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

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we’re going to be talking about the power of social influence on investing habits and in particular, I’m going to tell you why I’m super, super upset and frustrated with this entire industry and it all starts with a conversation that I had with a family member this weekend because we were going down and we were sitting down at dinner and we were going over kind of their investing stuff that they had and they wanted me to take a look at it. And so, I was looking at some of the things that they had in their 403B account and one thing I noticed right off the bat was that a lot of the mutual funds that this person, this family member have been placed into had really high expense ratios and not only that, they were also placed into basically an account that was managed by a seemingly fiduciary person who was also charging a 1% AUM fee. I’m not opposed to financial advisors charging that, but if that's the fee that you’

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 selling short options positions and really, what does that mean. There's a big misconception out there with regard to the understanding of the difference between long and short option contracts. And so, what I want to try to do in this podcast is just quickly explain the short side of option contracts, basically what it means, what you're doing and what the eventual outcome should be or how you get out of the position. Selling short option contracts basically means that you are selling contracts that you do not own yet with the obligation that you will either repurchase those contracts at expiration or that they will expire out of the money and worthless. That's the assumption for most option selling strategies. It's very similar to insurance. Insurance is a contract that you would sell. If you’re an insurance company, you sell somebody insurance on their house, collect in a premi

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, “Is lack of preparation the leading cause of bankrupt investors?” Now, I would argue yes that it is. In fact, I would even argue that definitely, the leading cause of people who lose money is just absolutely a lack of understanding and preparation and just flying blind basically into this entire market and business. And so, I’ll use a quote and regardless of whether you agree on his political views or not, this is a great quote and one that my coach back in college has often referred to, although it's not exactly the same as the way that he put it, but the quarterback Colin Caepernick before he was I guess done playing in the NFL said that pressure comes from a lack of preparation. And the whole idea is that when you get into a game situation and I’ll use football as the analogy here. But when you get into a game situation, as a quarterback, you should understand everythin

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 you should go for a run even when you are sick. Now, please don't misunderstand what I’m talking about here. I’m using this as an analogy and as a framework for understanding this discussion that we’re going to have about subconscious trust signals. But the idea here is that if you are sick, you should still potentially go for a run and there's a reason behind this. Now, I’m not saying that if you're absolutely dead sick and you can’t get off the couch… Obviously, stay at home, rest up, right? But if you're just a little bit sick, you have a little bit of a cough, maybe you just don't feel so good today, you ate too much last night, you should still probably go for a run and there's a reason behind this. Now, you can interchange run and sick here for whatever you want, but the idea is that we have what are called subconscious trust signals that build in our brain. And I know I

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, “Does moving the unchallenged leg of an option trade make the breakeven points wider or more narrow?” This is a common question that I get and it's always a point of confusion for many traders, is “How do we adjust or hedge a trade when the stock is moving against us?” Now, one of the techniques that we try to teach here at Option Alpha and you see this all over the web also, is that moving the unchallenged leg of an option trade or the untested side of an option trade closer to where the stock is trading ends up being a good technique to make the adjustment. For example, if we have a strangle and the stock starts moving lower, we would roll the call side of the position down and move that call strike to a closer strike. That is the unchallenged, untested, the side that the stock is moving away from. We move that side closer. Now, the question here today is, “Well, what happen

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we’re going to try to answer the question, “What is the real reason why someone would trade stocks and options?” And what I want to get to is I want to get to the real motivation, not just to become rich or not just to talk about financial terminology and numbers all day. People like numbers or you might like money and terminology, but it's not the real reason why people would want to trade stocks and options. Now, I think and I would assume that many people who are listening to this right now, you didn’t get here because you’re on some magical ride and you want to just find out what the option market is about or learn a little bit about it. No. There’s something that's driving you here. There were some catalyst or some trigger or some event that pushed you into the options market and specifically, maybe have pushed you to look online, on social media or on Google or wherever to learn about options trading or lear

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's the point of trading high implied volatility when the stock is making even larger moves?” This question came from another one of our members and the underlying theme here is really just this idea of – Why do we trade options when high implied volatility is present in the market? Doesn't high implied volatility then reflect that the stock is going to make this large move or this massive move? Why are we stepping in front of a freight train (for lack of a better term) and trying to trade options and sell premium hoping that the stock is going to stay contained when everyone is betting on these big moves? And the reason that we do that is because what we’ve consistently seen not only through our research, but you can also check other sources and other data providers, but when we see high implied volatility situations, situations where a stock is expected to make a very, v

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 volatil

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 is it not worth adjusting an option trade?” I do get this question all the time and I wanted to publish this daily call to talk about it specifically because I’ll go through in this call, three cases or three scenarios in which you would not be worth you making an adjustment to an option trade. Now, what I do find just as a precursor to all of this is that a lot of times, traders are trying to put lipstick on a pig and what I mean by this is that traders get into a bad trade or a bad setup initially and they think they can adjust their way out of the position. But again, most of your success is going to come from the ability to execute and enter trades correctly and what I mean is position sizing correctly, adding a trade that gives your portfolio balance and diversification, using the right strategy. Those things will give you a far greater impact on your performance an

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, “Does implied volatility matter for option spreads?” Again, this is a user member submitted question. If you have a question you want to get answered on the podcast here on the daily call, please let me know. Shoot me an email, send me a Tweet. Go over to optionalpha.com/ask, do whatever you need to do to get that question in. The question that somebody asked is, “If you are only doing calls or puts and not spreads, it looks like implied volatility is a good idea and you should base trades off of that. But in a spread, since we’re buying and selling an option, one cancels the other out. And what I meant is that if implied volatility or IV rank is high and options are expensive, well, you're buying an expensive option and you’re selling an expensive option. Why does it matter?” And this is a great question, I think a question that most of the time comes up when people really st

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to talk about why worrying is an illusion of control. I am a self-described worrywart if you want to call it that, but I used to be, I guess and I would say that I'm not so much anymore… Although seem like being a parent, you always worry about something with your kids. I don’t think that ever actually ends. But when it comes to finances, investing, trading, the markets, I used to worry a lot and I was one of those traders that would stay up all night and think about positions. In fact, I remember vividly when I started trading and I was trying to trade Forex initially for a little bit that I literally sat up all night and kind of babysat that position. I sat there and watched the markets all night and I think back to those days of doing that and just realized how ridiculous and ludicrous that probably was. But I've often found through reading and being a student of the game that when you worry, it i

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 a head fake in stock trading?” I love the idea of understanding some of this terminology and jargon when you hear it talked about and we use this a lot too. I don't use the word, head fake all the time, but we talk about it sometimes when we have very specific setups in stocks and we might refer to as one thing as a head fake or not. Let me build the context around this because I think it's better to understand it contextually in a scenario. Let's say we have a stock that's trading and it's trading at $100. Quickly, the stock moves up to $105. Now, this is where the fake part of this comes in because what people might see if the stock makes a huge move in one direction, say from $100 to $105 very quickly, they might think that that is a big breakout in the stock and what might happen then shortly after that where the head fake kind of comes into play or is completed,

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer a user question that was submitted which is, “Can you exercise an option contract even if you don't have the buying power for the stock?” This is an interesting question, but basically, the person emailed in and said, “If I had a debit spread or a credit spread and I didn't have the buying power to exercise the option, could I still conceivably submit the order because it's covered by the other contract that’s out there?” And so, the short answer to this is probably no. Your broker is going to reject that order when they see it coming through. You could probably get all the way to submitting the exercise, but when it actually starts going through the system and through the technology to be able to actually exercise that contract, buy shares of stock or sell shares of stock depending on what contracts you’re trading, then it's likely going to get rejected at the broker because you don't have

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 difference between volatility in stock prices versus volatility in option prices. Now, most people assume that when we talk about volatility that it has the same impact on stock prices as it does on option pricing, but it’s not the case. When we specifically refer to a stock or stock prices that are volatile, we’re talking about the underlying equity or ETF that we’re looking at and the price fluctuations that that ETF or equity is going through. If a stock is moving wildly, the price of the stock or the ETF is going up or down dramatically over the course of a trading period. That is what we refer to as the volatility of the actual stock itself. Now, when we talk about volatility of option pricing, we can similarly look at the volatility of the prices of options as they move, but what we’re really talking about is we’re really talking about how much implied volatility is bake

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 TD Ameritrade a good brokerage platform for beginners?” Specifically, I think we can talk about TD Ameritrade’s main platform for trading which is the Thinkorswim platform which they purchased a number of years ago, but I do think that TD Ameritrade has its limitations for new traders. It can sometimes be a little bit overwhelming for new traders to get acclimated to the TD Ameritrade platform and the Thinkorswim platform and the reason is because honestly, there are so many buttons and tabs and things to press, it almost feels like you're in a jet engine cockpit. And you don't want to touch too many things, but you know you have to basically push some buttons to make charts appear and to make trades work. Overall, I do think it's still the best platform out there. I think the learning curve is something that you can get over very quickly. We have a lot of videos on

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 tool can I use to see a stock’s implied volatility?” Implied volatility data is not that hard to find, but in many cases, you will most likely have to go through your broker platform to see a stock’s implied volatility whether it's the raw implied volatility or any type of IV ranking or IV percentiles. Now, you can get this data from other sources like the CBOE. You can also get this data from ivolatility.com, quandl.com. There’s a lot of other resources if you just search online to get this data, but in many cases, those are paid subscriptions or paid access to volatility data. This is actually really not that cheap to find volatility data if you don't already have an existing broker platform which integrates that as part of their feed and their data from the exchanges. Now, like I said, most broker platforms including TD Ameritrade, Trade Station, also Interactive Brok

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, “Should you buy near-dated weekly options as a hedge?” Now, the answer to this question is not a simple black and white, yes or no answer. What you have to understand about buying near-dated weekly options specifically buying them as a hedge is that they are a tradeoff of risk and reward. To me, I always try to help you guys understand what are you giving up and what might you potentially get in reward by entering a hedge that's a weekly contract. Now, specifically, a lot of traders like to use weekly contracts because they want to hedge a very particular time period. Maybe there's a special FDA announcement, a legal proceeding, an earnings announcement, a merger announcement potentially coming, all of these things that could happen in a very defined window of time. And so, for that just one week, they choose to buy weekly options or sell weekly options, whatever they’r

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to help you understand the difference between an odd lot versus a round lot with some examples. I’ve seen a lot of definitions out there of the differences when orders go through with regard to stocks or futures or options contracts and the differences between odd and round lot orders. And so, there's no one definition of it, but here's generally the concept around these. Round lot orders are orders that are easily disseminated across multiple parties in the market. Order types for stocks would be orders of 100 shares, 200 shares, 250, 500, 1000 shares, something that is a generally round number of orders kind of rounded to a nearest grouping of trades that can easily be exchanged with another party in the market. If you’re trading 100 shares and someone else is trading 100 shares, it's very easy to make those two parties come together and create a filled order. An odd lot might be something like 97

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to talk about how the option experts short volatility. There’s really two main ways to short volatility in a portfolio. The first way is to choose a volatility product. That's probably the easiest way that most institutions as well as many personal traders or many portfolio traders choose to gain exposure to shorting volatility and they do it through these volatility products. Now, it could be things like VIX, VXX, UVXY, etcetera and each of these products have their own differences which we’ve covered actually in a couple of episodes just previously to this. With these volatility products, it's an easy way for institutions to gain broad-based exposure to volatility in general. And so, they can easily move in and out of these products as needed. They can add volatility exposure or they can reduce volatility exposure. The second way to add short volatility exposure is to short option premium. Now, t

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I want to go through our quick guide on the differences between calls and puts and I want to do this using a very simple mind matrix, I guess. The idea behind this is when I think about call options and put options and when I teach calls and puts and the basics of options trading for beginners, I think about things in the form of a matrix and the reason I do this is because I just compartmentalize a lot of things when I learn and I think that this is often useful for those who are getting started. When you think about the differences between calls and put options, you have to understand that there's two sides to every trade. You can be a buyer of calls and puts or you can be a seller of calls and puts and for every buyer, there's a seller and for every seller, there's got to be a buyer. When we go through this matrix, you’ll understand that each opposing side to the position has the opposing force on the other