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 iron butterfly management, close in full or just the inside legs. Many of you guys who follow us and follow the trades that I do… I do a lot of iron butterflies. I love doing them. We talked about them in detail about why we like them as straddle synthetics basically and then the ability to buy the outside legs for risk protection and margin protection for our account. And now, the question becomes – “When we get into a position that ends up hitting a profit target, what do we do? Do we close the full position or do we close just the inside legs?” Many people who are pro and elite members and follow the trades that I do, I will do both of these and it really just depends on the situation. And we’re going to talk about that here in a second. But I will sometimes close the entire position in full. Sometimes I will close just the inside legs and I kind of flip back and forth between doing

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 much money do you need to short or sell stock?” This is a big question that people ask all the time and it's particularly interesting when people start getting into the world of investing and trading. They learn that they can actually make money by shorting stock or selling short stock and they can make money after the stock drops in price. You don't have to make money necessarily by buying stock and then selling it at a higher price. You can sell it or short-sell it and then buy it back in at a lower price. Now, the question is – “Well, how much money do I need to start doing this?” Well, there's a couple of things you have to think about. One, you have to think about the initial margin that's required on a position and many brokers then kind of hamburger on or stack on top of that, their own individual brokerage requirements. Right now, FINRA who’s the regulatory agenc

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 option probabilities when markets are volatile?” I want to tackle this question by using an analogy and just kind of telling a quick story here with my son. My son who's our third child is about nine months old now. He started to crawl just recently. Now, he’s starting to kind of lift himself up on things. He thinks he’s really cool and he can lift himself up on chairs and desks and walls and so, now, he's starting to progress into this different stage of going from crawling to eventually walking. But just the other day, he was lifting himself up and then tripped himself basically because he was trying to figure out how his feet works and he tripped and fell and kind of hit his head pretty hard on the floor as he was trying to lift himself up. And so, in this moment now, this has now changed how I view him and how I'm parenting him in the sense that I'm much

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we got an interesting topic and we’re talking about using other people's money (OPM) for investing in options. Somebody recently wrote in the Facebook group and they said, “Using other people's money or bank loans for investing is common in startups and real estate. (which it is) Is there any particular reason why this shouldn’t work for options considering that we’re only investing in this vehicle out of the three mentioned here (we can invest in options, startups or real estate) that can set realistic probabilities of success? Why risk yourself getting a mortgage, buy a house and try to rent it to cover the mortgage payments and other expenses and not getting a loan with the lowest possibly APR to increase your capital to invest in options?” Now, look. I will definitely blanket say this statement that I do not agree necessarily with this style of investing. One, because I feel like as opposed to other things l

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, our question is – “Should you take profits early when selling naked puts?” Again, this question came out of an email that somebody sent me and they said, “Kirk. When we’re selling puts on a quality stock, is it more advantageous to go ahead and take the 50% profit like we would on a spread or should we let it go to expiration for the full credit being that the worst-case scenario is you put the stock and you wouldn’t mind owning it anyway? The idea is that to turn right around and sell covered calls on it should we get assigned.” We’re basically talking about a concept called “the wheel strategy” which is you sell a put, if you get assigned, you end up doing the covered call and then you go back and forth through this cycle or this wheel of selling puts and selling covered calls, etcetera. The sticking point on this question I think that’s really interesting is what they said when they set a quality stock or bas

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re answering a question which is – “Does low IV mean that we should be less active selling options?” When we’re talking about IV, we’re talking about implied volatility. This can either be implied volatility rank or implied volatility percentile for an underlying security that you’re looking at. But the question again is – “Should we be less active when selling options during low implied volatility environments?” And I think the answer to this question is yes, we should absolutely be less active overall. Now, that does not mean that we are not active in selling options. We still need to be selling options, but what we should be doing is we should be scaling back our position size and waiting for higher implied volatility markets to be a little bit more aggressive. Again, this doesn't mean that we should not be option-selling and perform option-selling strategies like straddles and strangles, iron butterflies

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer another question which is – “Should you manage an iron condor as two credit spreads?” Again, this question came out of our Facebook community. Somebody asked in there and posted a comment and they said, “Kirk. Assuming you have two credit spreads, do you have an opinion as to if these need to be sold simultaneously or could you try to watch the price a bit and sell the put credit spread and the call credit spread at two different times, hopefully optimizing either entry or exit?” And so, conceptually, I think this makes a lot of sense why you would want to manage a position as two separate spreads. If the market is down potentially and looks like it could be going back up, maybe you sell the put spread and then later, you add the call spread after the markets rally. I think conceptually, it makes a lot of sense why you can do it. I think in reality and in practice, I don't think it’s as eas

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer another question from the Facebook community that we got recently which is – “When should you not add more laddered trades?” Again, the question that somebody asked was the following and they said, “How do you decide if you should add more trades to the same underlying (basically ladder into more positions) if the first trades have already started to get challenged?” This is a really good question and it's something that comes up again and again. It’s this concept of laddering which most people understand, but really quickly, it’s just the idea that we’re going to spread our trades out over time. Like rungs of a ladder, you don't jump from the bottom of a ladder to the top. You have rungs that you kind of slowly creep up or creep down to get up and down the ladder. Very much like that for trading, we’re going to ladder into positions by entering a small batch of trades in a ticker, then if

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer a question which is basically – “Scratch profit, keep holding or roll a position for a credit?” Now, this question came out of the Option Alpha community on Facebook which if you're not part of the Option Alpha community on Facebook, I don't know what you’ve been doing on Facebook just scrolling around aimlessly, but you should definitely join and take a look. But I asked everyone in there and I said, “Look. Give me a list of questions for the daily call podcast.” This is one of the questions that ended up coming up and they said, “As expiration week approaches, if a trade has not reached our say 25% profit target, but is still positive, say where we have a 5% profit, is it better to roll the position for a credit if that's possible or close out the trade as a scratch?” Again, the question is, “Scratch profit, keep holding potentially or even roll the trade for a credit?” My opinion on this

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 indicators are best for day-trading?” Truth be told, about two and a half years ago now I think, we released our research report on technical analysis indicators which we lovingly refer to as the Signals report. And so, you can get to it by going to optionalpha.com/signals, but in either case, I’m going to tell you what we found as it relates to day-trading. You don't have to purchase the report to actually get this information. I’m going to literally tell you right now in this podcast. But what we ended up doing is we ended up testing all kinds of different indicators across different ticker symbols for basically 20 years and what we wanted to figure out was – Is there a set or is there a specific parameter for a set of indicators that generates enough occurrences in the right direction and with enough profits to make it meaningful? Are these indicators basically a bun

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 – “Why do options traders lose?” The simple answer to this is that all options traders lose at some point and what I mean by this is that all options traders will have a losing trade. In fact, if you find somebody that says they’ve never had a losing trade, please turn and run in the opposite direction as fast as possible. There is nobody in existence that has never had a losing trade that is professionally trading. What I find as being some of the culprits of why people generally lose overall, not just on a couple of trades, but overall after making lots and lots of trades, ends up being some of the very basic foundational elements that we’ve discussed previously here on this podcast. Things like position-sizing ends up again, being the number one reason why people lose on their trades. They’re over-allocated in a leveraged product which options trading contracts are leveraged

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer a question which is – “How much does it cost to buy a put option contract?” Now, this answer obviously depends on the ticker symbol that you’re trading, how far you are from expiration, the implied volatility, the liquidity, the activity in the option contract that you’re trading. There's a lot of things that kind of go into this, but I want to do is just kind of show you broadly the range that you could potentially find yourself in for buying a put option contract. As a reminder, we generally do not suggest that you buy option contracts. As long-term, it's a net-net losing investment compared to selling options or selling option strategies. Even risk defined option strategies do a better job of mitigating risk than buying a put option contract. But put options can be widely variable in price. I’m just looking at an option chain right now for Google which is ticker symbol, GOOGLE and the at

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we’re going to answer the question – “How does a bond differ from a stock?” If you’ve just started investing or even if you've been investing for a little while now, you might hear these terms and think that they're interchangeable, bonds and stocks, stocks and bonds, but the reality is that they are quite different from one another. The only similarity that they actually share is that in many cases, they are structured investments and you can just as easily buy a bond as you can buy a share of stock. But at that point, they start to diverge just a little bit in some of their qualities and I wanted to go through that quickly here on today's podcast. One of the major differences between stocks and bonds is that stock ownership is a second or third level ownership in a company compared to bondholders. What we typically refer to as bondholders is having kind of seniority bond-holding position or a seniority position

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 all stock shares pay dividends?” The simple answer to this is no, not all stocks pay dividends. In fact, many stocks choose not to pay dividends as a means to keep capital in the business and continue to fuel new investment, new ventures, new other business lines or products, etcetera. Now, most companies actually or some companies do pay dividends and a lot of companies pay dividends and it’s a means to give money back to shareholders, basically to reward shareholders and stockholders for their investment in the company. Oftentimes, a company might pay an annualized dividend of 5% or 6% and they may have a leveled dividend or they may start to increase that dividend over time. My opinion on this is always been that I think generally, companies that end up paying dividends could potentially better serve their potential equity holders by just simply buying back stock and r

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 you buy a put option?” When you buy a put option contract, you are exchanging the money that you paid for the put option contract in exchange for the right, but not the obligation to sell stock in the future at the strike price that you determined. With a put option contract, you give somebody else money or capital and that other person is the put option seller and in exchange, you are buying a right from them. They have an obligation now to deliver the stock to you, to purchase stock from you and you have a right to sell stock to them at a predetermined strike price in the future and that's pretty much all that happens. Whenever you get into these long put option contracts now, you have the choice of whether you want to exercise your right or not. You can basically transfer your risk by getting out of the contract or removing the contract, buying it back 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 why I personally prefer candlestick charts over line charts. And again, this is a personal preference actually in that somebody asked me this in the community which is why I’m answering it here on the daily call podcast. But I generally prefer candlesticks because that's really how I learned. I originally learned a little bit about investing and trading prior to heading to New York and then when I was in New York, actually, most people when I was in New York and doing a rotation on a trading desk, used candlestick charting. And so, it was just commonplace to use that as kind of like the baseline fundamentals of how we would analyze and look at stocks and securities. That's really how I learned. And I actually prefer candlestick trading for a number of different reasons, but I think that visually, it's just a little bit more appealing. It tells a little bit more of a story once you

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 avoid option assignment. I’m going to let you in on a little secret. There’s actually only two ways to avoid option assignment. The first way seems pretty logical and easy and that's to be a long call option buyer or a long put option buyer. When you’re an option buyer, you don't have the possibility of being assigned on those contracts because it's up to you to decide if you want to exercise your option contract or not. The other way to avoid option assignment is simply just not trade. And I know this seems intuitive and might sound a little bit crazy, but the reality is if you don't want to ever deal with assignment or being exercised on a contract, then just simply don't trade option contracts. Option assignment and options exercise is part of this business. It is going to happen at some point to you if you are an option seller and you have to learn how to deal with it. Now, a

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 number one reason not to be afraid of early assignment when selling options. Now, we briefly touched on this actually in the last daily call podcast, show number 502, but I wanted to dig into it just a little bit more here today because a lot of times, we get people who are afraid to sell options especially when the option contracts go in the money early in the expiration cycle and they think to themselves – “Well, I'm selling options and the option contract went in the money, so that has to mean that an assignment is coming soon and I’m going to be assigned either a long or short stock in this underlying position and I can’t deal with that.” The reality is though, is that you have to pay attention to the extrinsic value of the option contract that you’re selling. Now, I say this because you can definitely look at this and you should pay attention to this, but is it something that y

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 not exercise your options early. I recently got an email from somebody and they wanted to know if it was a good idea to exercise their long call option early. They had bought a long call option ahead of earnings. The company had great earnings and now, the stock was really moving higher. And so, they wanted to know – “Hey, look. Should I exercise my long call option, take delivery of the stock because I made frankly, a guess in a lucky trade that the stock went the direction I thought it was going to move and it made a big move, so now, do I want the stock?” The answer to this question is almost emphatically no, you do not want to exercise your option contracts early because what you give up if you're a long option buyer during early exercise of your contract is you give up the extrinsic value that is still left in option contracts. Remember, option contracts are co

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 options expire?” Options expiration can sometimes be a little bit confusing for people, especially if you're new to options trading. Even if you've been trading for a little while and you haven't yet come upon an options expiration where you have to deal with contracts that are either in the money or out of the money, it can sometimes lead investors to kind of roll their eyes and wonder what's going to happen. When options expire, there's only two things that could potentially happen. Either your option contract is out of the money or your option contract is in the money. If your option contract is out of the money, then the option contract simply expires worthless. And so, whether you are shorting that contract or you’re long that contract, if the contract ends the expiration period out of the money, then the contract expires worthless and there's nothing t