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

Hey everyone, Kirk here again at optionalpha.com and welcome back to the daily call. Today, we’re going to do hopefully a fairly quick guide on trading volatility with options. I say quick guide because I don't think that there's a lot that we have to go over to get the broad strokes. There's obviously a lot more detail and a lot more deep diving that you can do on volatility trading. But I want to try to get through the broad strokes here. If you’re new to options trading or if you’re even a sophisticated trader that’s been around for a while, there's probably a couple of key concepts that we need to cover. The first thing with trading volatility in general is that with options and specifically just calls or puts, however you want to think about it, we have the ability to trade volatility as an underlying asset class. Now, there’s two ways we can do this. We can trade volatility in and of itself through volatility products like VIX, VXX, UVXY, etcetera and we can trade the volatility of underlying securities

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to be talking about the sometimes hidden benefits of trading options from home. For me, when I started trading options from home, it was I guess you have this preconceived notion of what trading from home ends up being. But for me, it's very different than what I see portrayed online or what I see portrayed on the internet. The big thing for me was obviously, time with my wife and now, time with my kids. And so, those are kind of my nonfinancial things that I think are really invaluable to me moving forward in life. In fact, my oldest daughter, Molly just the other day, just had this really weird conversation with her about… I decided to go to like a coffee shop because I needed to do some recordings for podcasts and I needed to record some videos for the team and she was totally floored by this. I don't often go to a coffee shop. I just spend most of my time in my office at home and with them and when they're napping, I’ll

Hey everyone, this is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to answer the question, “Why do long option strategies fail to profit after a stock’s earnings are released?” A common misconception, totally common misconception in the marketplace is that when a stock announces earnings, you get this huge move in the underlying stock and therefore, you can profit potentially from that huge move. But the problem is that as you're approaching that unexpected event, that earnings event, the market prices in the expectation of a huge move. It naturally happens. And so, what we see is we see actually heading into those events, sometimes a week or two weeks or a month out, implied volatility will start to rise heading into that earnings event because we don't know if the stock is going to announce great earnings, if they’re going to announce bad earnings, if their revenue fell or grew, whatever the case is, right? And so, traders are expecting a big move to begin with.

Hey everyone, Kirk here again in optionalpha.com. Welcome back to the daily call. Today, we are going to be talking about liquidity concerns when you're selling options and three things that you can check really quickly as you’re starting to build out your trades. The first thing you have to understand is that as we build out our auto-trading software, we are going to be building in some liquidity screens or protections that are going to be in there, so that you don't ever end up trading or the auto-trading software ever ends up trading something that isn't at least more liquid than something else. We want to build that into our software. That’s something that we’re going to be doing as part of that roll out. When you are looking for trades manually and you want to check liquidity, there’s a couple of things you can check. One, just check volume and open interest. This is pretty easy. But you'll see either good volume that are open interest or not. You don’t have to say that it has to be above 1,000 contracts

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to be answering the question, “How many option trades do we have to place to see profits?” This is a huge topic that we get a lot of questions on and a hot topic for me because I think that people totally misunderstand what they are doing when they get into this business. I say business. I actually just said it without even thinking about saying business. But most people actually get into options trading like they're getting into business, but they treat it like a hobby. They treat it like a hobby because they don't have the right expectations heading into it. I’ve often related options trading in the sense of opening up a restaurant. If you’re going to open up a restaurant business, you expect that you’re going to be in business for a couple of years. You wouldn't go through the hassle and the process and the capital investment to open up a restaurant just to close it down after two months. But yet, magically, people still

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to be answering the question, “Should you manage individual option trades or combine positions in a particular ticker?” Let me just back up and tell you the basis of where this question comes from. If you are getting into laddered entries like we talked about just a couple of days ago in one of the shows here on the daily call, if you’re getting into laddered entries and you’re starting to enter multiple positions in the same ticker, the question is, “Do you manage each of those individual positions one by one or do you manage them together as a combined community?” Let's say you got into position in SPY. Your first position, you took in potential credit of $100. The second position, you took in $120. Now, do you add those two things together and say, “Okay. Now, the combined credit is $220 and I want to take 50% of that.” Or do you take 50% of the first position and 50% of the last. Well, ultimately, it’s your decision, but

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

Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. Today, we are going to be talking about laddering option trades and specifically, frequency and pricing guidelines that you might be able to use. First, let's talk about what our laddered option trades, what’s the concept that we often refer to. Basically what it means is that we're not going to enter one big stinky position around a strike price and plant our flag in the sand and say, “This is our position for the next month.” Instead, what we’ll do is if we’re going to enter say 10 contracts, we’ll try to split that up into a couple of different entries, maybe three different sets of trades, 334, something like that where we start averaging around the security, start averaging down or up as the security starts moving. For example: If a stock is trading at $100 and we want to do some straddles, we might sell three straddles at 100 then wait for the stock to move. If it does move up to say 103, we’ll sell another three straddles

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

Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. Today, I’m going to answer a question, “Can I still enter your trades two or three days later?” As part of our pro and elite membership, I obviously published the trades that I do. These are not buy or sell recommendations obviously of any kind. It's just truly what I do in my account. And so, people always try to mimic what I do and they try to ask like, “If you entered a trade on say Monday and now it’s Thursday, is that trade still valid?” Here’s what I say to people in this and that is that what you should always try to do is you should try to mimic the strategy or framework of what I was trying to do. That doesn’t necessarily mean you need to mimic the exact strike prices that we did. It means that you should mimic the framework. Let’s say on Monday, the stock was trading at $100 and I sold an iron condor around this stock at $100, spreads were $5 out on either end, but now on Thursday, the stock is trading at $105, well, n

Hey everyone, this is Kirk here again at Option Alpha and welcome come back to the daily call. Today, we are going to be talking about a very interesting topic which is the expected probability paradox for options traders. Yes, this is what I call “the expected probability paradox.” I don't know why I referred to it as that, but I did recently in a coaching session and now, I’m going to start using that because I think it actually really truly represents what this means. Here’s the crux of why you're listening to this podcast or if I sent you this podcast or emailed you this podcast, added a link to it or referenced it, this is what we’re going to be covering. The common question in options trading (we get this literally all the time) is – “If I'm trading at a 70% chance of success level and our max profit opportunity per trade is $100 and our max risk if we lose is say $300…” Again, showing that it’s not a 1:1 relationship when trading options. If you could make $100, when you lose, you couldn’t make or lose

Hey everyone, Kirk here again and welcome back to the daily call. On today's daily call, we are going to talk about why you don't recognize the power of this one tremendously good compounding force not only in your life, but maybe in your relationships, your business life, investing life, anything. Really, I think it comes down to it. But this huge thing that you don't recognize the power of, I think is good will. I think people don't recognize the power in this day. I’m talking generally. I’m actually not talking necessarily about a lot of people in the Option Alpha community because this is a really good community of people, very nice, very genuine people. There's a lot of smart people in this community and I respect that and I'm truly humble to be a part of it, obviously. But I think generally, people don't recognize the power of goodwill because they have to give a lot of it away before they ever see it come back around. You can call it karma. You can call it whatever you want. But I think that you’ve got

Hey everyone, Kirk here again from optionalpha.com and welcome back to the daily call. Today, we are going to answer the question, “What do you do when one leg of a bull call spread is assigned?” First of all, let’s go over what a bull call spread is. A bull call spread is an option buying strategy where you are buying one call option and then selling one call option at a higher strike price. Let's assume that a stock is trading for $100. You might buy a 105 call option and sell a 106 call option to help cut down the cost of buying that 105 option. It is an option strategy where you are bullish on the underlying security, you want the underlying security to go higher and you are a net buyer of options. You’re actually not a net seller in this case. You’re a net buyer. What happens when one of these legs is assigned? Well, the first thing is that the only leg that would ever be assigned to you (traditionally assigned if you want to use the technical term) is the option contract that you sold. In our example, i

Hey everyone, Kirk here again and welcome back to the daily call. Today, I want to answer a question that somebody submitted which was, “Are index options more profitable or are stock options more profitable?” The simple answer to this is – Neither is more profitable than the other. There's no definable difference between trading index options and trading stock options one, in and of itself. Just using an underlying product is not more profitable than the other. It always comes down to strategy and the way that you either buy or sell options and the way you manage your portfolio. I think the only real big difference between these two is that index options just carry a lot more value and weight, meaning you should trade them more with higher denomination accounts, so larger accounts, find that it's easy to start trading index options because they have a higher contract value, you don't have to sell as many contracts or buy as many contracts as opposed to regular traditional stock options on a stock or ETF whic

Hey everyone, Kirk here again and welcome back to the daily call from Option Alpha. In today's call, we are going to be talking about why you should practice paper trading like Scotty Roberts plays basketball. And so, you’re probably first wondering to yourself, “Who in the world is Scotty Roberts?” Well, that’s not his real name. I changed his name to protect his identity and just changed his last name. His first name was Scotty, but he was a guy that went to high school with us. He was a couple of years younger than me, but was a ridiculously good basketball player. Since this kid ever came into high school, he started playing basically varsity basketball as a freshmen and played all the way through his senior year and then went on to actually get a full ride scholarship and play for Division One school. He was really, really good. Now, he was not the tallest kid which was actually kind of interesting, but he was a great shooter. I mean, like really good shooter. I think in high school, I don't know what hi

Hey everyone, Kirk here again from optionalpha.com and welcome come back to the daily call. Today, we are going to talk about quitting your job to trade options. Really, I think there's four things that you need to do first if you want to quit your job and trade options. I think this is an interesting topic because people are really interested in quitting their job for some reason and wanting to quit their job and just trade full-time. Just for the record, I don't think you need to quit your job to trade and make a living trading. I think that it takes very little time actually to trade and trade successfully. In fact, you do not have to be glued to the computer screen all day. I would be a totally different person if I had to be glued to this computer screen all day. I tell people often that the reason I can run Option Alpha and watch my girls at home and stay at home with my wife and trade is because trading frankly does not take all of my time during the day. It’s maybe 30 minutes in the morning, 30 minute

Hey everyone, Kirk here again from Option Alpha and welcome back to the daily call. Today, we are going to be going down memory lane here a little bit for me and I want to talk about my short stint as a research analyst, a REIT research analyst and what I learned in that capacity, in that role. And so, I don’t know if there’s any major takeaways. I didn’t write down here my top three things that I learned. But I just want to talk through this because I think it might help shed some light on not only that industry, at least from my perspective and my opinion, but also just how I fell into the capacity that I’m in right now. After I worked in New York, I worked for Deutsche Bank in New York in mergers and acquisitions, also had a rotation on the trading desk, so that’s where I got I guess you could say my official start in the business, is actually in New York. I moved back down to DC where my family and my wife now (previously was girlfriend at the time and fiancé) was living and had a short stint as a researc

Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. Today, we’re going to be talking about how to trade options with the Bollinger Bands indicator. If you get started trading options or if you get started trading stocks, even Bollinger Bands is going to be one of those key technical indicators or technical analysis studies that you might run across early on. And so, I want to describe not only what Bollinger Bands are and what happens, I guess and what they are and how they work, but also how we might use them in options trading. First thing, Bollinger Bands were obviously developed by a famous technical trader. His name was John Bollinger and basically, what he did is he plotted a simple moving average alongside of a stock which is nothing new, but then he used standard deviation levels, so sometimes two or three standard deviation levels above and beyond that simple moving average using volatility. It was a very simple concept and that’s why I think it’s actually relevant to op

Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. Today, we are going to answer the question, “How many different option strategies should you trade at one-time?” I think this is an interesting question because people often start trading and they think that because there’s so many different option strategies that they need to be a master of all. But we’ve all heard the saying, “Jack of all trades, master of none.” That’s exactly what I feel like options trading is. I feel like you should be a master of a couple of key strategies, maybe a couple of key option selling strategies, maybe one or two option buying strategies and from there, it's just deciding which options strategy to use in each particular environment. For what trading that we do at Option Alpha and specifically on the pro and elite side for our membership, what we find is that we really actually focus on probably about two main strategies. If you really break it down and look at the two strategies that we trade, th

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to be talking about afterhours markets trading and just going through an overview for traders and basically some concepts and things you need to know if this is your first time learning about afterhours trading. There’s a couple of key things that we’ll talk about and you might hear me clicking around because I want to make sure we get all these comments or these dates and things like that right. If you do hear me clicking around, it’s just because I want to give you guys the right info. There’s a couple of things you have to understand about afterhours trading. One, that there’s regular market trading or kind of like I guess general market trading that typically occurs between 9:30 AM ET and 4:00 PM ET. That’s when most all contracts are trading. In fact, that’s the wide majority of contracts, volume, liquidity. Everything is traded between these regular market hours or regular trading hours. Again, 9:30 AM Eastern to 4:00