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, I want to talk about why I believe the future of trading is actually tradable option strategy tickers. What do I mean by this? Oftentimes, I’ve talked about where I think the future of trading is going. Some of the things I’ve even said are starting to actually come true, things like – I believe that all brokers will eventually be zero commission and we start to see more and more brokers not only in 2018, but also recently in 2019 start to become commission free brokerages. I think one of the other things that I definitely see the industry going towards, though I don’t know exactly how it’s going to work out, but I know we’re going to get to some level of this in the future, is tradable option strategy tickers. Right now, we get a lot of questions around how we execute a consistent strategy and part of the problem with options trading in general is just the time commitment that’s required to actually go in every

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I’m going to be talking about what I’m doing about my failed habits. I recently went through and I think I’ve talked about this on the weekly podcast, as well as maybe a daily podcast previously, but I recently went through a little bit of a slump in my habits because we were traveling and things were happening and we had school and swimming and soccer and so, everything with our kids and family got messed up for a week and it really threw me through a loop as far as habits go. And so, I’m usually really good about waking up on time and getting into a good rhythm every week and getting things done that I need to and for whatever reason, I was thrown into kind of like a little bit of a whirlwind and my habits went out the door. And so, now, I got to come back around and I have to refocus everything I’m doing again and kind of rebuild these habits. As I’ve talked about previously on the podcast, it only takes I th

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 EBITDA?” which is earnings before interest, taxes, depreciation and amortization. We actually just told you what EBITDA is, but really, what is EBITDA? How do we use it? How do we calculate it? Why do we even care what EBITDA is? Now, this takes me all the way back to my original finance and schooldays back at UVA and even when I went to work in New York and worked in BB&T capital markets as a REIT analyst. We used EBITDA all the time in our industry jargon and finance. And so, what EBITDA does, it basically just takes what a company’s cash flow is and tries to break it down to the most basic, nondescript, non-structure or tax consequence level. And so, what I mean is when you look at a company and a company has earnings of say $100 million, that net earnings that they show of $100 million is already including things like the taxes that they had previously paid o

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 profiting from extreme investor sentiment. There actually is a pretty decent body of research out there from a lot of different institutions that show or prove that extreme levels of investor sentiment tend to be contrarian indicators for the market. For example, if we see an investor sentiment survey that shows that most people who are invested in the market are extremely bullish about the next six months or a year or two years or whatever the timeframe is, that tends to be a little bit more of an extreme contrarian indicator once they reach these higher levels, that might actually predict that the market is reaching a peak or that the market has already started its peaking or topping out process. The same thing can be true in reverse. When investors are highly pessimistic and bearish, that tends generally to be correlated with bottoms of markets. Now, this is not always the case

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 – “Can you learn how to read stocks?” I think this is a really interesting question. I think ultimately, you can learn how to read stocks, but that doesn’t necessarily mean that you’ll have really great predictive power. When I think about learning how to read stocks and read charts, I think about generally looking at different stocks or markets and figuring out what types of common ebbs and flows or common moves that a particular stock might have over time. I’ve often said that stocks are like people in that they have their own personality. They have their own ways of reacting to news or different environments that you could probably get a good idea of over time. Now, again, does this mean that you would have crazy, crazy predictive power over where a potential stock is going to go in the future? Probably not. I think it’s probably really hard to do. Are there really good stoc

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 basics of direct access day trading. Now, I don’t necessarily want to talk about day trading because we don’t believe in day trading here at Option Alpha, but many people are probably searching for concepts around direct access trading or direct access day trading, trying to get an idea of what direct access trading is. In its most basic terms, direct access trading gives you the ability to skip any potential middleman and directly place orders with whatever exchange you want to place orders with. Many broker platforms now give you the ability to do this where you can actually place orders the exact same day or a different day or use contingent orders with any exchange that you want or choose to just use the best possible exchange or the best price at that given time. And this is really cool because what it does is it skips over any potential middleman that potentially might b

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 – “If the dream is a tree, resistance is the shadow.” And I actually love this quote. This is a fairly recent quote that I came over and thought it would be applicable for the podcast because I think it actually applies to many different aspects and I think it was originally attributed to Steven Pressfield. Maybe it doesn’t, maybe it’s not. But he said, “If the dream is a tree, resistance is the shadow. Both appear and grow at the same time.” And I got to be honest. I can’t tell you, like I feel like this actually is so, so true and so fitting and it’s just a good analogy for it because in so many ways, even with Option Alpha trading, just like anything in life, when you have this dream to step outside of any social norm or any relative norm compared to the masses, then the further and further you step outside of that normal herd, you just find more and more resistance to pull you

Hey everyone. This is Kirk here again from Option Alpha and today, we’re going to be answering a question I just got the other day from a member which is – “Can option assignment help turn around a trade?” And I thought this was an interesting question, not one typically that we usually get, but it’s an interesting topic because the thought process here is A, if I have a trade that’s going against me or that’s not working out, can I somehow use the process of assigning the contract or being assigned the contract as a means to an end to then help turn the position around? And the only thing I could think of that might help turn a position around is just simply more time, but time does not require you to be assigned or to go through the assignment process. You could just as easily roll option contracts, even contracts that are challenged or in the money. You can roll those contracts to the next month, keep your capital allocation low because you don’t have to purchase or short sell the stock and you can use tha

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 time comes to those who make it, not those who find it. Now, I think this is really important because ultimately, the last couple of weeks, I think I mentioned this on a Facebook Live recently, but I went through a little bit of funk in my schedule and we were traveling and we had so much going on with the kids and school, soccer, swimming, they’re overlapping, swimming and soccer and I just couldn’t seem to find time to get some of the content writing and some of the podcast done that I wanted to do. And ultimately, what I ended up realizing was that I was trying to find time in my day, like fit something in that was important, but ultimately, what I needed to do was I needed to make time for it. I needed to block out time in my day to make that a priority. And so, this is a reminder for you and for me because I’m talking to myself as I do this, but we have to make time for t

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 everything is leveraged. This actually comes up from a discussion I was having with somebody the other day and they basically said, “Look, Kirk. I don’t want to invest in anything that has to do with margin.” And I was talking about how when you trade with options, sometimes depending on the account that you have, you have to put up margin. Not that you have to borrow a margin, but you have to put up margin to cover potential losses on positions and that’s how brokers allow you to then trade a leveraged product like options, is you have to put up margin. And they basically said, “Look. I don’t want to ever, ever, ever trade anything with leverage. I don’t believe in it. I don’t want to do it. I just want to invest in regular stocks and the stock market industries.” And I told them and I said, “Look. Everything is leveraged.” Even your regular traditional investment in any stoc

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 people who are penny wise and pound foolish. This is probably one of my, again, more favorite phrases or quotes. You’ve probably heard it a zillion times, but I think it’s so powerful because not only does it apply to a lot of things that we can do on a personal level, potentially personal finance, relationship based, but also, it applies a lot to how people think about trading options and the actual actions that they do versus what potentially the actions they should be doing are in exchange. Quick analogy or a quick example of being penny wise or pound foolish on the personal level might be something like saving $.10 and clipping a coupon for a two liter bottle of soda and then going right next-door to the furniture store and buying a whole new living room set of furniture and putting it on credit. That would be a classic example of being penny wise and pound foolish. You are cl

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 everything is figure-out-able. And I honestly love this quote. This is actually one of my new favorite quotes that I’ve had attributed to Marie Forleo which if you don’t know who she is, look her up online. Search her on Google and YouTube and Facebook. She has a wonderful podcast, an amazing show, very entertaining and she recently said this and I don’t know why it just, for some reason, struck a chord with me a couple of months ago, but she recently said everything is figure-out-able and it’s just this idea that you have to have the mentality of understanding that every problem you’re faced with has a possible solution. And I can tell you, this is truly one of my best qualities. I recognize this and I know that this is one of the things that is my strongest quality, is this willingness to overcome a problem or to find a solution to every possible problem I’m presented with.

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 must outgrow your problems. And this is a new one for me. This is something that I’ve read recently in a book and I’ve just been digging and marinating on this topic in my own mind over the last couple of weeks and I truly stand behind this. I think this is a really interesting concept and something that everyone can take away from just a very quick, simple statement and it’s this idea that we need to outgrow our problems. And ultimately, if we want to become a better trader, better investor, better parent, better father, better husband, etcetera, you input your better whatever, you have to let the problems be smaller than you because if you let problems become bigger than you, then they take control of you and that’s ultimately where a lot of people end up falling victim in the market, is they let trades become bigger than they are and they ultimately let that trade dicta

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 – “Can I trade options with low volume and open interest?” And the short answer to this question is yes, you can trade options even if it has low volume and open interest, but the real question is – Do you want to be trading that particular product on an ongoing basis? The problem that I see a lot of times when people send over trades to me or over to our team to take a look at, is that they’re generally trading underlying stocks and ETFs that have very low, in many cases, no open interest or volume for the option contracts. And what that creates is that creates a huge spread in the bid ask spread and it creates a really tough time to get fills into the market. Now, does this mean that we can’t make a trade if the trade is let’s say an amazing setup that comes once in a blue moon? Of course not. We can still enter the position and try to get it filled, but it’s just going to be

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 are low-cost index funds?” Low-cost index funds are exactly what they sound like. They are index or ETF funds that offer the lowest possible expense or expense ratio fee cost to the end investor. Now, many of the lowest-cost providers right now when it comes to funds and ETFs that track global indexes and global markets charge as little as 0.03%. Yes, that’s not a typo. That actually is their fee. It’s a very, very small fee to put the fund together and to basically do all the reporting and tracking essentially. In addition to that, many of the brokers nowadays, including TD Ameritrade and Schwab, etcetera, offer the ability for investors to purchase these low-cost ETFs and index funds for no commission or commission-free. And so, this is a huge advantage that many investors have in today’s market that frankly just was not available even five or 10 years ago. Not only t

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 – “Can I sell options on expiration day?” And the answer to this question is – It depends on the broker. Some brokers do not allow you to open new sell order positions on the day of expiration. In particular, I know that Robinhood, at least at the time of this recording, does not allow you to get into a brand-new position on expiration day. Some other brokers, depending on the account that you have and where it’s located, like TD Ameritrade or Tastyworks, may offer the ability to open new positions on the day of expiration and a lot of people actually try to do this as a means to potentially generate quick money, but I don’t think it actually works out pretty well. We’re going to be doing some research on this in the future just to see for sure if the numbers support my theory, but I would highly, highly doubt that trading options during the day of expiration, given the insane

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 happens when an index option is exercised?” Today’s question really still revolves around this topic of exercise and assignment, but it’s more targeted towards index option contracts. And so, today, I’ll use two as my examples. The first would be SPY which is an ETF index option contract based on the S&P and then we have SPX which is the bigger, more pricier index option contract of a more true form and is cash settled. In both of these cases, when you go through any exercise process, you would have to notify your broker of the deliberate intent that you have as the option contract owner to exercise your contract and take delivery of the underlying. But the difference is between these two contracts is that one is actually cash settled and European-style settlement and the other is settled to the underlying and is American-style settlement. The younger cousin or the

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 – “Do futures contracts pay dividends?” And the simple answer to the question is no. Futures contracts do not pay dividends. They don’t necessarily benefit directly from the payment of dividends. You would really have to own the underlying stock in order to collect those dividends or own an option contract that would benefit from the dividend being paid. Futures contracts are at a little bit of a disadvantage in that sense compared to owning the underlying stock because they don’t benefit directly from the dividends. That being said, many of the futures indexes or commodities or underlyings by which these contracts are based are already pricing in a future price which may or should potentially include the expectation of dividends if dividends are being paid over the course of a year or a quarter or a month or whatever, etcetera. If you’re looking at a stock or a commodity or a

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 – “How does volatility affect option prices?” Volatility is this thing that most people really don’t understand when it comes to option pricing in the options market. And it’s really as simple as this. When implied volatility or the expectation of volatility in an underlying stock increases, option prices on both sides, calls and puts, increase as well. When implied volatility or the expectation that the underlying stock is going to see a decrease in volatility, then the underlying option contracts on both sides, calls and puts, decrease as well. And another way of just looking at this is just to use maybe a real estate analogy. And if you’re going to buy a property in New York or San Francisco or Miami or one of these hot markets right now, there’s a pretty good chance that you’re going to see a wild swing in the price of that property and therefore, the price of that property

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 – “Can open interest be negative?” The simple answer to this is no, open interest cannot be negative. Open interest for options trading purposes is always going to be a positive number if it’s not zero and the reason is because there can never be an imbalance of negative contracts in the market. Open interest is meant to judge how many open contracts are still left in the market. To use an overly-simplistic example, let’s say that a buyer comes in and a seller comes in and there’s no other liquidity in the market. They choose to enter into an option contract where one party buys and one party sells. This creates now, a new option contract in the market and open interest rises from zero to one. Now, let’s say later on, that same buyer and that same seller come back and choose to close their position. They reverse their trades and create more trading volume, but now, they have re