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, “How is premium of an option calculated?” The premium of an option contract is the price at which the option contract trades for and this is the price at which people will either buy or sell the contract to one another in the open market. Now, option contract’s premiums are basically comprised of two underlying pricing components and I’ll just talk about these two because we dive deeper into these inside of our free training and tracks on Option Alpha, so if you want to deep dive on this, you can definitely check those out. But the two components of an options price are intrinsic value and extrinsic value and these are basically the easiest way that you can understand how the option price is derived or how it’s calculated. The intrinsic value basically answers the question, “How much value does the contract have if it were to be exercised immediately?” For a call option contra

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 write a put option?” Writing or selling a put option contract is actually pretty easy. The first thing you have to do is you have to make sure that you’re with a broker that allows for this to be done in your account. Typically, that means that you have to be doing it in a margin account. You can’t sell a naked put option or write a naked put option in an IRA or a retirement account. But if you are in a regular margin trading account and you wanted to sell a put option, all you simply need to do is find the expiration period that you want to sell the option in and choose the strike price of the put option that you want to sell and after that, it’s basically very simple. You create the order to actually sell that option contract and collect the additional premium that comes in from selling that contract. In exchange, you’re going to be putting up what’s called margi

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 investing in options a good idea?” And so, this kind of dovetails on yesterday’s podcast, but of course, investing in options is a really good idea. In fact, that’s why we’re here. That’s the whole mission of Option Alpha, is to help more people understand not only what options trading is, but how they can invest in options trading. Not just day trade options because that’s not what we’re about. We’re about investing in options as a business, as a source of income moving forward, as a source of capital and wealth preservation and capital appreciation for your portfolio because options trading is a very profitable way to invest in the market and it’s definitely more profitable than using stocks from a capital perspective, from a return perspective, from a volatility perspective as long as you know how to use option contracts appropriately and to control the risk. I think on

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, “Are options more profitable than stocks?” The answer to this question is of course, 100% yes. Options trading is more profitable than stock trading if and only if you know how to manage the risk that’s associated with options trading. Where most people completely fail in options trading is that they don’t understand or they don’t know how to manage the risk associated with a leveraged contract like an option contract. Remember, options contracts are leveraged derivatives on the underlying shares of stock. That means that they might seem very cheap and very small in price, but the leverage that they carry means that they have a massive amount of risk if you do not position size and spread your account out appropriately. And this is what we try to do here at Option Alpha, is make sure that people understand the risk that are associated with options trading, not just all the upsid

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 best options trading strategy?” Well, surprise, surprise, there is no best options trading strategy. If you clicked on this or if you thought you’re going to listen to this and we were going to tell you that there’s a unicorn option strategy that works in all environments, in all time periods, in all market situations, then you would be dead wrong because there isn’t, because option strategies are dynamic by nature. They are a trade-off between risk and reward and that means that not all people are willing to accept the same risk in order to achieve the same reward. Right there, we know that there’s a lot of different strategies that are going to work differently for different folks just based on the risk profile and how the option strategy might work moving forward. What we can tell you though is that what you should look for in options trading strategy is a broa

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 exit an option trade?” I think this answer to the question is not necessarily so straightforward because when I think about exiting a trade, I think about two components. I think about exiting the trade when it’s good for the portfolio as a whole and if that is the case, then also, when it’s good for that individual trade or strategy that I’m trading. It’s both components, not one or the other because you have to start with the understanding that your portfolio is more important than one particular trade that you’re making right now. And this can be difficult for some people because they look at a trade that might be losing or that might be down, but that trade might be the trade that is holding everything else together. Maybe it’s the only bullish exposure trade that you have and if the market were to reverse, that trade is the only one that would then profit

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 it better to exercise an option or sell it?” This is a very good question because I think naturally, a lot of people, especially newbie traders immediately default to the idea of just letting an option contract be exercised at expiration. Now, this could be an option contract that’s in the money, this could be dealing with an option spread where both contracts are in the money and they will cancel each other out, but many people just don’t go through the hassle of closing out the option contract or selling it back. But the reality is that for most brokers and you’ll have to check with your broker just to make sure. For most brokers, they’re going to charge you a very high fee to go through the exercise and assignment process and they will generally charge you on a per contract basis or on a per trade basis and it will almost always be higher than the cost of just buying ba

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 should I invest a month?” This is a really good question and honestly, I think it comes down to probably just using a very basic guideline for your investing. But I would say that at a bare minimum, you want to be investing 10% of your take-home pay per month into long-term investments, retirement, whatever buckets you want to distribute that. I think 10% is probably the baseline case. Could you do more than that? Of course. Could you do less than that? You can, but you probably won’t be at the place you want to be financially as quickly if you did less than 10%. If you are let’s say bringing home $50,000 a year and that’s your income, then over the course of the entire year, you probably want to save at least $5,000 or figure out how to save $5,000 which is $416, $417 per month. That would be a really, really good target. I would start there and then I would start 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, “Why buy in the money calls?” When you are trading stock and you’re looking to make a position with an option contract, in particular, a call option contract, many times, people will suggest or you’ll see online that people suggest buying call options that are in the money. And basically, in the money means that the strike price on the long call option you’re buying is at or below where the stock is trading at the time. If a stock is trading for $100 right now, you might buy a call option with the strike price of $99 or $98 or $95 or even as low as $80 or $70. Some option contracts go very, very deep into the money. And the reason that many people suggest buying these and we don’t know exactly necessarily if these are perfect opportunities or not… We’re actually doing some research on this right now, so I don’t know exactly where that sweet spot is with long call options, but

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 soon can you sell options before expiration?” I think this question that was submitted online is basically like a two-part question. One part is with regard to entry of options trading. The second part is probably with regard to exiting a position. I’ll take them both just in case the context might have been a little bit different. But in the case of option trades, how soon can you actually sell an option contract before expiration? You could sell them hundreds of days before the actual contract expires. You can start a position seemingly hundreds and hundreds of days out from expiration. Actually, right now, the furthest out contracts that I see for the SPY is 850 days out, so basically January of 2020. That’s how far out you can do it. You can sell the contract right now and you can wait 850 days until you reach expiration. I probably don’t suggest going out that far, but

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 broken wing butterfly in options?” When you’re options trading and you’re starting to create an option trade called a butterfly, sometimes what people will do is they will create a butterfly strategy whereby you break one of the wings. Now, this doesn’t necessarily mean that you just knock the wing off or you snap it. It’s basically that you just create this unbalanced position where you have an uneven distribution between the different wings of the butterfly position. For example, if you were going to create a butterfly position and you were going to sell with call options, the at the money strikes say around 300 and you were going to create a butterfly with calls, you would then maybe buy the 298 call option to create the lower wing, but on the upper side, instead of going $2 higher on the top side of the butterfly, you might go $3 higher or $4 higher or $5 higher

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 volatility good for day trading?” I think the answer to this question is absolutely yes only because if you are going to be day trading securities and I’m talking day trading stocks or day trading options, if you choose to go down that path which we do not choose to go down that path, but if you do, then you need a lot of volatility to give you a chance to make some potentially big money during that time period. The problem with day trading anything, whether it’s stocks or options, is that generally, things are range bound and so, as a result, that means that there’s a lot of churning, but not a lot of net-net movement in your account. And so, what you need is you actually need a lot of volatility and in the right direction in order to be profitable. I think a part of the answer is yes, volatility is good for day trading because if you are going to be a day trader especial

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 do you trade index options?” Well, obviously, this is a loaded question, but I think the gist of trading index options is pretty simple. Index options work and function very similar to equity or regular stock options with one real caveat and the one real caveat is that they are European-styled settlement which means that you cannot convert an index option into physical shares of the index because the index does not exist. It’s not out there. It’s just a figurative number that is trackable. And so, when you go through and trade index options, you really don’t have this worry of early assignment or assignment risk. What happens is that at expiration, the index options convert into a cash-settled value. And so, because they convert to a cash-settled value, basically at expiration, you go through the expiration process, if you have money and the value of the contract is valuabl

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 it better to sell options before expiration?” And I think this is really kind of a two-part answer and I think the intention of the person asking this question was something a little bit different than how they phrased it. But like I’ve said always, there are no stupid or dumb questions here and so, I want people asking questions. This is a legitimate question, word-for-word, that we got in the membership area just a couple of weeks ago, so I want to make sure that we address this topic because it is a question that somebody asked. And so, the simple answer to this is – Well, of course, we have to sell options before expiration. Once the expiration date comes for an option contract, you can’t do anything. You can’t buy or sell the contract. I think what they were more targeting though, if I don’t use it so literally as literally asking the question, what they were more aft

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, “Does it cost money to sell stock?” The simple answer to this question again, is that yes, it cost money to sell stock nowadays at most brokers. I think this will change in the future. Already, we’re starting to see a change where a lot more brokers are coming out and offering this commission free trading platform. It’s very easy for them to start commission free on equity trades. There’s actually a number of brokers out there that offer commission free equity or stock trades, so that would allow you to then sell your stock for free though most people still do use a traditional brokerage platform which charges a commission or fee to get rid of stock or sell out of your stock position. The answer is yes, most people, it’s going to cost you money to sell stock unless you have already transitioned to a brokerage platform that does not charge you or you could go back to one of our

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today’s question we’re going to answer is, “Can I transfer my shares to someone else?” Again, the simple answer to this question is yes, you can choose if you want to do a direct share transfer. I think in many cases, the share transfer has to be or it’s at least a lot easier to do when the two different accounts that you’re transferring it between are at the same exact brokerage. If you have your shares at TD Ameritrade or you have your shares at ETrade or Schwab or Fidelity, it’d be a lot easier to do that share transfer between the two different accounts. Usually, it just takes a little bit more paperwork on the broker’s end. You want to understand who you’re transferring your shares to, what the price is, what the effective cost is and all of that stuff before you actually go ahead and submit the paperwork and transfer the shares. Personally, I don’t think… I don’t know why anybody would want to do this unless they

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 negotiate a broker’s fee?” The answer to this question is a 100% yes. You can and you should try to negotiate your broker fee. Do not take the broker fee at face value. In fact, many people for many different brokers have the ability to negotiate their fees lower and a lot of people actually do negotiate their fees, sometimes drastically lower than what the broker might typically say that they charge as a commission on their public-facing website. I think the idea here is that we don’t think that we have the power as regular traders, regular people I guess to go to a big brokerage or to a big investment company and say, “Hey, look. I’m willing to move some money over here and to use your platform in exchange for a reduced fee.” or in some cases, waving fees for some types of trades or products completely. Again, there are so many different things you can do here if yo

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 buy stocks online without a broker?” The simple answer to this is yes, you can, but I don’t necessarily think it’s the best thing to do. You can use programs, what are called DSPPs which are direct stock purchase plans. A lot of companies actually give you the ability to sign up to purchase stock directly from the company or through your employer. You can sign up and purchase stock directly from your employer, but I don’t think that they’re necessarily the best way to go. One, because it really is very limiting. You go through all this hassle to sign up and purchase stock directly, but then if you need to sell or you need to go through the process of selling, who’s to say that they’re going to be liquid enough to sell back those shares immediately or at effective prices as the regular market? And then two, many places that do have a direct stock purchase plan or give 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 the cognitive dissonance bias. And this is another favorite one of mine and just kind of dovetailing off of yesterday’s talk about the self-attribution bias, but cognitive dissonance is basically this idea that investors will potentially ignore a lot of newly acquired information or even pertinent and relevant information that they just come into contact with because it conflicts with how they previously thought the world worked or how portfolios worked or how investing or trading worked and it’s really detrimental because the problem is that sometimes you could be staring something right in your face. It’s right there in front of you. It’s researched. It’s backed. There’s data behind it. There’s a rationale and there’s a value to it and you just push it aside. You just cognitively take your hand and just move that to the side because you don’t agree with how that is now conflicti

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to talk about self-attribution bias. This is probably one of my most favorite biases that I see people have and I think that it’s a hard one initially for people to struggle to get over because we live in a society where everyone is posting on Instagram and posting on Facebook and your best foot is always facing forward and you have the decision to choose that. And you’ve heard the saying before, “Never confuse brains for a bull market.” or potentially, you’ve heard that saying of words. It’s a very common Wall Street saying, but it has a deep rooting and meaning in this self-attribution bias which is this idea that we have this processing capability and this cognitive information filtering where we have a tendency to credit our success to some talent or skill that we have, but then on the flipside, we blame all of our failures or any potential failure and situation, thing that really happens bad to