoid paying taxes on stock gains is to never sell the stock position in the first place. This would then not trigger a long-term or short-term capital gain and therefore, would not actually trigger the capital gains tax. I know that Warren Buffett’s favorite holding period he has famously said is in many cases, forever. This is because he tries to avoid paying tax on these stock gains on a long-term maturity basis. That would be the only way to really do it. I know there’s a lot of other little nuance ways to do it that are probably out there. We probably won’t get into these in all the podcast, but things like opportunity zones, etcetera could be ways to avoid tax gains, but it’s going to be very localized, very specific and in many cases, yo

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 buy shares in a company that you work for?” Well, the simple answer to this question is yes, you can buy shares in a company that you work for, but you have to check with your compliance department and see how you go about doing that. If the company is publicly traded and if it’s privately traded, how can you possibly invest in the company or buy equity shares in the company from someone else or from sort of pool or fund that they have for employee, stock, purchase plans, etcetera. My suggestion to anybody who would be looking to buy shares in a company that they work for is to really understand the rules and requirements around doing so. In many cases, there’s a long vesting period or there’s different prices at which you could buy. You could buy it at discount which sounds really good unless the company stock continues to fall. But you really want to understand the

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, “How much does it cost to start trading options?” Well, the good news is that it doesn’t cost anything to start trading options and that’s because you can start trading options with a paper account or a virtual trading account in almost any of the major brokerages. And in fact, even if you do have money to start trading options and you want to actually start putting money at risk, we highly suggest that you start by paper trading for a little bit before you actually do that. This gets you familiar with the broker platforms, how order executions flow, how market pricing reacts to different news environments and just gets you aware of the mechanics before you actually start placing your hard-earned money at risk. Now, once you feel like you’re comfortable enough with the mechanics and the broker platforms, how order entries are created, how to build strategies, then when you sta

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 long and short mean in trading?” Long and short are often terms used all the time in options trading in just general stock or regular equity investing and you might often heard me say it here on this podcast or on some of our video updates that I would be long an out of the money call option or short an in the money put option or short an out of the money put option. And so, a lot of people get confused on the meaning of long and short, but it’s actually pretty straightforward and pretty simple. Long basically means that you have a positive number of contracts in your account, typically that you’ve purchased contracts into your account. You bought a call option, bought a put option. It doesn’t matter where they are in the option chain. They could be in the money, out of the money, different expiration dates. But basically, long means that you own option contracts in

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 sell a put instead of buy a call?” And I think the answer to this question is actually relatively straightforward, though I’m going to be making a lot of generalities in this podcast. There’s a lot of differences and nuances in different option expiration timelines and strike prices that you would use for the selling of a put or the buying of a call, so again, I’m just talking in generalities here, but the reason that you would sell a put option instead of a call option, number one, is that the put option as an option selling position has an implied volatility premium edge already baked into the contract. It’s this idea that we continue to talk about here at Option Alpha which is that implied volatility at the time that you enter a contract is typically overstated long-term. And so, when you’re selling options, you immediately have a pricing advantage compared to an optio

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 sell and buy a stock the same day?” The simple answer to this question is yes. You can sell and buy a stock in the same day. That would be what’s referred to as a day trade. Day trades happen in the exact same day. A lot of people actually think that day trades happen over the course of a couple of days, but that’s not actually the real definition of a day trade as it relates to how brokers are going to see you. When you actually buy and sell stock the same day, you make a day trade. You just have to be aware of the different pattern day trading rules that many brokers have and pattern day trading rules are basically rules setup in place to make sure that people who are day trading, who are making trades in and out of a security the same day have enough capital to withstand the fluctuations in the market and the liquidity to cover positions if they go bad. Again, the

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I want to talk about why I’ve been lately referring to myself as a volatility spread trader because I do think that option sellers are volatility spread traders and this actually comes about because I’ve said this time and time again, but I have a really, really tough time trying to explain to people what I do when they ask. I’m not a teacher. I don’t work for the government. I’m not a police officer, right? It’s very easy for people to usually explain what they do to people, but when people ask me around town or if I’m in some social setting and people ask me what I do, it’s very hard for me to explain what I do. I just trade options. But lately, I’ve kind of thrown them through a loop and I talk about being a volatility spread trader and I thought this was interesting because I was trying to explain to somebody the other day outside of a wedding what we try to do at Option Alpha, like what is our edge, what ar

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, “When can you sell a long straddle?” The basis for this question comes from a member who basically asked, “If I have a long straddle position that’s already on where they bought a call option and a put option at the same strike price, same expiration date, when can I sell out of that position, remove the position from my account, take profits or take losses or basically just exit the position altogether?” And the answer to this question is you can sell it back at anytime. You can sell a long straddle back to the market at any time up until the day that it stops trading which is basically right at the expiration date. Now, again, a lot of people get confused here because they’re trading both a European or American-style option contracts which only deal with the actual settlement of the option contract, but it has nothing to do with the fact that you can trade those contracts in

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 are the types of options?” Option contracts come in a couple of different types. It’s actually really not that complicated to understand once you get down into the terminology. But there’s basically two main types of option contracts and then there’s two varieties on top of that. That’s what I would call them, is notorieties within those two option contracts. The two main types are call options and put options. Call options give the option buyer the right, but of course, never the obligation to purchase the underlying shares or asset at a predetermined strike price in the future by a specified day which is usually referred to as the expiration date. This is as opposed to put option contracts which gives the option buyer the right, but not the obligation to sell the underlying asset or shares at a predetermined price, the strike price by a specified date in the future, ag