The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. It’s Kirk here again from Option Alpha and I wanted to jump on… And this is going to be a long Facebook Live today because what I think I’m going to be sharing right now is actually… It’s a little bit scary to actually share some of this stuff and kind of tell you my thought process. And I do have a bunch of notes on here, so I’m going to show you I have so many notes that I’m going to go through, so if I don’t look directly at you, it’s because I’m reading from this stuff and I’m trying to figure out my thought processes and what I want to get across. But there’s a lot that I want to share on this and this is going to be the show for the daily podcast which is really where the seeds of this whole journey started. When I started the daily podcast almost 700 episodes ago now, one of the things that I wanted to do is I wanted to offer a little bit more than just options trading. I wanted to kind of let you guys behind-the-scenes a little bit, talk a little bit about psychology and mentality and em

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, “Where can I trade options?” Now, I think the simple answer to this question is you can obviously trade options at pretty much any brokerage, but the more important question is what’s really happening in the market and where is the new shift in where you’re going to be trading happening because I think there’s a shift in brokerages and there’s going to be a major shift in business models in the brokerage and investing space in the next five to 10 years. In fact, we’re already starting to really see the beginning seeds of this shift start to occur with things like Robinhood. Even platforms like Option Alpha when we roll out our new auto-trading platform, you’ll start to see this shift start to split the entire industry into what I think are going to be two major fields. The first field or the first paradigm shift that we’re going to go into I think in the brokerage indust

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, “Why do options exist?” I think this is an important question to ask and one that I think not many people actually truly ask themselves or ask really even about the market. If options contracts exist in the market, then why do they exist? They don’t exist, so that we can just throw money back and forth between each other. They exist for an underlying fundamental purpose. And the reason that option contracts exist is simply for the transfer of risk from one person to another. It’s the same reason why insurance contracts exist because someone is willing to transfer their risk to another party in exchange for some sort of fee or compensation, however you think about it. But that’s really the fundamental reason why option contracts exist. If someone’s going to buy an option contract, say a put option contract that protects them in case the stock goes down, they are willing t

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 a birthday reflection about the longevity of life. As I cross yet another birthday and not necessarily a milestone birthday, but it seems like now, the numbers are starting to look to me, a little bit older than they were previously. For whatever reason now, my new age starts to look even older and older and older as I go and that’s I guess because the age is actually creeping up. But as I cross another birthday milestone, I’ve just been seriously reflecting a lot in the past couple of months about not only life and what I want to do and who I am and really digging deep on a lot of stuff which you guys have probably even seen and starting to hear and you’ll definitely hear more about for sure. But what I’ve realized about life in just conversations this summer with not only my father-in-law, my father and my friends and family and brother-in-laws, is that life is a weird two-heade

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 savings versus return and asking the question, “What’s more important?” And I think this is important to actually ask yourself. Right now, just really quickly, before you do anything else, what is more important over the course of 20 or even 40 years? Is savings more important or are investment returns more important? And I think the results here actually are not that surprising, though I think they might shock some people in the sense that when you look over a 40-year period and you compare let’s say a 10% savings rate and 6% return to a 6% savings rate and 10% return, when you actually go to about your 24, 25, the difference is mostly on the end of savings. And so, what I mean by this is that when you have 10% savings and a 6% return, that far exceeds the performance of saving 6% and earning 10% and that’s all the way out to the first 24, 25 years of your investment horizon. Wha

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 does a limit order work for buying?” It doesn’t matter what you’re actually buying. Whether you’re buying stock or options, commodities, Forex, futures, bitcoin, it really doesn’t matter. A limit order simply limits the price in which you are willing to pay to enter that security or to buy that security. To use an options trading example, let’s say we want to buy a call option in Apple and we’re willing to pay $200 for that call option contract. We would enter a limit order that says we limit the price we are willing to pay to $200 or less. That means that if the price of the call option contract in Apple is more than $200, that order will not execute by the broker. The broker has a fiduciary responsibility not to execute that order, not to send that through at $201 or $202. It could only send it through if it is guaranteed to fill at $200 or less. Now, sometimes th

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, “Can I avoid paying capital gains tax?” The simple answer to this is yes, there’s a lot of ways that you can avoid paying capital gains tax depending on the type of investment vehicle you’re using, whether it’s a ROTH account or a 401K account or a SEP account. You could avoid paying capital gains tax for marital residences when you sell your primary residence and you have a capital gain on real estate. There’s a lot of ways to do it. In the world of trading, one of the ways that you can avoid paying capital gains tax obviously is just to never sell, to never sell your positions. This is actually one of the default positions I think for Warren Buffett, is he avoids a lot of taxation because he just doesn’t sell a lot of his positions. Now, the flipside to this is you have to be in it for the long haul, so long of a haul that you have to be a much bigger believer in passi

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 unrealistic return expectations lead to unfathomable drawdowns in your account. And this is a really important concept because as a lot of new people continue to join Option Alpha, continue to get started in this world of trading outside of the traditional stock investing that most people are used to, the natural tendency is to have these unsane, unrealistic expectations, these expectations that you can do 50%, 70%, 80% returns in a given year or in some cases, people are saying that they want to do 30% per month. And while that is not necessarily something that is unachievable, the probability of getting to those levels is so, so, so slim that if you were to start working towards a 30%, 50% annualized return, you could go through some unfathomable drawdowns. And I don’t mean that lightly. I mean, some of the back test that we’ve seen where people are shooting for super high a

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to rhetorically ask the question, “What if 18 seconds was worth $245,356?” Now, I say rhetorically ask this question because the answer to the question is if it was worth that much money, if just 18 seconds of your time was worth a little over $245,000, you would basically rhetorically ask the question, “Well, what do I have to do in order for that amount of time to be worth so much money in the future?” And the answer is you have to run a back test. I am shamelessly plugging our back testing software or frankly, anybody’s back testing software, this idea that you can basically look at tons and tons of research that’s already been done and is published out there by numerous different places, not only just the research we do here at Option Alpha, but CBOE and AQR and all these other places. They publish so much research on back testing strategies and portfolios and models you can use to improve the 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 the question, “Can we sell stock before buying?” And the short answer to this is yes, you can and this is what’s called short trading the stock or short selling the stock. What happens is in the background, when you want to start doing this, is you actually have to borrow shares from the brokerage or from somebody else who have shares available to borrow. And so, what you’re doing is you’re borrowing those shares from someone else and selling them in the open market (say you had $100 a share) with the understanding that in order to complete the trading loop, you’ve got to return those shares to the person you borrowed them from at some point in the future. Now, you hope as a short seller in this case or someone who’s shorting the stock that you can repurchase the shares in the future at a lower price, deliver the shares back to the person you borrowed it from, likely the broker and co

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 how time to expiration affects option prices. It should come as no surprise, but in the world of options trading and specifically with option pricing, the more time a contract has until expiration, all things being equal, the more valuable the option contract is going to be and this means that option contracts that are six months out from their expiration date are more valuable than the same option contract, same strike price, same side of the option contract chain that are three months out as they are to option contracts that are one week out or even a day out. Time is worth something. It’s worth a lot of money in the world of trading because the more time you have for the position to move in the direction that you want it to go, the more valuable that option contract is and the more that an option buyer will pay a premium to get additional time. Now, as an option seller, we gene

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 are options strike prices determined?” Options strike prices determined are basically opened by the exchanges where the options contracts are traded. In a more typical fashion, you might see the CBOE which is CBOE start to open different option contract months and different strike prices depending on how much activity or demand they would expect for that underlying contract. Now, this is why you see in some cases for lower-priced ETFs and lower-priced stocks, you see option strike prices in increments of $1 or even sometimes, $.5, so 41 and then 41.5 as a strike price versus some of the larger contracts on regular ETFs or even stocks where you might see $5, $10, $20, $25 increments in the option strike prices and again, this is mostly based on just how much demand there is and how much variety is needed in the marketplace. But you will start to see option strike pri

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re answering the question, “Can index options like SPX be exercised?” The short answer to this is no. Index options like SPX, NDX, RUT, etcetera are what are often referred to as European-style settlement or cash-style settlement. Their settlement happens at the end, literally the last day of their expiration cycle and they settle to cash because you can’t actually buy shares of SPX, you can’t buy shares of RUT or NDX, some of these European-style settlement options, but what ultimately ends up happening is that the last day, they just settle to the cash value of whatever the underlying contract was. If there was a value left in there or a profit for an option seller or a buyer, it would settle to that cash value and now, the cash is in your account or if you’re on the losing end, the cash gets taken from your account at the end of settlement. You can’t actually exercise these options in the traditional sense

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 money disappears without financial intelligence. Now, I’ll tell you right off the bat, I think I actually lied. I think it doesn’t disappear. I think it transfers to the intelligent. It doesn’t matter what discipline you’re actually looking at for investing. It could be stocks, bonds, commodities, real estate, Forex, options contracts, Bitcoin. It really doesn’t matter. The idea is that when you look at where your profits and losses have eventually come over time and even going back historically, it always comes from the transfer of money from those who do not have financial intelligence to the people who have financial intelligence and it’s just purely about understanding the mechanics and the business model of whatever you’re trading. Like options contracts for example is a very numbers, statistical probability-based system that you would be trading versus something like rea

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 to an option when it expires?” The simple answer to this is that the option ceases to exist. When an option contract expires, it no longer exists. And what’s important about this is not the fact that it just no longer exists, but that if the option contract is out of the money, there’s nothing left in the contract and it literally disappears. If you have a contract that’s out of the money, it expires with no value whatsoever. It doesn’t matter if you’re short the contract, if you’re long the contract. If the contract you were trading was out of the money, it has absolutely no value. If you were trading a contract that goes through expiration and expires in the money, then what happens is that that contract, the option contract itself no longer exist, but before that happens, the contract is converted at the terms of the original option contract. For example, if y

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to go through a simple explanation of sell to close when trading options. When you’re getting started trading options, one of the first things that you’ll probably learn how to do is to buy option contracts. Now, we don’t necessarily think this is the best approach, but it’s just naturally where most people gravitate towards. It’s the most universally understood concept in investing, is you buy something when it’s cheap and you hope to sell it eventually when it goes up in price. Many people when they start options trading, they actually start by buying option contracts and they do what’s called a buy to open order. And so, the natural progression of the trading loop is that at some point, you have to sell what you bought in order to realize your potential profit. A lot of things can happen between the buy and the sell and that’s all paper money, that’s all fictitious money until you actually close o

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re answering the question, “How can I buy stock without paying commission?” The first way that you can buy a stock without paying commission is to go with a brokerage that offers no commission for buying stocks. It seems like the most intuitive and easy way to go. Places like Robinhood, there’s also new places including J.P. Morgan launched an application that you can get free commissions up to a certain level. There’s other brokerages that are starting to pop up as well and will inevitably pop up in the coming years that will offer stock trading for free. To me and to everyone else, I’ve said publicly for many months now that I think all brokers at some point are going to be commission-free. I think options, stocks, futures, everything in the future will be commission-free. Now that we’ve had the real big splash of the likes of Robinhood, etcetera, we’re going to start to see this race to the bottom in all b

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 brokerage commissions work?” Obviously, as you know, there’s many different ways in which brokerage commissions can work. We’re going to kind of go through a list of them here, so you could see what works for you and what works for your account. Obviously, check with the broker that you’re using. Look in multiple brokers, look at reviews of brokers because it is wildly different and the first thing I’ll tell you is whatever brokerage commission you see online may not necessarily be what they could actually charge you because you can negotiate your commissions lower. Many people don’t understand that the brokerage commissions that you publicly see on the front face of every single website is just literally a starting point and oftentimes, there are traders and investors who get substantially discounted commissions just for simply asking or for moving money over or

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 guidepost first, pinpoint second. And this is a concept that I’ve been really kind of leaning on the last couple of months as I’ve been teaching and talking and doing webinars and conversing with people, this idea that I think a lot of people come into the options trading business and they’re looking for an exact, like pinpointed exact thing that they should be doing, but the problem with options trading in general is that there’s no unicorn strategy. There’s no one strategy that is the universal best strategy in all scenarios, in all cases, in all situations and best for your account. And so, what they’re coming in and looking for is they’re looking for me to put a pinpoint on a map and they’re so far from that pinpoint that they can’t even see it. It’s not even registered in their time horizon. And so, what I’ve been trying to tell people is – Set a guidepost first, so things 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 you’re too young then it’s too late. And this is actually really funny how this happens because I see this on both ends honestly with a lot of people that are in my family and friends circle and business acquaintance circle. I see a lot of people have said this just recently, just in the last year and I’ve kind of pushed people a little bit to say, “Do you want to do that project? Do that project. Do you want to do that thing? Do that thing.” and I either get one of two responses. One is they’re too young to do that. “I think I’m too young to do that right now. I’ve got lots of time. I need to do this first.” But the problem is you look at the other side of the coin and you think to yourself – The people who said that they were too young, just a couple of years later, are going to say now, “I’m too late. It’s too late to start that. I’m too old now or I’m too far into my caree