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 be talking about the one viewpoint that most people hate to accept. Myself included, we all hate to actually accept this viewpoint, but it’s really, really important and I think today’s podcast is one that hopefully should kind of hit you right in the gut to some degree because I’m going to try to be as blunt as possible not only to you, but to myself because I think about this and I read this over and over. This is part of my kind of daily routine of reading some of these mindset things and this one always hits me. I mean, always, like literally, when I read some of this stuff, I stop and I think to myself, “Man, that’s so powerful, so important.” It could be so easy just to dismiss what we’re talking about here and chalk up your successes and failures and everything to something else or some outside factor of circumstance, but it’s really not. Here’s the deal, right? In this world, the reality i

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 Theta of an option contract. The Theta of an option contract is a critically important concept for you to understand, especially if you’re a new options trader, but even if you’re an experienced options trader, hopefully you get a lot out of this. Theta is basically the Greek representation for time decay. I always think T from Theta as related to T for the time decay of the option contract. Now, as opposed to many of the other Greeks in option pricing formulas and inputs that go into it, Theta is really the one thing that is the continual constant and that’s because time marches on. It never slows down, stops or speeds up. Every day passes at the same interval and the same frequency as the day before. Theta is a really good conceptual understanding of how time passes in the option contract and how the passage of time can erode the value of an option contract faster and faster. We

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I want to talk about babysitting $100 bills. I want to explain this because I want to use just a very simple, realistic scenario of what happened. Me and my wife have three kids and whenever we go on a date night or if we have some function going on where our kids can’t attend, we obviously get a babysitter for our kids, okay? We don’t leave them at home and just put out food and water and hope they’re okay like dogs and cats, right? We get a babysitter. But as a parent of three kids, we’re going to get a babysitter who is used to and has experience with multiple kids, right? I mean, that would only seem fair and it would only seem realistic and probably the smart thing to do, that we don’t get maybe a new babysitter that’s never watched a kid before, let alone a five-year-old, a three-year-old and an infant. We want a babysitter who’s watched one kid, two kids, maybe three kids and had experience watching infan

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 cash gives you investing optionality. This is a really important concept and something that we’ve been harping on for probably over 10 years now. We’ve been talking about how important it is just to have cash in the bank and have a cushion of cash ready for trading or investing or really anything, kind of like this emergency day fund if you want to call it the emergency day fund in budgeting. But the whole idea behind cash is the optionality that comes with cash. And with cash, you can do so much so quickly. And I think a lot of people try to kind of break some very simple rules with cash. They try to use things that are cash like or they try to put them into things that they assume they can quickly unwind and unravel, but the reality is nothing comes close to just having literally hard cash in the bank ready to go at any moment. And because of that, you have a lot more flexib

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 people love to be victims of circumstances. And this is totally true and you probably know this or you’ve maybe seen somebody that’s like this. We’ve all even felt like we’re victims of circumstance in some cases. But people love to be victims of circumstance because of all the benefits that it entails. They never have to be personally responsible for anything that happens to them. They never take responsibility because it’s always someone else’s fault. And look. We’ve all done this before, myself included. “Oh, it’s person’s fault.” or “It’s the government’s fault.” or “It’s because Trump tweeted.” And this actually came because somebody cancelled and they said, “I can’t do this anymore because the Trump tweet really killed my position.” And when I dug down a little bit deeper, we found out that their position was just too large. It was a massive position. I think it was like

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to use a very simple Apple put option example just to help you kind of walk through how you can understand how to sell put options in a particular stock. I like to use Apple because it’s a really popular ticker for everyone. Everyone knows Apple, they’re familiar with it and it gets a lot of attention. We’re just going to do this at the time that I’m actually recording this. And so, right now, ironically enough, Apple is trading pretty much at $200. It was just downgraded today, so it’s trading a little bit lower on the day, about 2.5% or so, but it’s trading right around $200 a share. When we look at a put option, obviously, what we’re trying to do is sell a put option, hope that the stock does not go below our strike price or our blended breakeven price and look to collect all that premium or as much of that premium as possible before expiration. Now, at the time I’m recording this, it looks like A

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 economic vertigo impacts options traders. What is economic vertigo? It’s just this idea that we get unbalanced or we get lopsided if we start going too deep down the rabbit hole of trying to understand the impact of every single economic or fundamental indicator out there. A lot of times, what you’ll see is somebody who wants to understand every little intricacy that’s going on and what they end up doing is they start feeding into this self-fulfilling cycle of trying to read the news and understand this indicator versus that report and this FED official said this and Trump tweeted this thing. And what they end up having is vertigo because they’re so unbalanced with so much information coming in and whirling around them that it knocks them off track and a little bit of the analysis paralysis can creep in. My thought process on this and the visual I use (maybe it helps out with

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to go through what I think are the top three qualities of people who lose trading options. Now, I’m not saying this is everybody who loses trading options, but I think generally after doing this now 10 plus years, I see people who do some of the same reoccurring things over and over again and they develop their own little pattern and habit that starts to evolve. If I were to kind of break it down into the top three things that would characterize somebody who I would think would be somebody who’s not going to make it in options trading, it would probably be one of these three things. First, they complain about their circumstances and wait for something to change. Undoubtedly, when I see somebody who start complaining about why the president is tweeting or why the FED is doing this or why Russia and China are doing what they’re doing or anybody else, undoubtedly, I know somebody is just not taking cont

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 number one diversification mistake you’re making right now, and that mistake is not acknowledging correlations. The huge mistake that a lot of people make with classical diversification is that they mistake quantity for quality, and what I mean by this is that a lot of people, when they get into diversifying their trading and trading more products, they just naturally trade more symbols and they go for the game of quantity, so the idea that if I trade five products versus one product, that makes me diversified. I have five tickers versus one ticker, now I’m diversified. But that’s not the story. The end result is that you could be trading five symbols that are either in the same industry sector or area of the market or just happen to be if they’re not in the same industry or sector, happen to be highly correlated to one another. The classic example of this is if you trade Home

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 burn the ships or quit now. Many of you guys have heard the old Cortez (I believe it was) quote where he talked about burning the ships and never going back, this idea that when he landed in the Americas, he gave his men the order to burn the ships and basically, that forced them to do the things they needed to do to be successful in the Americas or wherever they landed and ultimately gave them a reason for sticking with it because they knew that the ships were gone and there was no way to go back. Well, the same thing has to be said about options trading. I’ve seen way too many people over the last couple of months tiptoe and kind of dance their way into this market and into this business, but it’s not how it works. You either have to commit to going full steam ahead and committing to options trading as a viable systematic approach to investing or you just have to

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 to sell a call option. A short naked call option is a very basic option selling strategy whereby you just simply sell a call option at a strike price that’s either at or above where the underlying stock is trading at the time. Now, again, it’s a little bit more of an advanced strategy in the sense that it carries a lot more risk than a traditional spread that you might be trading. With a call option strategy where you’re short the option contract, you’re going to be carrying a lot more margin and you have undefined risk given the fact that the stock or underlying security could continue to rise against your position in the future. Therefore, of course, we always suggest you keep these option strategies to a minimum and balance them out with other existing neutral and other existing bullish strategies in your portfolio. All that being said, when we sell a call option, we gener

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 nonstop, relentless trading. And this is really kind of a dovetail from the previous daily call that we had about why we don’t filter trades for Trump tweets, but it seems like there’s always going to be a reason for you not to trade. No matter what the catalyst is, a lot of people get sucked into this fear hole of not trading because of some external factor and it always changes. And over the last 10 plus years of doing this at Option Alpha and kind of showing what we do and blogging and talking about it, I always see that it changes. It used to be because of the market crash stuff, and then it was housing, and then it was tech or the FED, and then it was the election, and then it was Trump, and now, it’s Trump’s tweets, and now, it’s tariffs, and I mean, the catalyst always changes and it’s always a reason for you not to trade, but I would suggest and I would push to be as relen

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 surprising positive correlation between bonds and stocks. Now, really quickly before we even get started with this, if I were to tell you to build just a very simple diversified portfolio, what intuitively would be some of the things that you would add? You don’t have to reply out loud right now unless you want to and you can talk to me through the radio or the headphones, whatever you’re listening to. But many people would immediately say stocks and bonds and in fact, this is probably Wall Street regular lingo 101, that you should have a diversified portfolio of stocks and bonds. And while this is true to a certain extent, what we’ve actually found in our research and many other people have found this, but we’ve just confirmed this as well with our research, is that stocks and bonds actually have a surprisingly high correlation to one another and a correlation that would sugg

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 swamps, rivers and options trading. You might be thinking to yourself, “Kirk. What on earth do swamps and rivers have to do with options trading?” But the reality is it has a lot to do with options trading and I promise you, after you listen to this podcast, you’ll definitely get the concept or at least you’ll get a really good visual that you can use moving forward for your own trading purposes. What we’re actually really talking about here today is we’re talking about habits. Habits are super important for traders and definitely important for investors because habits are like little small strands that accumulate into a really big, strong band or rope over time. Every time that you perform a habit, you’re reinforcing that habit in your subconscious mind. Your brain is wired to reduce friction and power and usage and what it’s trying to do all the time is trying to figure out how

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 failure of trend lines when trading. There’s two things that we can talk about really on today’s call. First, there’s just the technical failure of a trend line, so this idea that if you draw a trend line on a chart… And many people draw them all over the place, so you can just search trend lines on Google and you’ll find a bunch of them for different stock charts. That when you draw a trend line, what you generally want to see if the trend is going to break is a massive and hard break of that trend line. If you have a very nice upward sloping trend line for say Apple stock or Tesla or the markets and then you have a massive down day that pierces through that trend line and closes well below the trend line, that would probably assume that that trend line has now been broken. Now, the other side that we have to talk about is just generally, the failure of trend lines because 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 the hidden benefit of time pressure. Many people are familiar with Parkinson’s Law. If you’re not, basically what Parkinson’s Law says is that a task will swell in perceived importance and complexity in relation to the time allotted for its completion. A good example of this would be – Let’s say you want to change your diet and you want to start going to the gym and eating healthier. You might give yourself a year to change your diet. Now, just that little act of intuitively giving yourself a year to change your diet immediately tells your brain and your subconscious that this process is way more important and way more complex than actually maybe it needs to be. Giving yourself an entire year to change your diet and change your exercise or fitness regimen does not need to be the case. You don’t need a year to change it. Maybe actually a week and you could get everything setup to d

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 we don’t filter trades for Trump tweets and neither should you. This is actually a really interesting topic and I am so glad that the president continues to have these random off-the-cuff tweets because this is exactly what I’ve talked about for over 10 years, this idea that black swan events and unknowns are a constant and reoccurring phenomenon in the market, this idea that no matter what the catalyst is, what the actual thing is that creates a black swan or an unknown in the market, these will continue to show up in the future. Before president Trump, we never worried about what a president was going to say on Twitter. Now, we worry about what a president is going to say on Twitter and this creates a level of unknown or uncertainty that causes option premiums generally to go up and implied volatility expectations to still and continuously overstate the expected move. This i

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 it’s easy to be negative about everything. Look. This to me is a big one because I think that in this day and age, especially with social media and internets and just websites in general, it’s super easy for everyone to be negative about anything that they want. In fact, I would even say that any moron can be negative about any industry or business or person or thing and it’s much easier to be somebody who’s negative than it is to be somebody who has a positive attitude or even let’s say a winning attitude, a social collective emotional attitude to help other people. That’s really difficult because you end up being a lot more vulnerable when you start going outside of your social norm box of being super negative and you start promoting other people and you start sharing your ideas and telling them they look great or you’re really proud of what they’ve done because it’s really

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 choosing between unhappiness and uncertainty. This is a really cool topic and one that I really like. I like this difference between these two words and how they kind of ultimately are going to lead us to making different decisions in the future. But the reality is that many people choose unhappiness because they have a fear over the uncertainty. What happens is that they’re scared to make a change or a move because they don’t know what’s going to happen. They’re scared to change a job. They’re scared to start trading options instead of just investing in stocks which is what they always know that they can do, their fallback, if you will, their safety net. And so, in doing this, they actually are choosing to favor unhappiness over uncertainty. But the reality is that no matter what they do, even if they stay in their current state and environment or keep doing what they’ve always d

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 to sell a put option. A put option is a very simple, very basic option strategy whereby you’re just selling a put option usually at the money or slightly out of the money compared to where the underlying stock is trading. Now, this is a good strategy that actually works as a stock replacement strategy. And I tell people this a lot, but if you actually have a very bullish long-term outlook on an individual stock that you’re trading, it’s actually better for you to consistently sell just a regular put option, again, either at the money or slightly out of the money than it would be to actually go out and purchase the shares of the underlying stock. Now, we’ve shown this in our research, as well as other outside third-party sources like CBOE and AQR, that when you sell a put option, you actually end up seeing better returns, lower volatility and a lot less capital required to ent