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 the only group that mattered on September 11th. This is an important day for me because maybe more so than people who never even were around for September 11th, not only was I obviously around and cognizant of what was going on, on September 11th, but because I went to high school… And this happened during high school. September 11th happened for me when I was in high school. Because I went to high school in Virginia, Northern Virginia in particular, I went to high school where a lot of my friends and in fact, very close friends of mine lost family members, husbands, fathers, wives in September 11th because they worked in the Pentagon. And so, to me, September 11th hit home more so than potentially a lot of other people, but what I remember from that one event which it seems to have been lost in the constant stream of just every day stuff that we just see going on in the world right now, it

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, “Should you continue to invest in a bear market?” I guess the simple answer to this is it depends on what you’re investing in. If you find yourself in the middle of a bear market or it seems like the risk to reward ratio doesn’t really favor a particular security or a particular category or asset class that you’re investing in, then you probably shouldn’t invest a lot of money into it. Now, I say a lot of money because I don’t think it’s a binary thing. I don’t think it’s a yes or no answer. “Do I invest in stocks? Yes or no?” I think it’s a scaled approach or a tilted approach. If you find yourself in the scenario where stocks become overpriced relative to historical norms or cape ratios or P/E ratios, then you might find yourself tilting out of stocks. Not necessarily getting out of them completely, but maybe tilting your portfolio more towards bonds. In the world of options

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 low put to call ratio?” A put to call ratio basically tells you exactly what it sounds like it’s going to tell you. It tells you how much put volume there is relative to how much call option volume there is. And so, when you generally see a low put to call ratio, that means that there are fewer put options being purchased for every call option that’s purchased. Now, this is generally a gauge that market sentiment is seemed to be relatively bullish. People are almost excessively bullish in some cases because they’re not buying enough protection or they don’t feel like there’s a need to go out and buy put protection, so therefore, they decide that they don’t want to do it and they buy more call options and they have lower put option volume relative to call options. The inverse would be true when you see a put to call ratio that is really, really high. That means 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, “What does implied volatility tell you?” Implied volatility basically tells us what the market expects the stock is going to do over the next year, month, 60 days, 30 days, whatever it is. Implied volatility is the market’s way via market participants actively buying and selling options aggressively or not aggressively, how far people expect the stock to move based on expectations or how willing they are to bid up the price of a call option or a put option or vice versa, bid down or not aggressively trade calls and puts. Implied volatility is exactly what it sounds like, the implied or expected volatility in the underlying security moving forward in time. And what this tells us is how much people expect the stock to move, but the problem with it is that most of the time, in the long run, this implied expectation is overstated, meaning that people expect a stock to move more th

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 opportunities are closer than you think. Look. The reality is that you’re running out of time right now because you think that the opportunity that you need might be in some far distant time in the future, but in many cases, it’s the preparation, it’s the setup that will allow you to find that opportunity which actually might be closer than you think. It might be just around the corner. People all the time talk about luck and they talk about just good fortune and being in the right place at the right time, but it’s all the right opportunities and all the preparation that led to that one moment of being lucky or being in the right place at the right time. Right now, I think it’s a great opportunity for options traders because what we’ve seen over the last decade plus is we’ve seen very much, most of the market go towards this very laze fair passive lazy portfolio approach which

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 does realized volatility mean?” Realized volatility is basically the volatility that actually occurs when you look at historical performance of a stock or an ETF or a security. Now, I relate this very much to paper profits and realized profits. If you have let’s say a position and an underlying security and you’re holding paper profits, but you don’t close it out until tomorrow and after tomorrow, we see a huge move down in the security, well, your realized profit might be lower than what you expected to get. And so, this same thing happens in options trading where we have implied volatility, the expectation that a stock is going to move and then we have realized volatility. You can actually track and see how much the stock actually moved historically relative to its expectation. This difference is really important because this is where our edge lies as an option seller,

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be going through a simple trailing stop loss example. Trailing stop losses work well for regular long equity, whether it’s stocks or ETFs or futures contracts. They don’t really work so well for options trading because generally, stop losses actually create more losing trades when you’re trading options. In this case, a trailing stop loss order might look something like this. Say a stock is trading at $100 and you have a $1 trailing stop loss order. What that basically means is that you give yourself a $1 cushion that the stock can go down in price before your stop loss is executed and this $1 margin stays in place until the stock starts to go up. And so, if the stock goes up, then that margin readjust higher, so that you continuously keep a $1 spread between you and the market. Again, if a stock is trading at $100, you might have a $1 stop loss order which means that if the stock starts to go dow

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 are calls more expensive than puts?” Now, we actually generally don’t see that call options all the time are more expensive than put options. In fact, many times, you’ll see that most of the skew in pricing or the differential in pricing happens on the put side where put options are more expensive than the same or relative call options at an equal distance from the market and that’s because most times, people are more concerned with downside risk and they’re willing to use put options to protect against that downside risk. As volatility starts to increase, that typically is followed by market moves lower. Not all the time, but typically, it’s followed by a market move lower. Where you do see situations where the whole skew starts to flip and you see call options become more expensive than put options, usually follows with a lot of speculation. Right now is a great example

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 you want high or low volatility when trading options?” The simple answer to this is you want both. Both environments, high and low volatility, have a positive expected outcome for the implied volatility risk premium, this idea that people are bad at predicting where things are going to go and they over-exaggerate in both directions and as a result, long-term, option pricing is always overstated by some margin. Now, we do find that generally, in higher periods of implied volatility, that overstatement or that exaggeration might be a little bit more, but it’s still prevalent and it’s still there in low volatility. My answer to this question is it doesn’t matter really where volatility is. Volatility can be used as a gauge for position sizing. It could be used for a gauge of potential volatility in your account and your positions as you win and lose on positions working towar

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 those who sprint ahead early rarely finish or win the race. I love this analogy because it’s so true in so many disciplines. It’s not even funny. You can look at it in personal finance, in careers, in investing and definitely in trading. You get people who get really, really excited which I love the excitement, but then end up having this overexertion of energy and sprint ahead early by doing way too many trades, over-allocating everything and they rarely end up winning in the long run and it’s because they just frankly burn out or they’re doing the wrong activities in the long run that are going to lead to success. It might seem like those short-term activities and their short-term wins are getting them ahead because they’re moving faster, they have more kinetic energy, they’re actually doing something and it feels like they’re making progress, but really, they’re just spinni

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 not lose money in the stock market?” Well, it’s basically impossible not to go through some potential drawdown over a long period of time. Even cash loses money. When you think about investing, you think to yourself, “Well, if I’m not going to lose…” The only way not to lose is just not to be even involved in the market, but that would mean that most of your money is sitting idle in cash and you’re going to lose purchasing power just due to inflation. If you accept now the possibility that anything you do has risk, even cash, even gold, even just money under your mattress, then you should be willing to accept risk that aligns with your overall goals. We know that we’re going to go through periods where we lose and where we have drawdowns. I think Charlie Munger famously said in the 2008-2009 crash, “If you didn’t lose 30% or 40% of your account, you didn’t know wha

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 day trading a viable career?” The short answer to this for me is no. I don’t think it’s a viable career because I don’t think honestly a lot of people have the stomach, nor the account size to actually do it. I know a lot of people get sucked into day trading because they like the idea, they like the hustle, the grind, the market fluctuations, all the stuff that’s wrapped up in this ideal persona of somebody who can day trade for a living, but the reality is it probably takes a lot more skill than most people actually have. I think that there’s definitely people who are profitable as day traders and I think they are the exception, not the rule. There’s definitely people who are really, really good at day trading. I am not one of those people by any stretch, nor do I think many people are. And so, to me, when I think about day trading as a career, while it sounds so cool on

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 cannot predict implied volatility. This actually came from a question from a user. He basically sent me a message through Facebook and they said, “Kirk, can you actually predict where implied volatility is going to go?” And I thought to myself – It’s an interesting question, but the answer is you cannot predict where implied volatility is going to go because implied volatility is the prediction itself. The fact that market participants, you, me and everybody else out there that’s trading options and buying and selling underlying securities are actively engaging in the market therefore creates a prediction based on our actions of where we think the market’s going to go, but that is the essence of what implied volatility is, an estimation, an assumption of where the volatility is or how volatile a stock will be moving forward into the future. I think their question wasn’t ne

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “What is the difference between a strangle and a straddle?” The difference between these two option strategies is actually very simple because they’re cousins of one another. The difference is that with a straddle, you are selling the at the money call option and the at the money put option effectively at the same price. If you have a stock that’s trading at $100, to do the straddle, you would sell the 100 strike call and the 100 strike put. A strangle is selling any other combination of out of the money options that are not at the same price or strike price. For example, if the stock is trading at $100, you might sell the 101 call option and the 99 put option. That would create a strangle. You could also sell the 99 put option and the 105 call option. Again, that could also create a strangle. The strangle is just simply selling options on both ends, so the put side and

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “How do you make money when stocks go down?” The topic of this question is not how do you avoid losses when stocks go down, but specifically, how do you potentially make money when stocks go down. And so, there’s a couple of ways you can do it. Obviously, timing is a really big important factor here. We’re not talking about necessarily a huge major bear market move or a huge correction, but we’re just talking about this idea that when stocks are going through a cyclical cycle and they have their ebbs and flows of ups and downs. How do we generally make money in those environments? And if we’re going to be trading options or we’re going to be trading the underlying stock security, how do we make money? The first and most obvious way to make money on a stock going down is to short the stock. Now, that requires a lot of capital and a lot of margin to do it, but it’s the eas

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “Does option volatility (specifically Vega) change with time?” And of course, volatility and option volatility which is commonly referred to as a Greek letter Vega, does change with additional time until expiration for those contracts. Now, this concept makes complete sense when you think about it in the context of a flight or a plane that’s traveling either a short distance or a long distance before it arrives at its destination. For example, if a plane takes off from New York, then a very small and slight tweak in the direction of where the plane is going right after takeoff can have a dramatic impact on where the plane actually ends up. The plane takes off from New York and it’s facing Los Angeles and California, but then right after takeoff, it makes just even the slightest degree change in trajectory and that could end up leading the plane all the way to California

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 buy stocks on the weekend?” The simple answer to this question is no, you can’t buy stocks on the weekend. You have to buy stocks when the markets are open and that’s usually Monday through Friday for the regular equity markets specifically here in the US. If you want to trade stocks, you want to get into or out of positions, you have to trade them during normal regular market hours. Now, there’s some exceptions where you could get approval to do a little bit of afterhours trading, but that’s on the far end of the spectrums. For most retail investors, say the vast majority of retail investors, all you can do is buy and sell stocks during regular market hours. 9:30 AM Eastern Standard Time to 4:00 PM Eastern Standard Time, Monday through Friday is when you can start trading. As always, hopefully this helps out. If you guys have any other crazy questions you want to ask

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 difference between fee-based and commission-based trading costs. Really, the slight difference in variation here is really, how the commission or the fee is charged. When you look at most trading costs, they’re usually a fee-based trading cost which means that there’s a fixed fee associated with performing that transaction, but then you also have this commission or this variable element that layers on top of that which could be variable depending on how much of that particular security you’re trading. A good example of this might be a different brokerage that’s out there that charges not only a ticket charge which is a fee-based commission, ticket to actually just enter into the transaction regardless of how much or the quantity that you’re trading and they also might charge on top of that, a small notional amount for the quantity. They might be $5 per trade plus $.5 per contr

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “Do you pay commission when you buy and sell a stock?” The short answer to this is you generally pay a commission with most brokers although there are some brokers now who are starting to not only remove the fees that you would pay for equity including stock, but also, there’s many brokers like Robinhood now that are starting to go commission free. It does depend on the broker. Some brokers like TD Ameritrade typically charge a very small ticket charge plus a per share charge or a flat fee. It depends on the brokerage pricing structure. Other brokers are now also rolling out commission free ETFs and commission free mutual funds or index funds, so it really depends not only on the broker, but also on the underlying products. Generally though, most brokerages as a mass right now do charge a commission for getting into, buying and selling stock although as we’ve previously

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 have the life you are willing to accept. It’s probably hard to come off of show number 700, obviously one of our more longer episodes and if you didn’t listened to that yet, please go back and listen to that because I revealed in detail a lot of things that I would’ve normally never done before previously in the past and now, we’re starting to move forward and the one thing I want to start off with is this concept of having the life you’re willing to accept. And this is an interesting thing because I think naturally, we all know that this is happening on a conscious and even a subconscious level, but we’ve been conditioned slowly over time to just harden and accept the things that are, that “have always been.” And so, for us, it’s really hard to break out of that mold. It’s almost like you see times where people have this major traumatic or life-changing event and then the