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 answer the question, “Is options trading safe?” Welcome to show 500 on the daily call podcast which is crazy. If you’ve been along this journey with us, I appreciate you guys being here. If you’re new to Option Alpha, welcome to the family. And I wanted to do this episode today on show 500 because I get this question a lot actually. The question is, “Is options trading safe?” It comes up again and again through email and chat support and whenever I talk to people online. And the answer to this question is in the form of another question and I would dare to say that everything potentially has risk, doesn't it? Even stock trading could potentially be unsafe or the question is, “Is stock trading or stock investing or index investing or passive investing or real estate investing, is it safe?” Safe is a relative word. It’s relative to the amount of capital you have at risk. It’s relative to the amount

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 day traders make money?” I know this is a popular question and it's one that comes to the top of your mind especially if you're new to stock trading or investing or if you’ve probably been searching online for day trading strategies or options trading strategies. It sounds really cool and it's very enticing to be able to day trade stocks and potentially make money, but the question again, remains, “Do day traders actually make money?” Now, I’m sure that there are certainly people out there who make money day trading. I'm not naïve enough to think that there's nobody out there who makes money day trading, but I would dare to say that the number of people who make money day trading stocks, truly day trading stocks where you're buying and selling intraday is probably could be counted on a number of hands and it's just the reality that these people are the exception rather tha

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I want to give you a better alternative to swing trading stocks. We often get people who come to Option Alpha who are recovering swing traders. And I say recovering because they tried swing trading or day trading before and ultimately determined that it didn't work for them or that they basically just didn't generate enough money doing it. And so, the alternative to truly swing trading a stock where you are physically buying the stock and selling the stock using technical or swing trading indicators is to just use options whenever you get into a swing trade instead of the underlying stock. Now, we know that stock is incredibly inefficient on the outside already, but when you actually use stock for the purposes of swing trading, it can be really hard to make money because you basically buy the stock at a certain point and anything above that level, you make money, anything below that level, you lose money. It's r

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be going over a question that again, was submitted on our Facebook group and the question was basically directed at me and said, “Given the choice, Kirk, what would you rather do? Swing trade or day trade?” The default answer to me is 100% swing trade. I tried day trading initially when I started over 10 years ago, thought I knew what I was going to do, thought I could day trade and I had good days and I had really bad days and ultimately, what I determined is that day trading is much more of a grind than I ever wanted to do with options trading. And so, I learned quickly that even though I could have a good system in place and I could potentially read the charts or read the market well or decently well enough to make trades, it was just never profitable for me. It was a lot of turn, a lot of in and out of trades, high commissions and it’s not something that I would necessarily suggest for most pe

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering a question that was submitted on our Facebook page and that question is – “How long should you paper trade before making real trades?” This is a question we get fairly often and my default answer to this is that you should paper trade as long as you need in order to understand the mechanics and the terminology and the flow of whatever broker platform you're using. I think there's value in paper trading for sure in the sense that it helps you understand how an order is structured, how pricing goes into the market, potentially how P&L start to adjust and shifts over time, but ultimately, all of that stuff can be learned in a paper trading platform very quickly. What you should do then after you understand the mechanics and the system of the brokerage platform that you're using is quickly start changing over to real money trading and because I see a lot of people who end up paper tra

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 options calculators are a waste of time. I see this a lot and we’ve actually had a number of request over the last 10 years for Option Alpha to add an options calculator to our website, but I continue to refuse the request because options calculators are frankly a waste of time and the reason that they are a waste of time is because by the time that you enter all of the data into an options calculator to try to derive an option’s price, you basically have already missed a market move and the market is already trading past your expectations or the data that you put in. It’s basically just a fancy way of saying there's no reason for us to calculate option prices with a manual options calculator when it’s already being done on the fly and in real-time by every single brokerage out there. You can look up options pricing even through Yahoo and Google Finance in many cases, but 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, “How to find an option price?” Finding option prices is actually fairly easy. You can do it a number of different ways. We suggest the best way to find option prices is to simply use the brokerage platform that you’re going to be making the trades in. This could be Thinkorswim, Tastyworks. This could be Robinhood, Interactive Brokers, TradeStation, all of these other different broker platforms. Any platform you use will give you the ability to find option prices. Typically, all you’re going to do is just type in the ticker symbol of the security that you want to trade and then from there, you’ll have to choose the contract month or expiration date of the contracts that you want to trade and once you open up or toggle open that list of expirations, you will typically see a list of strike prices for both calls and puts on both sides and within that table, that option’s pricing t

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to continue our discussion from yesterday and talk about option extrinsic value explained. In yesterday’s podcast, show number 492, we described what intrinsic value was for an option price. Now, it seems only fitting that we describe what the extrinsic value component of an option’s price is. Again, remember that an option’s price is mainly comprised of two different components, two different broad category components. The first is intrinsic value which is just the value should it be exercised right now which we discussed yesterday in show number 492. Today, we’re going to be talking about the other component which is extrinsic value. Extrinsic value is mainly comprised of time decay and volatility value in the contract. It’s just a fancy way of saying – How much value is in the contract because of how much time is left until expiration or how much value is in the contract because the stock might be

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 help you explain what option intrinsic value is, so that you have a better understanding of it moving forward and we’re going to use a very simple example to help prove this point because option intrinsic value is actually very simple to understand. There's basically two broad categories of option pricing or broad components of an options price. There's the intrinsic value and the extrinsic value. As the names suggest, one is potentially internal value and the other is external value, so things that are not necessarily present on a basis right now. When it comes to intrinsic value, all intrinsic value is for an option price is the value that could be derived if the option contract were to be exercised or assigned immediately by the long option buyer. And so, when it comes to a call option, this would generally mean that if you exercised your long call option that you would derive some am

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be discussing why “the market is always right” is actually false. This one might be a little bit tough for some people to stomach and go through, but the reality is that the market is not always right when it comes to actual value. Where I think I differ from a lot of people with this statement is that I do believe that the market is always right when it comes to expectations, but expectations as we know in options trading is not the same as reality. And so, what some people would always say (and I used to be in this camp admittedly when I started trading) is I would think to myself – “The market is always right.” I don't know that there's something else out there. But the reality is that having traded through scenarios like the flash crash and the 2008 collapse, etcetera, what I’ve realized is that the market is always right based on expectation. Whenever the expectation is of the prevailing mark

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 a chart pattern trader?” A chart pattern trader or technicians sometimes as they’re called are people who trade solely based off of the chart patterns that they see on a particular stock or underlying security. Things like head and shoulders and rising wedge, flags, pennants, cup and handles are some of the common terminology that you’ll hear when you run across somebody who ends up being a chart pattern trader. I like to think of myself as being started as a chart pattern trader and I quickly evolved into understanding that many of the chart patterns or chart readings are very subjective in nature. Now, this isn't to say that there aren't people who do this and do this really well. Particularly, what comes to mind is guys like Peter Brandt which have actually made a career of being chart pattern traders and do very well at it. I just never actually gained enough skil

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be discussing why you might want to trade VXXB options moving forward. Just as a clarification, last year, VXX announced that it would be suspending or basically coming up on its expiration of the ticker symbol and so, what's commonly referred to as the VXX options will now be trading basically under VXXB options. All they’re doing is basically just issuing the new ticker symbol to keep up with regulatory and compliance requirements. It's all the same product. It's all structured exactly the same way. And with VXXB options, basically what you’re trading is you’re trading implied volatility on a 30-day rolling basis for the S&P500. And so, the reason that you might want to trade VXXB options in any direction is to basically gain more pure type exposure to the S&P and to the VIX. Now, the problem as we’ve discussed in podcast and also on this podcast and numerous daily call episodes is that

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 to determine IV rank?” IV rank is a favor metric of options traders, in particular, option sellers and over the last couple of years, it’s gained a lot of popularity and you can actually see IV rank in many different platforms. We have an IV rank calculated using our own software here at Option Alpha, but inside of Thinkorswim and Tastyworks and some other brokers as well, you have the ability to determine IV rank or IV percentile. Now, on today's show, we’re going to be talking about IV rank because it's the very quick and dirty way to look at and compare different securities on a normalized implied volatility basis. And so, what I mean by this is that when we typically see implied volatility, what we are looking at when we see implied volatility is the raw or real implied volatility of the security, but that implied volatility is not normalized when we try to compare on

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 a price to sales ratio?” Very much like we did yesterday on the podcast where we talked about price to earnings ratios or PE ratios, today, we’re going to talk a little bit more about price to sales ratios. The price to sales ratio is basically what it sounds like. You basically take the share price of the company and you divide that out by the sales per share to get an accurate representation of how much money each unit of the company, each share price of the company is generating in revenue. And the reason why investors want to take a look at this as again, one metric of many to determine if they want to make an investment in a security or a private company or an equity deal is because we want to know how much top line revenue the company is generating and if their earnings are coming more from revenue growth or coming more from cost-cutting and optimization metrics

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to walk through a simple explanation of price to earnings ratio or what's commonly referred to as a PE ratio. Price to earnings ratio is basically exactly what it sounds like. You take the share price of the company and you divide the share price of the company by the earnings that the company is generating over the course of in most cases, say a year, so adjusted earnings for the last year. And when you get that, you get a ratio that ends up being a number and that number helps you determine whether a company is highly valued based on their share price earnings or maybe a low value compared to their share price and earnings. For example, if a company right now is trading at say $20 and they earned $5 per share per year, then the PE ratio for that company would be $4 and for some people, that might be a really low PE ratio. It might again, signal to the market that that company is undervalued because

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we are going to reflect on a saying from Martin Luther King Jr. which is – “Only light can drive out darkness.” And I’ve recently come across this over the last couple of months and it keeps coming back up and to me, it's a really interesting topic to discuss because I think about it a lot actually and as we are approaching Martin Luther King Jr. day here in the United States, it’s a really important one and I figured give it some time in this podcast. But the concept here is basically that when you get into skirmishes or struggles or competition with people, what ends up being the default for most people is to attack the other person and to look at the other person and to demean and undermine and cut them down so much so that you become the higher person or the last man standing basically. But the reality is that more darkness, more negativity, more hate, more harmful speech actually does not drive out darkness

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 when adjusting too early backfires. In particular, we’ll go over our XBI example. Look. I'm always a fan of being transparent and kind of talking through all of the positions and philosophies and things that we consider to be important here at Option Alpha and one thing that always is something that's difficult to do with a lot of precision I would say is adjustments. Adjustments are a tricky thing. You adjust too early and you potentially find yourself in a situation where the position backfires like what we had in XBI, but you adjust too late and the same market scenario that you thought you should adjust and you didn’t because you maybe got burned before, you end up with a position that lost more money than if you were to adjust it and reduce the risk. Again, it is a fine line. There's no perfect formula for adjusting. Each style of position requires a little bit more massaging

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 – “What's the point of leaving out of the money options on to expire worthless?” If you've been following any of the trades that we typically like to do, we do a lot of spread type trading, whether it's iron condors, credit spreads, iron butterflies, etcetera and sometimes when we get into these positions, we will exit the positions by just simply buying back the inside strikes. For example, if we’re doing an iron condor, we’ll buy back the short call and the short put and we’ll leave the outside out of the money options on to expire worthless. Now, why do we do this? Well, in many cases, when we do this, we’re doing this when those out of the money options are not worth any value anyway. They were added as protection, they were added for a very cheap premium and they still are probably worth almost no premium at all, so it might take a little bit more time to fill if we

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 – Can you use a stop-loss as your position-sizing metric? When a lot of people ask… And I get this question a lot is, “Kirk. If I'm getting into a trade and maybe I want to trade some particular index or product, can I just use a stop-loss order as a means to protect the position size of the portfolio?” And so, an example of this would be is if they got into a short premium trade or a credit spread trade that say had $10,000 worth of risk when you get into the position, but they might setup an automatic stop-loss to get them out of the position if the position loses $1,000 or some 2X premium or some doubling of Delta. Whatever the trigger is, they’re setting up a stop-loss that is before the “real risk” of the position. And on the outside, on the surface, this seems like a good idea. I get into this position and if it goes against me, my stop-loss is there to protect me. But the p

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 Beta weighting after adjusting or hedging positions. This question comes in from one of our members as always and he said, “It works great assuming that you're never going to sell the inside legs of a position, potentially roll, ladder or adjust. No platform is mature enough to Beta weight after any modifications.” For example, if you roll several positions that you have been laddered or adjusting into over the next month, it will skew your next month’s Beta weight. Basically, how do we account for this? How do we look at and monitor Beta weighting after making adjustments? Well, I think the easiest way to do this is basically to either un-toggle or uncheck the positions that caused your portfolio to be screwed up for Beta weighting purposes. Now, the idea here is that many platforms like Thinkorswim, when you make an adjustment and you now have existing positions that are on that