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

Hey everyone, Kirk here again and welcome back to the daily call. Today's call focuses on how we can use option strategies to protect gains. This is mostly for stock investors. I think that this is important just as we wrap up February here because February was such a volatile month. We had so much volatility particularly in the beginning of the month with stocks falling really, really hard. People are now asking and we’re getting questions and we see it all over the place. “How do we protect ourselves from gains? If we had a stock portfolio, how could we have protected some of the gains that we had?” There’s a couple of ways you can do it. We’ll cover three general strategies. There’s obviously a lot more that we can cover in other podcast, but I’ll take the top three or not top three, but the ones that are most often talked about. The first way that you could’ve protected gains is with a long put option. If you’re long stock and we’ll assume for the rest of the podcast here that you're long stock. If you’re

Hey everyone, this is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be answering the question, “Should we trade options after a merger or a buyout is announced?” This is again, a question that came from our community, so thank you so much for submitting your questions to me because it definitely helps out. The reality is that when a merger or a potential buyout of a company is announced, what people typically often think and what typically happens is that the stock now trades dramatically higher based on the agreed upon share price. If company A says that they’re going to buy company B for $10 a share, then the stock immediately starts trading to that. It’s usually a premium. The company is going to buy them for a premium, so that all the shareholders and board members will accept the deal and approve it. Then the stock starts trading immediately higher, but the reality is that even though it had a lot of volatility heading into that event or that one-day event

Hey everyone, Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be looking at the differences between long stock, long call spreads and leap options, especially if you are insanely bullish on a particular stock or a particular ETF. This actually came in from one of our members in the Option Alpha community, so thank you guys again for submitting questions because this does really help me figure out what you guys are interested in. I would've not necessarily put all these topics together in one quick little daily podcast, but this is what we’re doing because this was a question from somebody. They were particularly interested in this because they are super, super bullish for whatever reason on Apple. Not that I’m not or the other way. They’re just insanely bullish. The question becomes, “What do you do?” Well, I think it really comes down to just tradeoffs and just understanding what the differences are. The first one is long stock. Now, long stock has the ability to

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to be answering the question, “Does the moving average convergence divergence or commonly referred to as MACD indicator actually work?” Now, I can tell you, we have done extensive testing on this indicator and for the most part, it is not a useful indicator. That's the golden nugget that you get out of today. You can obviously check out our research on technical analysis by heading over to optionalpha.com/signals. But the whole premise behind moving average or MACD indicator actually makes a lot of sense and what it really is trying to do is trying to look at the generalities between or the predictability of shorter term moving indicators as opposed to longer term. Say a 9-day moving indicator versus a 12 or a 26. And so, if the shorter term moving indicator is moving up and starts to cross over a longer term, that might be bullish or if the reverse happens, the shorter term indicator or moving average is moving down, maybe

Hey everyone, this is Kirk here again at optionalpha.com and in today's daily call, we are going to be talking about the differences between traders and investors and really, just trying to figure out what is the difference because the term gets used interchangeably. I know that I mistakenly use the term interchangeably. It’s just very easy to say you’re an investor or you’re a trader. People think it’s the same thing. But there is a difference or I think there’s a difference in how I think about investing versus trading or how I think about this in the context of options trading versus other investing that I do. In my opinion, I think a trader is someone who exploits market pricing or market variable differences. They’re always looking to turn or roll positions over at an increasing pace, that basically, it’s a numbers game, it’s a quantity game, that you're taking advantage of some pricing differential in the market. In the case of option selling, we’re taking advantage of the implied volatility premium tha

Hey everyone, this is Kirk here again at Option Alpha and welcome back to the daily call. Today’s call, we are going to be talking about false positives and false negatives and why they cripple, literally cripple options trader’s ability to stay consistent. This one is a favorite topic of mine. Literally, I’m actually just really excited. I’ve sat up in my chair. I’m so much more alert talking about this topic because I love talking about this. I think that this is a huge problem in the investing world. I myself fall prey to it too, so it’s not like that it’s… I'm not superhuman and I don't have your false and negatives or downsides to how I trade, but I recognize that this is a huge problem with people and it’s this false positive, false negative that you get in trading. Here's how it works. When you make a trade and even if it's a completely bad, stupid, dumb trade, you could still make money on that trade. There’s probably a pretty good change maybe even that you make money on that trade because something

Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. Today, I want to talk about why the Federal Reserve has never ever predicted a recession. I think this is actually pretty interesting. If you actually go back and really study the Federal Reserve and all of their predictions, all of their comments that they’ve put out… I think we haven’t talked about this earlier on a podcast. This is Show 154, so we’ve done a lot of them before. But I think we did cover the comments that have been made before by Bernanke and others. The thing is that the Federal Reserve literally has never ever predicted a recession in the US and constantly now, the market is looking towards the FED as like big daddy, big brother on where things are going to go. Like, “Hey. The markets are in turmoil. Let’s look at the FED. Where do they think that the markets are going to go?” But the reality is that they’ve never ever predicted a market recession and that's alarming. Even more so, if you look at… I think the

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to talk about this concept of core portfolio theory for options traders and really asking the question, “Is it still viable or frankly, something that’s useless?” What is core portfolio theory? You might have heard it from some other people out there and that’s basically this idea that you should have a core portfolio on at all times. That can be comprised of futures contracts. It can be comprised of synthetic options positions. It could be comprised of stock in and of itself. You could be long gold because you love gold or long bonds because you want to be long bonds. But something that is your core portfolio and then you trade around that core portfolio. I understand all of the arguments for a core portfolio. I just think it's honestly inefficient use of capital to some degree unless you're doing things mostly synthetic. My biggest rub with it is that I truly believe in most cases, that stock is really inefficient for trad

Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. Today, I want to try to help motivate you just a little bit to stick with it because I honestly think that most of you guys are about 5° off of your target. What do I mean by this? First, I’ll go back and say, “My mom had me read a long time ago, a book called “212.” It really was nothing more. It wasn’t a book. It was more of like quotes and phrases and people who are just on the brink of being successful and stories about that. But the premise of the book is that at 211°, water is scolding hot and boiling. But at 212°, literally 1° higher, it becomes steam. It starts to evaporate and become air. It’s that one extra degree where you don’t know how hot it needs to be until it finally starts clicking and converting and transitioning over to something completely different. I think that many people, especially people who try to follow options trading (whether it’s with us or other people) end up putting in so much effort upfront an

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to answer the question, “How closely should you monitor your option Greeks when trading?” I think this is a tough one to answer because I think there’s two parts to it. The first part of monitoring Greeks comes into play with single positions. If you’re looking at a single position, maybe a single iron butterfly or iron condor that you have in an ETF or a stock, then you might look at the Greeks a little bit different because you're looking at it in the context of that single position. We’ve talked about before on the weekly podcast and on videos how you can use Greeks and in particular, Deltas as triggers for adjustments. If you sell the 15 Delta strangle for example and one of the Deltas on one side of your trade gets to 30, then you make an adjustment. That could be one of your triggers. There’s one way of looking at it which is monitoring Greeks on a position type level. Now, the other way of looking at it, I think proba

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we are going to be talking about what I refer to I guess as the dentist adage for traders which is, “One trade a day keeps the black swans away.” We’ve all heard that kid’s tale or kid’s phrase that you would say to your kids like, “One apple a day keeps the dentist away.” But I think in trading, it is truly at least one trade a day on average that keeps black swans away. And so, I think this was timely because as you know, we’ve just been going through a lot of turbulent market movements. We’re starting to see markets really, really pick up in the speed and velocity in which things are moving in both directions. We have days now where we’re making 100 point moves within the same hour on the DOW and the S&P and it's crazy. What I always tell people and I’ve told people for a long time is that what we need to do as traders is realize that market direction becomes more and more meaningless, meaning it’s not as i

Hey everyone, this is Kirk here again at Option Alpha and welcome back to the daily call. Today, we are going to be answering the question that was submitted, so thank you for… Bill is the one who submitted this question to me. “What is the last trading day for index weekly options?” Now, I can tell you right now, there’s a lot of different stuff about index options because recently, I think it was 2006, the CBOE began offering weeklies on Monday and Wednesday expiration. What typically happens for most weekly contracts and I’m not including indexes in this right now, although they are offered on indexes, is that the contracts will come out on Thursday and then expire the next Friday. That's basically how those regular weekly contracts work. And so, for most tickers, if they have weekly contracts, then that’s how it works. The contracts basically get issued or published officially on Thursday and then they expire the next Friday, although in most cases, you can actually see them for many, many consecutive wee

Hey everyone, Kirk here again from Option Alpha and welcome back to the daily call. Today, we are going to be talking about some vertical spread examples and also going through the advantages and disadvantages of trading spreads. First of all, what is a vertical spread? Well, there’s two types of vertical spreads generally. There are debit spreads and credit spreads. Debit spreads are when you are trading two different option contracts and the net result is that you end up paying a debit, so you’re paying to get into the position which means that you’re an option buyer. If you do a credit spread, that means you’re trading two different option contracts, but the net result is that you get paid a net premium or a net credit which means that you’re an option seller. In either case though, they are still classified as vertical spreads because you're trading two different contracts. Where you can adjust your spreads is mostly on spread width, so how far out you end up selling the contracts or buying the contracts

Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. In today's daily call, we are going to talk about the differences between buying and selling calls and puts with stock options. There’s basically four different ways as the major building blocks or fundamental mechanics of how you can trade options and the four different ways are – You can buy a call, you can buy a put or you can sell a call and you can sell a put. And so, today, I want to go through each one of these and break them down just a little bit more, so that you understand what each one entails and what the obligations and the risks are associated with each one of these. Now again, these are the building blocks. This is the framework of how you basically can create any option strategy payoff diagram you want by using these four core fundamental different option types. The first one is to buy a call. When you are buying a call option, you’re basically buying the right to go long 100 shares of stock at a specific strike

Hey everyone, this is Kirk here again at Option Alpha and welcome back to the daily call. Today, I want to talk about a huge stock trading mistake and that’s forcing revenge because of a missed opportunity. This is one that I know I struggle with initially when you start trading and I think everyone struggles with this as an investor. If you don’t, I don’t think you have emotions maybe or you’re just too robotic in your trading to begin with. But this concept that I see all the time and honestly, I see this still in people who say they are veteran traders to some degree, but they end up forcing revenge on the market by trading things that they should not trade or position sizing themselves in a way that exposes them to more risk because they think that they are missing an opportunity or because they think they have to fight back against the market. This concept really comes from in most cases, the world of gambling or poker, however you want to think about it. But if somebody's dealt a bad hand, what you'll s

Hey everyone, Kirk here again and welcome back to the daily call. On today’s daily call, we are going to be talking about option writing strategies and exiting these positions before expiration. Today's call basically came out of a question that somebody emailed me. Again, if you have a bunch of questions about options trading or strategies and you want to email them or tweet them in or leave us a private voicemail at optionalpha.com/ask, we will definitely get them added to the list for these daily calls because we’re doing them as you know, every single day. And so, this helps me just figure out what you guys want to hear and what you guys want to learn. In this case, somebody emailed in and they said, “Hey, can you close out a trade before expiration when writing options? Do you still get the premium? How does this whole process work out? I don't really understand and it doesn’t make sense.” Here’s the deal and we’ll just take this step by step. When you are doing an options writing strategy where you are

Hey everyone, this is Kirk here again at Option Alpha and in this daily call, we’re going to answer the question – “What are the best option strategies for a bear market?” Now, at the time that we’re recording this, we are not in a bear market, but inevitably, imagine that at some time in the future, we will be in a bear market and markets do correct, they do go down and we’ll probably see some volatility. And so, the question is, “How do we trade this? How do we not only protect ourselves from this, but how do we profit from a bear market move or a decline in the stock market?” The first thing I will tell you is that you have to wait. This is something that we definitely learned in lots and lots of research of back-testing different bear market scenarios, back-testing market crashes, not only global market crashes, but different actual ETF and sector crashes, like the crash that happened in the dollar, the crash that happened in gold and silver, in the oil markets. All of these different markets have very mu

Hey everyone, Kirk here again and welcome back to the daily call. Today, I wanted to share the top five currency ETFs with tradable options contracts. One of the cool things about options and particularly, the ETF market space right now is that a lot of ETFs are coming out that can trade basically anything that we wanted, so we can have very quick, very easy exposure to global currencies, global markets, global countries basically in the entire economy via an ETF which is very cool. Today, the top five ETFs… I just looked up this on a bunch of different databases just to see what were the top five ETFs as far as market size and market cap and the top five right now are UUP which is the dollar bullish ETF, so trading basically the US dollar, FXE which trades the Euro, FXY which trades the Yen, FXB which trades the British Pound and FXC which trades the Canadian Dollar. There’s also FXF which trades the Swiss Franc too which is also up there, but as far as top five go, these are really the top five as far as ma

Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. Today, we are going to be talking about the basics of trading options in your 401K account or your IRA account. Most people obviously want to trade options, but you might think that it's hindered by the ability to trade options in your retirement account or 401K. The reality though is that it’s actually very easy to trade options in these accounts as long as you either go with A, the right broker or B, have the right trading approval levels. We’ve talked about this before in the past, but approval levels are different levels that allow you to trade more and more complex option strategies. Most brokerages when you start out with a brokerage account and fill out the questionnaire about risk and what you’re trying to do with the account, basically, they’re trying to assess what type of risk they should allow you to have, what type of options trading approval level they should grant you. When you fill out this, most brokers generall

Hey everyone, Kirk here again at optionalpha.com and welcome back to the daily call. Today, we’re going to be answering the question – “Which option strategy has the highest returns?” Before we actually go into this topic, I think it's important that we talk about the differentiation between returns and volatility in your account. This is something I yet to hear this often talked about and this difference between going after the highest, highest return versus something that has basically low volatility or stability in the portfolio. Imagine two different things before we even start this conversation. Imagine that you have a portfolio curve, so your bank account goes up and down every single day by $5,000. Now, if I just said that to you right now, some of you would think, “Holy cow! That’s like all of my account. I could either lose or double my account every single day.” Others of you may have said, “Well, that’s not that much. I’ve got a larger account. $5,000 up or down is not a lot of volatility in my acc