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

Hey everyone. This is Kirk here again in optionalpha.com and welcome back to the daily call. On today’s call, I want to talk about why discipline is an absolute lie and why habits are the key to your ability to find success. First, welcome to Show 100. It's been actually a quick run to 100. Hopefully you guys have enjoyed this daily call podcast as much as I've actually enjoyed doing it. I love this medium of communication. I think it helps in so many different levels. I still like to write. I still like to do webinars and videos. But for me, just sitting down and recording these podcasts has been insanely helpful and this has been my habit. This has been a habit that I’ve wanted to develop and wanted to hone in on which is why I’ve made the commitment 100 episodes ago to actually do a daily show and that’s been a real key for me, is to make a commitment to you guys to be here every single day and to show up, talk about something that’s relevant, provide value, help you out in your life, in your trading journ

Hey everyone, Kirk here again at optionalpha.com and welcome back to the daily call. On today’s call, I want to talk about the striking similarities between options trading and insurance. I love talking about this, honestly. I think it's just honestly one of the best analogies that we can use to help educate people on how to trade options, why we do what we do, like why we setup our trades the way that we do, our portfolio the way that we do, we position size the way that we do and the edge that we’re trying to take out of the market. I think there are so many similarities between this and it’s obviously evident that generally, this stuff works because not only does Warren Buffett have huge stakes in insurance, but he’s also a very big-time option seller. He talks openly in his 10Ks and 10Qs for Berkshire Hathaway about the edge and implied volatility, the overstatement in implied volatility, all this stuff. You guys can all read about it. It’s all public information. When I think about the insurance business

Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, I want to answer another question from the community that came in and that is – “Which options broker should a newbie trader or newbie traders start with?” I think the simple answer here is there’s probably two really good brokers… Let’s say three brokers based on where you live in the world that you should start with. I generally think that the options market is getting more and more focused, meaning that I think that brokers are either choosing to make the decision to trade options and make a commitment in that space or not. We see this most often in some of these big brokers where they’re buying up in cases, these smaller option brokers that have been around for a while. They're getting engulfed by larger institutions mainly for the accounts that are in them because options traders are generally higher net worth individuals than traditional stock traders. And so, these larger institutions are buying up broke

Hey everyone, Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to talk about the basics of trading options with margin. I think this is an interesting topic to talk about because most people who get started on options trading, they understand that they have to open up some sort of account that allows them to do trading. One of the accounts that you can open up is what’s called a margin account. And so, I want to describe basically what margin is and why it’s available, what happens, how it’s used to cover positions, etcetera. Basically, what is margin and why do you need it? Well, to understand margin, you have to first understand that it mostly applies to option sellers. Now, some accounts may apply margin to option buyers, but it’s not traditionally how it’s done. When you start trading options, if you buy options as the first course of business which most people might start by buying an option contract, they buy a call or buy a put, those contracts do not require any

Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. On today’s call, I want to talk about the importance of staying physically active to avoid mental fatigue. I think this is really important because to be honest with you, physical activity and working out, being healthy, fitness, it all really relates to options trading in so many different ways. I mean, just the core concepts and the daily activities and the consistency, but also because I am somebody who struggles with continuing to stay physically active. Now, I'm 100% blessed with really good genes and I’m not talking about like the old navy jeans that I wear. I’m talking about like the generics that I have in the family history that I have. I’m just really honestly blessed with it. I know people are not and I get that, I understand that. I have enough self-awareness to understand that I’ve got really good genes where I stay pretty trim, pretty physically fit. If I work out a couple of times a week, I don’t need t

Hey everyone and welcome back to the daily call. On today’s call, we’re going to talk about the gift that options trading gives to individual investors every single day. And so, hopefully you guys had a good holiday season or if you’re listening to this on the holiday season, hopefully you guys are enjoying it, spending time with your family. I always love it now with my kids because I get to excited obviously for all the holiday stuff and my wife really loves it, so it's a very fun time for us as well. But I think that it’s fitting to talk about probably what I think is the biggest gift to individual investors that trading gives and that’s that it gives individual investors a level playing field. I think if you really think about options trading and taking a step back today maybe as you’re listening to this and taking some time out of your day to listen to this that you think about how level the playing field is now versus how it was even like five or 10 years ago. The playing field is insanely level for opt

Hey everyone, Kirk here again and welcome back to the daily call. On today’s call, we’re answering the question from the community and the question was – “Should you withdraw contributions made to your IRA account?” First and obviously, please talk to your CPA about this and not use this as the only basis for doing this. But in most cases, I think the rules now are you have to have an IRA for five years and then you can obviously withdraw contributions. In most cases, I’m talking about ROTH IRAs where you have after tax contributions, so you’ve already paid tax on it. You can take those contributions out. You just can’t take out any of the gains that you have. But obviously, you might have to put them back or they might be subject to putting those distributions back into your account at some point in the future. Again, consult with your CPA on this. But as a general rule of thumb, I would say don't take money from your IRA unless you absolutely need to. There's probably a million reasons why you shouldn't do

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. On today’s daily call, we’re going to talk about the difference between implied volatility rank, IVR and implied volatility percentile, IVP or IV percentile I guess for short. There’s a big difference in the trading community and a lot of people have questions on this, so hopefully we can help answer a lot of those today and just talk about how we look at implied volatility here with these two different metrics. But the first thing you have to understand is why we use these in general. The reason that we use any type of implied volatility ranking or percentile metric is because if you just set an implied volatility level, it's totally arbitrary unless we know ranges and highs and lows. That’s really what it comes down to. If I told you that implied volatility on Apple was say 20% and implied volatility on Google is 20%, that's totally arbitrary. Yes, it’s the same number, but implied volatility on Apple at 20% could be l

Hey everyone, this is Kirk here again and welcome back to the daily call. On today’s daily call, we are going to be talking around the concept or just the topic of equating net worth with self-worth which I think is something that can be challenging for a lot of people who start in the investing space. I know as investors and as traders, we think a lot about money, we think a lot about prices, we think a lot about securities and markets and it can be very easy for us to fall into the pitfall of equating what we are worth as an individual tying that to what our bank account statement is. I can tell you (just to start off with) I've met so many people through the Option Alpha website, millions of people eventually, hundreds of thousands at this point, coached thousands of people. There is no correlation between net worth and self-worth, meaning that I've met people who are insanely wealthy every standard imaginable, who have poor self-worth, have poor or low confidence in themselves, have bad marriages or in a

Hey everyone, welcome back and this is Kirk here again on the daily call. Today’s daily call, I want to talk about this concept of unlimited profit potential which is really a code for low probability of success. I really love this concept. I think if you understand this concept that I think a lot of people when they get introduced to trading or introduced to investing, they really understand this concept. They understand why a lot of people lose money. A lot of people lose money in investing or it doesn’t have to be necessarily options trading, but just investing in anything. I think lottery tickets in this case is like the classic example where there’s this huge upside potential, but a very, very low probability of success. People get sucked into this because they think about the upside potential, but they never factor in or they never look at the expectation of actually generating that money. Like what is the probability that I make that money? People pay in the case… The classic example of this obviously

Hey everyone, Kirk here again and welcome back to the daily call. On today’s daily call, I want to talk about the downsides to trading options for income. I think it’s important just to talk about these openly about what you’re going to get into if you really want to open up a business in the options market. I really always use that analogy because I think that’s what you’re doing. I think you’re starting a business. No different than if you opened a restaurant or a shop or something. I mean, it’s a commitment and I tell people that often that you have to make that commitment to be successful in doing it. It can’t be just like a weekend hobby if you're really trying to generate income from it, if you’re trying to replace income from it. I think for me, the biggest downside… I overcome this through the Option Alpha community, but the biggest downside that I found initially was just that it’s a lonely business. I mean, it really is. You get into the options market and you become an investor, there’s so much goi

Hey everyone. Welcome back to the daily call. On today’s call, I want to talk about options trading and expected ranges. I’m not really sure where I want to take this conversation, but I would definitely want to help people understand this concept of expected ranges, normal distributions… We’ll just use the word “normal distributions” because I think it’s easier to use than probably what the options market maybe really is or what the distribution of returns really are and we’ll talk about that here in a second. But I just want to talk about this concept because it’s really important to how we trade here at Option Alpha and really, how most back-testing and research is done. It also confirms a lot of this, so it’s not just that we’re saying this is how we think that the markets react. We know that this is how the markets react. We have a lot of data to backup what we talk about here and backup the strategies that we do. Every day, we’re doing more testing and more research and reconfirm or tweak or adjust what

Hey everyone. Welcome back to the daily call. On today’s daily call, we’re going to talk about a classic options trading mistake that maybe a lot of newbie’s fall prey to and it’s called – “When you’re right, but still lose.” This actually reminds me of like when I was a kid with my sister. I only have one sister. I love her to death, but we used to fight a lot as kids obviously. All the time when we were fighting, if I was doing something or she was doing something and we got into an argument, my parents would come up and they would basically reprimand us both and they would say, “You’re both wrong. Go to your room.” It would drive me crazy, honestly. Like still to this day, it drives me insane because most of the time, I was probably right. They just send us both to our rooms because we’re still fighting, so we would still both lose even though maybe I was right. Maybe she was doing something wrong or maybe I was doing something wrong. Who knows? But most of the time, I was probably right. Anyways, the real

Hey everyone, Kirk here again from Option Alpha and welcome back to the daily call. On today's call, we're going to answer the question – "How can I tell which option contracts are weekly options versus standard option or monthly option contracts?" First, just to describe I guess generally what weekly contracts are, weekly contracts came about a couple of years ago now. Basically, I like to use them as like the fill in the gap type contracts whereas we used to have just monthly and quarterly contracts in the options market. The weekly contracts came in because people wanted to trade different expiration dates and basically wanted to really pinpoint different times that they wanted to trade different durations that they wanted to trade. These weekly contracts came about eventually, first starting on some of the major indexes, now have pretty much spread to a lot of securities, not all securities obviously, but have grown in popularity because people like to trade in most cases, a very short duration contract a

Hey everyone. Welcome back to the daily call. My name is Kirk, here again at Option Alpha. On today’s daily call, I want to talk about the difference between buy to open and sell to open for options trading. Now, this one is one that I think a lot of people get slipped up on and it’s just a very subtle difference, but it’s confusing because when you get started in options trading, it’s obviously another dimension if you will. With stock trading, it's very easy to understand. You buy stock and then you sell it hopefully at a higher price. When most people start transitioning, they start realizing that with stock trading, you can actually sell stock at a higher price and buy it back at a lower price and that's called short selling a stock or short trading. The same thing actually happens with option contracts. When you buy to open, you are basically outlaying money, you're buying an option contract to initiate a position or start a position. Now, the catch to that is eventually, you have to sell to close. If yo

Hey everyone, Kirk here again and welcome back to the daily call. On today’s daily call, we’re going to talk about how you determine breakeven points for naked calls and puts. This really gets down to I guess the basics of options trading and something that I don’t think actually even people who have traded options before remember. Sometimes you forget because I get emails from people and they say, “Kirk, I’m trying to figure out where my breakeven points are.” It just comes back down to really actually just simple math and maybe sometimes, just slowing down are not rushing through the process. But in the case of naked calls and puts and we’ll start with naked calls to start. Again, with all naked option selling or all option selling in general, you take in a credit and that credit is then used as the basis for helping to determine where your breakeven points are. In the case of a naked call, let's say that the stock is trading at $95. You sell a naked call at 100 strike, but you take in a $3 credit. Now, obv

Hey everyone, Kirk here again from optionalpha.com and welcome back to the daily call. On today's call, we're going to talk about how you setup trade adjustment alerts using Deltas. Really, this is a question that came from the community. Somebody asked me and they said, "Kirk, how do I setup these trade adjustment alerts inside of Thinkorswim or any broker platform that has this capability to use Deltas to basically let me know when I should adjust my trade?” Now, we've talked about this in previous shows on our main podcast, so you can just search the main podcast or the website about setting up adjustment triggers. But typically, what happens is that say you are trading a short strangle where you're selling a naked call, selling a naked put and initially, both strike prices are at the 15 Delta. Again, you sell the 15 Delta puts, sell the 15 Delta calls. Now, what you could do if you don't have the ability to monitor that trade all the time is setup what are called “trade adjustment alerts” and those are ba

Hey everyone, Kirk here again and welcome back to the daily call. On today's daily call, we're going to answer the question – "What metrics should you use for determining your position sizing?" Now, specifically, inside of Thinkorswim, there's a couple of different metrics that they give you. They give you things like option buying power or stock buying power and this maybe the same for your broker too. I'm just again, speaking with Thinkorswim because that's what we're at right now. They also give you cash and sweep vehicles, available funds for trading and then net liquidity or net liq and day trading power. The one that we always use and I think the one that people assume we use… People assume we use available funds for trading and we don't use that. We don't use that because that's what's left over from either investments that you have or money that's tied up in your margin account. If you have let's say a $100,000 account, you might have already committed $50,000, so your available funds for trading is $

Hey everyone, Kirk here again from optionalpha.com and welcome back to the daily call. On today’s daily call, I want to talk about the citizen’s fallacy behind the 21 trillion in national debt. Why do I call this the citizen’s fallacy? Because I think that honestly, most people… I don’t care what political spectrum you lean towards, left, right, middle, it doesn’t really matter. I think most people have no idea how much a country (the United States because that’s where we’re recording) is in debt. We have a national debt that if it hasn't been eclipsed by time that this podcast goes out, it’ll probably will very, very shortly. But it’s 21 trillion in national debt which again, trillions and billions, people throw around randomly now. I think people are numb to this. I don't think that people understand really the difference between a trillion and a billion other than the T or the B really at the beginning. But I think that most smart people, if you rationally think about how much debt we are racking up, know

Hey. What’s up, everyone. This is Kirk here again at optionalpha.com and on today's daily call, I want to get back to again, the topic of trading options with a small account and more importantly, maybe just going through a couple of things that you can do if you are trading options with a small account, little checklist, reminder things that I think are important. We’ll cover the high, overarching stuff. We’re not going to get into obviously like the nitty-gritty details in a short podcast like this. But the first thing is when you’re trading options with a small account, you’ve got to focus on small positions. This gets down to really, the heart of everything that we talk about here at Option Alpha and that’s making sure that you know what your edge is. We’re playing that implied volatility edge in the market. The expectation that implied volatility is always overstated and therefore, option pricing is always overstated. If that’s your edge, then we know that that edge plays out over time and the only way t