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 going to talk about the definition of a bear market which is simply just this idea that securities or any underlying index would fall at some point. Typically in the same year time period, so in a 52-week time period, it would fall a total of 20% from peak to trough. And so, when we see a security or an index fall by more than 20%, it's classically defined as being in a bear market. Now, this can easily reverse and it can be an intraday bear market. We actually saw in a lot of securities back at the end of 2018 with kind of the reversal and crash that the market had during that period, a lot of securities actually entered a bear market even short-term for a day or so before they bounced out of a bear market. It can happen on a very short period of time, but it’s just simply the correction in pricing of 20% from peak to trough. Now, my personal problem with this is that everyone’s always looking for 20% as

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 – “Where to get free real-time quotes?” A lot of people who get started are very apprehensive to paying for market data and so, for many people, when they get started, they’re trying to find free stock quotes and free option quotes. The reality is that there's a couple places where you can get free quotes out there and you can just Google search it. There’s probably a list of 30 or 40. What I've even found in doing this just the other day and kind of researching this a little bit for the podcast is that a lot of these places have tons of ads, they’re riddled with opt-ins and boxes and things to check. Even the CBOE, you have to physically type in the security that you want, then pull up the quotes, then type in potentially the expiration month that you want, then pull up the quote and at that point, you’re already probably 10 or 15 seconds into actually pulling up a quote on so

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 the DJIA?” DJIA is just a short code for Dow Jones Industrial Average and to put it simply, the Dow Jones is basically just the top 30 largest American publicly traded companies. And so, back in 1896 I believe is when Charles Dow created it and he basically just threw together the largest 30 companies and this became what was known as then the Dow or the Dow Jones. And so, the idea is that this is a price weighted index that basically tracks some of the largest corporations and companies in the US and it's a gauge for how the US economy and how the US market is doing. Now, I say it’s a price weighted index because what the Dow Jones does is it price weights all of the movements of the underlying stock based upon its place in the index with regard to stock price. This means that if it's a higher stock price security, then it generally carries a little bit more weight

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 derivatives?” Derivatives are probably one of my most favorite topics because most people really don't understand how they work and yet, they’re all around you. You probably used derivatives or you're already in a derivatives contract. You just don't know it yet or maybe it's called something different. But all derivatives are, are financial products or investment products that derive their value from some other asset. And so, basically, if you just break down the word, it's basically deriving value from something else, so a derivative. That's how it kind of comes up and that's the way I always think about it. One of the things that you're probably in right now is a derivatives contract and you don't even know it, is any type of insurance that you have. It could be personal insurance for your life insurance. It could be insurance on your house, on your automobile, o

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to go through some company share price basics. If you’re just getting started with stock trading or starting to get into options trading or as many people probably in this space have been doing since they were little kids, you've obviously been watching share prices of companies. Apple is trading for X, Amazon is trading for Y, GE is trading for Z, whatever. It doesn’t matter what the company is, but we all know intrinsically that there's this company share price that’s attached to each company or ticker symbol as they trade and the problem is that most people don't really understand how this number is effectively derived and they get fooled by this absolute share price and they don't ever adjust necessarily for outstanding shares or shares that have been issued by the company and this can sometimes lead people into making decisions wrongly potentially just based on the absolute share price of a comp

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 reliable are buy sell recommendations?” And we’re specifically talking about buy and sell recommendations that come from analysts. Speaking as someone who was an analyst and I was in the REIT space, so I used to cover multi-family and specialty housing office, industrial REITs which was a really cool industry, loved it a lot, I was part of a team that would write the reports. And so, we would sit down together and we would compile research, we would do analysis on the company, the industry, the sectors, the real estate holdings that these RIETs had and we basically put out our buy sell hold recommendation. The question now is – “How reliable are these?” And the answer is – I don’t think they’re that reliable. I mean, as a person that was actually doing it, again, what you're looking at is you're looking to figure out some sort of intrinsic value, some fundamental value i

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 absolute returns?” I think there's a lot of confusion out there when people talk about returns and performance and oftentimes, you'll hear people boast about their returns on a particular trade or even asset or portfolio and what they’re usually referring to is absolute returns. Absolute returns basically just look at the return or the appreciation expressed as a percentage over any given period of time. This could be over a year. It could be over two years. It could be over five years. For example, if somebody invested say $1,000 and over the course of five years, they made $300, then they would say, “Oh, I was up 30% on my investment.” But that’s over the course of five years. Did they make 30%? Sure, no doubt. No disputing the fact that they generated 30%, but over what timeline? Then you actually get more true representation of what maybe say like an annualized

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to describe what the American Association of Individual Investors is, also commonly referred to as AAII and basically, what their purpose is and why I think they’re missing one critical ingredient to their entire system. Again, the American Association of Individual Investors, commonly referred to as AAII which you can get to by going to aaii.com I think is actually a great resource for people just getting started. It's a nonprofit organization that’s basically trying to help people figure out their own financial assets, portfolio allocation, portfolio modeling, guides to mutual funds versus ETFs. They basically offer a lot of programs, a lot of education. I think they’ve got almost two million members as part of their whole community and their whole platform. I think what’s great about AAII if you read any articles from them and you go through some of the chapters and some of the coursework I guess

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to go through our ultimate quick guide to trading stocks. I think this is actually going to be fairly short because what I want to talk about with regard to stock trading is only just a couple of key bullet points, but if you're new to trading or you’re new to investing, likely, the path that you’re going to take when you start is you’re going to start looking at trading stocks. In fact, this is the most typical or usual path that options traders eventually get down, is they start trading stocks and then they do potentially covered calls and then they just fully commit to options trading or some sort of derivative product trading. But trading stocks is actually pretty simple, pretty easy to do because all you're trying to do is take advantage of different price points. There's no time aspect of it, there's no volatility aspect, there's no Theta decay, there’s no Gamma risk. It's actually very simple

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 making the decision between closing for a small profit or rolling for small credits. This is again, a question that came out of our Facebook community, so if you have questions and you want to send in there, you can do that. You can also submit them at optionalpha.com/ask. But someone said, “Let’s say you’re a week or two out from expiration and you are nowhere near your profit target, but you are showing a small profit. Is it better to close the trade and take the profit or roll the trade for a small credit and try for a full profit in the next month?” This one's on the wire. This is an interesting question because it's ultimately a judgment call of what you want to do. Here's how I would think about it though. I think obviously, you could close for a profit and remove the position and bank a win. That seems like the default answer and obviously, in this case, if you're not at yo

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 should mind your pennies. This is something I say to myself personally, so yes, I do have lots of conversations with myself. I banter back and forth with myself and my alter ego and one of the things I always say to myself is that I've got to watch the pennies and this is something I've done forever and it's definitely a product of how I was raised and the environment I was raised in, how my parents thought about money, how people around me thought about money, but I know that now, looking back on it, it all shaped kind of who I am today with regard to money, but I am definitely somebody who is watchful of the pennies that can add up and ultimately become thousands and thousands of dollars in either potential investment income or lost investment income and what I’m talking about is just little things all the time. And so, I don’t mean that you should scrimp and save and th

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we’re going to talk about why we cannot recognize the difference between positive and negative experiences. This is something I heard recently and I thought it was really insightful. I was reading another book and I heard somebody say this, the author who said this and he basically said this exact line which was – “We can’t recognize the difference between positive and negative experiences.” And the context of this was that we have no idea if whatever experience we are currently going through right now is going to ultimately turn out to be a positive or negative outcome for us. To use I guess maybe a really simple example, if you had a really bad experience somehow in your childhood, well, that undoubtedly shaped you into the person you are today and hopefully you had a chance to learn or grow or reflect or develop from that point forward and that potentially negative experience that you had somewhere in your chil

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. On today’s call, we’re going to answer the question – “Why I enter trades that I hope to lose money on.” First, many of you guys who might be long-time listeners might’ve recognized this, but I’m actually back in my office finally and able to record on my nice microphone and setup as I’ve been travelling the last couple of weeks and so, a couple of the daily podcast were not necessarily the best audio. I think it still kind of gets the point across, but I don’t know. I just like to kind of be here and get the recordings done in my office with a better microphone, so hopefully it’s a little bit better audio moving forward for you guys. The topic from today actually comes from a question that somebody had emailed in after we made an adjustment the last month or so in our DIA and QQQ positions. And so, what happened was, is that our portfolio was kind of centered a little bit bearish where the market was at the time and w

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to talk about adding low IV trades when rebalancing your portfolio. This is a topic that I’ve been wanting to discuss now, again, for another couple of months because I see people doing this incorrectly or at least having the wrong thought process heading into building out a portfolio for a given expiration month and the misconception that people have is that we should only be trading high implied volatility ticker symbols. And while we’ve debunked this a number of times on both the research and the weekly podcast, even here on the daily podcast over the last four or five years as new research has come out, it still seems to be an issue that people are not willing to add low implied volatility trades to their portfolio. But the reality is that low implied volatility trades still generate a positive expected outcome. Now, granted, they don't make as much money as an option trade would when implied vol

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 – “When should you stop laddering into a trade?” Someone asked, again, in our Facebook community and they said, “Kirk. Have you ever had the stats change enough on a trade you were laddering into that made you change your outlook on the trade and stop adding to it? If so, what happened and how often has this generally happen?” I think there’s only three cases or three reasons why you should stop laddering into a trade and actually, it’s pretty simple when you think about it and we go through it here. The first one is you shouldn’t really ladder into a trade if it's not moving. We actually do see this fairly commonly. More recently, we’ve seen this in some of our TLT positions where we execute the first laddered entry or the first set of contracts and the stock just trades dead sideways and in those cases where the stock doesn't move, that’s actually a good thing. That's what we

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 – “Are weekly options a better alternative than monthly options?” I don’t think the answer to this question is that it's one or the other. I think there are certain instances where weekly options contracts might offer a better return in the long run versus a certain monthly contract. But overall, we generally like to trade monthly contracts and what we’ve seen in back-testing is that the tradeoff that you get when you start trading monthly contracts versus weekly is you get a little bit more stability in your portfolio and you have dramatically lower drawdowns. What we’ve seen in research… And I encourage you to go use our toolbox software and use our research on Option Alpha and look at this for yourself. But what we’ve seen in back-testing millions and millions of trades and strategies and tickers over the last 20 years is weekly options contracts do have high return numbers.

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 to profit from the emotions of other traders and investors. Someone recently asked again in our Facebook community and they said, “Kirk. How do you determine a psychological factor when considering options or do you consider any psychological implications upon noticing volatility in a certain stock or a movement in a certain stock? Are you just focused on the numbers or do you see value in the emotions of others in the market?” I thought it was an interesting insight. “Do you see value? Can we make a trade based on the emotions of other people and how do we discern the emotions of other traders in the market?” I think this is actually a very easy answer and the easy answer to this is that as options traders, we are always making trades based on the emotions of the underlying market or the mass or the herd and many people have said this. I don’t know who was originally credited with

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 do you adjust position sizing when rolling option trades?” I think this is a really great question and this came out of our Facebook community where somebody posted in there and they said, “Kirk, for your small position sizes of 5% or less, how do you account for the positions that moved against you and you’re rolling forward a credit month after month?” For example, they said, “If your 2% position in TLT for January expiration needs to be rolled to February, what if you already have a 2% position in TLT in February at a very different strike price due to a sharp move up or down in the underlying security and now, you’re basically forced to carry this blended position in February of 4%? So, 2% from January that you rolled to February and 2% that was already there kind of existing in place. And so, what if you then needed to roll both the positions forward to March due to

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 long should you hold stock after put option assignment?” This question comes in from our community and somebody asked – “When you’re put a stock, how long do you hold onto it and write calls against it? It seems that keeping the stock and writing calls against it is seriously reducing your return on capital compared to just eating the loss and selling more iron butterflies or iron condors.” I think this answer is a two-part answer. The first part of this answer really comes in the form of asking yourself a question which is – “Do you have enough capital to hold the stock after assignment?” Many times, if we’re selling say a spread or a single short put option, we want to make sure that we have enough capital on our account to hold the stock should we be assigned. Now, this isn’t necessarily a requirement because you can easily reverse the trade with your broker even if y

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 close a covered call before expiration?” This question again, comes out of our Facebook community. Somebody sent me a message and they said, “Kirk. Can you manage a covered call if the stock rallies up to your short strike before expiration?” Assuming you want to keep the stock, of course, maybe you roll your call to the next month. Again, I think the key part here is that they want to assume that they for some reason, want to keep the stock and do not want the stock to be called away, so if you have a covered call position on and the stock rallies past your short call strike, at the end of expiration if you don’t do anything, basically, what will happen is you’ll get assigned on your short call option, but since you have the underlying shares of stock in your account which creates the covered position, basically, it’s a loss. You just close out of the position at wh