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 answering the question, “When is it worth it to pay a debit to roll an option spread?” This is actually a question that comes in from one of our members and he said, “As I'm preparing or following, training for expiration, I see small debits to roll larger positions like QQQ, IWM and SMH, so definitely not paying to roll even if a small debit. Is this acceptable? What do you think about rolling for a reasonable debit just to extend the trade?” I think just for clarification, sometimes when we roll positions, if we have an iron butterfly or an iron condor, we sometimes might have to roll one side of the position for a small debit, but in our case, that other side that we roll is always taking in a credit that is more than the debit we paid on the previous side. For example, if we have to roll an iron butterfly, we might roll out the put spread first and pay a debit of say $5, but when we roll out the call s

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re answering another member question which is, “Will my GTC or good-till-canceled order fill if I'm away from my desk?” The simple answer to this is that it should fill if you're away from your desk. Now, filling trades is a function of a couple of different things. One is mainly the liquidity of the underlying contracts in which you’re trading. Just because you have a GTC or a good-till-canceled order going on a stock doesn't necessarily mean that it's going to fill unless there’s a liquid market for those options. For example, I always use the ticker symbol GOOD, G-O-O-D. They have options that are optionable securities or optionable contracts to trade, but there's actually very little to almost no liquidity in those contracts, so even if you had a good-till-canceled order, there's probably a good likelihood that it won't actually fill in the market because there's no liquidity. Now, if you have a GTC order

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering a user question or a member question which is – “What happens to deep in the money option spreads at expiration?” The question really comes out of this idea of – Well, if I have a spread and the spread is deep in the money… Let’s say I’ve sold a call spread and the stock has rallied well beyond my call spread strikes, both the short strike and the long strike. If I let it go to expiration, what happens? And so, if you do let the spread go all the way to expiration and then go through the expiration process, you will be assigned on your short option contracts and the broker will assume automatic exercise of your long option contracts. Now, this should result in basically no stock to you at the end of the day because you are assigned stock on one end and you are let’s say buying stock on the other end and so, that should equal each other out. As long as you have the same number of contr

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 awa

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 how to convert a bull put spread into an iron condor. Let's start with the first part of this trade which is entering into a bull put spread. The idea behind a bull put spread is that you’re selling option contracts on the put side below where the stock is trading, hopefully seeing the stock either stay the same or potentially rally higher. Now, you could actually see the stock fall and still make a profit as long as it stays above your short strike price. If we have a stock that’s trading at $100, we might sell a 95 strike put and buy a 94 strike put to create a 95/94 bull put spread. The idea is we hope that the stock continues to rally higher or stays the same around 100. It can fall. As long as it stays above 95, we’ll still make money. Now, when you want to start converting these into an iron condor would be when the stock starts to move against you. One of the very easy tech

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer a question, “Can you close short option trades before expiration?” The simple answer to this is yes, you can always close your option contracts before expiration and this does mean that you can do so on American-style and European-style option contracts. I think where people get confused is that they think about American and European-style options, but that only refers to the exercise process that it goes through. American-style options can be exercised at any time between now expiration and that means that most of your general contracts you’ll be trading on ETFs and stocks are American-style. European-style option contracts can only be exercised at expiration. These would be things that are more cash secured like RUT, NDX, SPX, etcetera. Now, again, this only has to deal with the exercise of the contracts and the conversion of those contracts from options to stock or cash. It has nothing t

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 how to adjust short strangle option strategies. As a basis, short strangle option strategies are a strategy in which you are selling a call option and a put option out of the money from where the stock is trading. For example, if a stock is trading at $100, you might sell the 105 call option and the 95 strike put option and the idea is that the stock trades between your strike prices and you profit at expiration with a stock not breaching or breaking out of your strike price range. In our case, we want the stock to trade within a $10 range between now and expiration. Now, the trouble comes in when the stock starts to challenge one side of your position. Instead of the stock staying exactly where it should be at $100, it starts to move higher towards 105 or starts to move lower towards the 95 strike. And so, the idea behind adjusting is that we first do not move the challenged or tes

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 avoiding false urgencies and why this is a learned skill. I will be the first in line to say that this is absolutely one of my biggest weaknesses as a person also running a business, father, everything. I am 100% the type of person where if I see something that needs to be done or I get pulled in a different direction, I immediately try to finish or complete whatever I get pulled into that direction of doing before I get back on track and start to get focused on I guess the bigger task of the day or the more important task of the day. You could say that in some respects, I very much act like a fire starter and fire put or outer. I like too, it seems like and I am retroactively looking at this or I'm looking at this in the rearview mirror now. I like to generally look at a lot of things during the day, I have a lot of applications open on my computer and if something comes up, even

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re answering the question, “Can option prices trade below their intrinsic value?” I think today's question is actually two parts. There’s the first part which is – Can they trade below their intrinsic value? And the second part is – Should they trade below their intrinsic value? The first answer is they can actually trade below intrinsic value. Now, the second part is really, they should never trade below intrinsic value. And if they ever did trade below intrinsic value, those trading opportunities would be extremely short-lived and would probably be gobbled up by some algorithm that is looking for an arbitrage opportunity to buy the option contract or sell the option contract and deal with the stock and take a guaranteed profit in either case at expiration. This typically happens, again, because option pricing should be generally perfect to intrinsic value or at least that is the threshold for in the money o

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re answering the question, “Are brokers ripping you off with mini options commissions?” Really quick, mini options contracts are just a couple of ticker symbols that actually have mini contracts that actually trade in. The name sounds just like what they do. They trade a miniature sized number of underlying shares per contracts. Whereas most regular options would trade $100 or control 100 shares per contract, with mini options, you only control 10 shares per contract and therefore, the option price is generally 1/10th of what the regular standard price would be because you're controlling less shares. Now, on a few symbols, Apple, Google, Amazon, SPX, etcetera right now and I think it may expand into the future, but the idea behind minis has always been to give people a more cost advantage way to trade some of these higher underlying prices like Apple, Amazon, Google, etcetera which are multi-hundred dollar st

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 the “someday” disease plagues our goals and holds us back. Again, I'm a huge fan of putting together goals, writing out plans, having some sort of framework around where I want to go not only in business, but in life as a father, as a husband, with me and my wife and our real estate portfolio that we do. Everything that we do here at Option Alpha, all of it has goals and plans and a framework and we don’t always hit all of our goals, we don’t always do everything, but it's that framework that kind of guides us and leads us forward. And I think what some people suffer from unfortunately and I truly mean suffer from is this “someday” disease that they assume that someday in the future, things will come true, the stars will be perfectly aligned. But we know as rational humans hopefully that timing is never going to be right to do what we want to do. In fact, it's probably never g

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 how you can adjust iron condor option strategies. As a basis, iron condor strategies as many of you know are neutral option selling strategies whereby you are selling a call spread and a put spread around a stock’s price. For example, if a stock is trading at $100, you might sell the 105/106 call spread and the 95/95 put spread, so creating a call spread above the market and a put spread below the market, taking in a net credit on the sale of those option contracts. Now, once you start getting challenged on an iron condor assuming that the stock either moving against your call side position or against your put side position, the rules of adjusting iron condor option strategies are that we first do not adjust the challenged or tested side of the strategy. This means that if the stock is moving up against your call spread side, let's say the stock is moving from $100 where it initia

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering yet another member question which is, “Can option Deltas ever be greater than 1?” If you go back and think about what option Deltas refer to when it comes to single option contracts, is it refers to the change in price of the option contract or a potential change in price of the option contract as a result of a $1 increase or decrease in the underlying security. Generally, call options have positive Deltas and put options have negative Deltas. And so, when we see a dollar increase in the underlying stock, that's positive for call options, that's negative for put options. But the question is – Can these Deltas ever go above 1? And the short answer to this is no and the reason that they can’t ever go above 1 is because all that single option contract could do is trade at parity with the stock and this Delta of 1 means that for every $1 movement up in the stock, there’s a $1 movement up

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering a member question which is, “Isn't trading in the money call options risky?” This is a question somebody sent in and they said, “Kirk, I’d love to have this on the daily call.” And again, if you guys have questions, send them into me. Just email them over or go to optionalpha.com/ask and leave me a voicemail there. But this question I think really came out of the questioning around iron butterflies, so why would we trade in the money call options or at the money call options when building out iron butterflies and iron condors. The question of riskiness is very subjective because I think when you’re trading an at the money or slightly in the money call option and you take in a massive premium, it's not as risky as you would maybe have been led to believe initially because that premium that you take in widens your breakeven point much further beyond where the stock is trading and again,

Hey everyone. This is Kirk here from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about why even the smartest people in the world don't recognize optimistic denial. I wanted to start off with just a very quick story and the quick story is about some, let’s say friends/relatives that we know that got married. In fact, it was actually the girl who married a guy. Really, really smart girl. In fact, probably one of the smartest people that I know. I mean, really, she's a chemist and a scientist and very, very smart. And she ended up marrying a guy who was just as smart as her, very smart guy, engineer and they had troubles early in their engagement. And they thought to themselves and I remember talking to them and my wife and I were talking to them about their engagement and their upcoming wedding and they thought to themselves that once they got married that everything would be better and for some reason that the act of marriage would then solve their problems which if you’re

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 me and my wife just recently went through and cut 15% out of our monthly expenses right now. This is a big one for me. I’m a big fan of budgeting. I’m a big fan of reducing your expenses at all cost. In fact, one of the major reasons why we were able to start trading for a living from home more than 10 years ago is because me and my wife sat down and decided that we wanted to do this and we knew that part of being successful in this business would mean that we have to cut back on expenses because expenses, although it may seem like they’re not that important, actually can really creep up on you. We decided to do a lot of different things early on. We moved into a small condo, we had no car payments. I mean, we did all, honestly the right financial things early on that were tough decisions because everyone else was buying houses and they had sweet cars and we had very old crappy cars

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 margin required when trading option spreads?” The simple answer to this is yes and no. When it's typically thought about margin when it comes to investing, people think about borrowing on margin and then buying stock. But when it comes to options trading, you do have to have margin or put up margin to trade option spreads. Now, that doesn't necessarily mean you need a margin account. In fact, you can trade options spreads in your IRA or retirement account with your broker just as easily as you can trade option spreads in a regular margin account. Now, what brokers do is that when you’re trading spreads, they put up or set aside money in your account to cover the risk in that spread position. Let’s say you’re trading a $1 wide spread credit spread, either call spread or put spread and you take in a $30 credit which means you have about $70 of risk in a very simple spr

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, I’m going to share my top five things I love about options trading. This was actually hard for me to whittle down into five things, but I think I can really do it in five really good, very solid categories as reasons or benefits as to why I absolutely love the options trading business. Number one is the numbers. I've always been the type of person who thrives on understanding the numbers, the math behind something. And so, for me, options trading leaves very little subjectivity to the business. The numbers are what they are. We know what position size is. We know what the probability of success can be on a trade when you enter it. We know a lot of these numbers. And with most of the back-testing that we've done and will continue to do in the future, that gives us much more confidence in understanding how we can put together high probability income generation machines with options and it's purely based on the numbe

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we are going to hopefully teach you guys a lesson from the Apollo 13 movie and it's a lesson for massive wealth generation. Let me go back and tell you a little bit about that story if you haven’t watched the Apollo 13 movie or you don't know the history of it. But basically, what happened is one of the missions to the moon ended up in catastrophic failure. There was the CO2 or CO ring that busted during takeoff and so, it created this huge nightmare where the astronauts were basically stuck in the capsule and the modules with a declining amount of air. They had to figure out a way to convert basically carbon monoxide into carbon dioxide or into breathable oxygen. And so, the real mission was how do we convert and basically build this machine, this thing that could filter and remove the harmful chemicals in the air and turn it into breathable oxygen. During the movie, one of my favorite scenes is when the mission

Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we’re going to be talking about how you could actually buy options with a 70% chance of success. Now, everyone always talks about option selling and that's mainly what we focus on as well, is option selling with a high probability of success. But oftentimes, I get questions around option buying and can you buy options with a high probability of success. And so, the answer to that question is yes, you can definitely buy options with a high probability of success. That means that you’re buying options that are deep in the money or in the money option contracts and when you do this, you're paying a really high price for those contracts because they have the inherent possibility of generating some money. Now, the problem with buying options even when you buy them in the money is that you often give up a lot of your premium early on to volatility and time decay just like you would get a lot of that premium if you we