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 why ribbon studies can help alert you to market peaks and bottoms. I really actually like ribbon studies. I’m not a big fan necessarily of any one particular moving average or exponential moving average. And we’ve seen in our research before in the signals report that moving averages are not necessarily the best predictor of market trends or stock peaks and rallies. But I think when you actually combine multiple moving averages to create these ribbon studies which is effectively what a ribbon study is, is multiple moving averages overlaid on the same chart and it creates this rhythmic pattern of different ribbons or moving averages. When you overlay this on a chart, one thing I like looking at in particular with ribbon studies is how expanded the ribbons can get near market peaks and bumps. When you look at a ribbon study on a chart, if you see that all the moving averages are abo

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 buy insurance when the skies are sunny. I’ll use this little analogy and obviously, we’re relating this to options trading premium. In particular, in today’s podcast, we’re talking about buying option premium, put option premium when we want to protect our long stock portfolio. Now, full disclosure, I don’t hold long stocks in my portfolio. We would only hold stocks if we were assigned and then we try to manage out of it. Everything that we do is options trading specific and we don’t feel like holding long stock is an efficient use of capital. But having said that, a lot of people do use long stock in their portfolio and so, the question always comes up – “How do we buy insurance? How do we protect ourselves from the downside?” The little analogy that I’ll use today is that of a hurricane or a storm on the horizon. Let’s say you have a house or you own property in o

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 to properly use a collar option strategy. If you’re not familiar with a collar option strategy, a collar strategy is one where you would sell a call option above the market or above the stock price or ETF price of whatever you have shares in and you would use the proceeds to then go out and purchase a put option below the market. What’s cool about a collar strategy is that the proceeds you use from selling a call option are then redirected and applied to the put option that you purchased. It’s like one option contract is financing the other option contract on the other end. The trade-off for doing this though, versus say a regular long put option strategy where you’re just paying to buy insurance, is that when you use a collar strategy and you sell the call option above where the stock or underlying ETF that you’re trading is right now, you do cap your upside potential. And so

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 your income is the average of the five people you spend the most time with. Truth be told, I did not believe this when I first heard it. In fact, you probably heard this before in the past and I’ve heard this quote or a quote variation of this thrown around numerous times and I always thought it was cool and it was a novelty thing and – “Oh yeah. That’s an interesting quote.” But I really didn’t understand the power of what this is actually portraying. And now, looking back on the last couple of years, not only for trading, but also in Option Alpha as a business and what my wife does in real estate, this could not be further from the truth. In fact, I now spend a lot of my time thinking about who I want to associate with in the future and that’s not a bad thing. You should cut ties with people who are not at the level that you want to be at. And that’s not to say you can’ be f

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 out of the money call options are a terrible investment. I know I’m going to get a lot of pushback on this podcast potentially, but the reality is and the research 100% proves and backs that out of the money call options are a really bad investment and a terrible stock substitute. Now, while a lot of people will use out of the money call options as a means to generate a “quick buck” trading in the market, the reality is that a consistent stream of buying out of the money call options ultimately is going to lead to negative expected returns. Now, this should come as no surprise, honestly. Because of the implied volatility premium and because of the premium that’s embedded in buying options out of the money and on the further ends of the spectrum, we should naturally assume that the stock is going to make a less than expected move and therefore, cause these out of the money call

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 long should you spend analyzing stock charts?” I think there’s actually two parts to this question. There’s the first part which is – “How long do you spend analyzing a stock chart before you make a particular trade?” And in that case, I don’t think you spend too much time. Ultimately, stock charts are there as an engagement tool and I like and use stock charts as an engagement tool because they give us an idea of where the stock has been in the future and what the current market situation is, how fast is the stock moving or not relative to the past. But stock charts are still just purely an engagement tool, a tool that gives us perspective on what has happened on the underlying security. In my opinion, I think you can still make trades without using a stock chart. We’ve gone over this before in the weekly podcast many, many years ago where we said eventually, there’s go

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’s the difference between a limit and a market order?” The difference between these two orders is very important, especially if you are just getting started trading. Even if you’ve been trading for a while now, you might see these two different order types on your broker dialogue screen before you place the order in the market that you’re trading. And so, the difference is really, what the name sounds like. A limit order sets a specific limited price to whatever contract or shares you’re trading and this is the price that you will not go above or below (depending on what side of the trade you’re on) for any reason. The broker will not execute it if the price of the contracts are higher or lower than your limit price. For example, if I’m going to buy an option contract, I might set a limit price of $152. And so, that means that if the option contract is trading for anythi

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 volume play an important role in future stock direction?” I think of course, volume plays an important role. I don’t think it’s the ultimate indicator for future stock direction, but in many cases, when you are looking at a stock chart and in particular, when you see a large movement in the underlying shares, whether that’s a large move up on the day or a large move down on the day, what many people want to see is a large spike in volume as a confirmation that that move is supported by a lot of market participants. When we see a stock rally and it’s rallying on light volume, we may think to ourselves – “Well, the stock rally is not really being supported by all this influx of new additional buyers coming in.” And so, if the stock lunges to a new high or a higher high and that is then supported by a huge spike in volume, we could then think to ourselves that it’s impossi

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 diversification is not about increasing the quantity of tickers. I think a lot of people get diversification wrong and the regular thought process on diversification that you hear for most investors is – “Well, diversification just means spreading your investment across different ticker symbols.” But it’s not just about increasing the quantity of tickers that you’re trading because ultimately, what you could do is spread your basket across a bunch of different tickers that end up being in the same sector or industry or just highly correlated to one another. The other thing about diversification is that it’s not necessarily diversifying, so that when you win on one, you lose on the other. That type of diversification is not effective or beneficial to a portfolio. What you want is you want diversification across uncorrelated asset classes. You want ticker symbols in your portfol

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we’re going to be talking about the inner and outer game of trading. I think this is a really important topic and I think it’s important because in this day and age, we are so bombarded with different messages and different streams of video and Facebook messages and friend likes and Instagram that it seems like we’re not moving at a fast enough pace. And so, what that causes us to do in many respects is it causes us to make decisions that create a lot of context switching between different strategies and investments and ideas. They invest in one thing and they don’t see a lot of success right way, so they immediately pull and do something else and it’s like we’re just throwing all of these lines in the water and as soon as we throw the line in the water and we’re trying to fish for a great investment or a great strategy, the second that the line hits the water, if we don’t catch a bite, then we yank it out and 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 why if you’re in college, you should already be trading. One of the passions that I have that I will probably explore at some point later in my life is a passion to actually teach very young kids, high school, college-age kids about finance and personal finance, investing, trading. I don’t feel like it’s something really being taught in the universities. Now, I went to a university and got a degree in finance and I learned about options pricing. I manually calculated options pricing, but we really didn’t do any serious trading. We really didn’t do any portfolio modeling or back-testing in that program and that’s really sad that actually, I went through that entire program and we really didn’t learn that much about actual active trading. Now, if you’re in college right now or if you have a kid in college, my general opinion is you should be trading or teaching those children how to

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 does a stock stop falling and hit bottom?” And so, the answer to this question is actually very simple. A stock will stop falling and hit a relative bottom when there is equilibrium between the amount of sellers and the amount of buyers and the per share price that they agree on. For example, if a stock is continuing to fall and say is at $100 and then falls to $90, well, that shows that there’s still not an equilibrium in price. Market participants, the buyers who are willing to buy and the sellers who are willing to sell have yet to agree on a price at which both parties are now in balance. And so, when we start to see a stock fall and continue to push through multiple levels of support or start to crash through levels of old resistance, what that’s basically telling you is that we have still not found a price at which it would be attractive enough for enough buyers 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 do stocks reverse split?” Unlike a regular stock split where you see the share price of the company go down as the company issues more outstanding shares, usually in say a two for one or a three or a five for one stock split, in a reverse stock split, the stock share price goes the opposite direction and actually goes up. And so, what happens is that the company actually takes outstanding shares out from the float or the market open interest of those shares and actually exchanges say two shares in exchange for one share. And so, they actually try to remove outstanding shares in the open market and therefore, push the per share price of the company higher. The real question is again, “Why would companies do a reverse stock split?” Well, first of all, if the company is in a downward spiral of stock price, there is a risk that the potential of the company could be delisted

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 do stocks reverse split?” Unlike a regular stock split where you see the share price of the company go down as the company issues more outstanding shares, usually in say a two for one or a three or a five for one stock split, in a reverse stock split, the stock share price goes the opposite direction and actually goes up. And so, what happens is that the company actually takes outstanding shares out from the float or the market open interest of those shares and actually exchanges say two shares in exchange for one share. And so, they actually try to remove outstanding shares in the open market and therefore, push the per share price of the company higher. The real question is again, “Why would companies do a reverse stock split?” Well, first of all, if the company is in a downward spiral of stock price, there is a risk that the potential of the company could be delisted

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 a stock split?” A stock split is exactly what it sounds like. For whatever reason, the company decides to split their stock and effectively cut the share price in half or by a third or by a fifth and issue a lot more shares in exchange. A very simple example of this would be if a company’s stock is trading at $100, they might decide to go through a two for one stock split, in which case, every investor that owns one share now owns two shares of the company at half the price or $50 per share. Now, no value was basically erased or created from going through a stock split. It’s just an accounting measure to change the per share value of the company based on the float or the number of shares outstanding that are issued. Again, if you have one share that’s worth $100 and now, after the two for one stock split, you have two shares, each worth $50, you’re still effect

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be discussing IPO basics. In particular, we’re going to be answering the question – “What is an initial public offering or an IPO?” You’ve probably heard this terminology thrown around all over the place and we do go through cycles in the market where we see more or less IPOs. We’ve recently gone through a cycle in the last year or so where we’ve started to see more tech companies start to IPO. And the idea behind an IPO is simply what it sounds like and that is an initial public offering of the company stock for people to purchase. This is the big transition that companies make from being private enterprises owned by individuals and a lot of investment companies and now transitioning to a publicly traded company. And this initial public offering is just the very first day that the stock actually starts trading in the open market and this is the opportunity for people like me and you, retail inves

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 trend line stock charting basics and just helping you get an idea of how to look at potentially, trend lines on a stock chart or how to draw trend lines on a stock chart. Ultimately, a lot of what we’re going to be talking about today though is highly subjective. That’s my biggest rub really with trend lines and with charting or classical chart pattern readers if you want to call them that, is that it’s highly subjective. Now, this doesn’t mean that obviously, there aren’t great people who can do it. I think they are the exception rather than the rule. Guys like Peter Brandt have obviously proven a track record of being really great readers of charts, but I don’t think that’s everybody. I think a lot of people leave chart reading up to interpretation and subjectivity and that can create a lot of different chart styles and trend lines even comparing among your friends and peers. Wh

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 should you start trading first? Stocks, options, commodities or Forex?” Now, I think it’s actually pretty natural for most investors to start their investing journey by trading stocks. Many people get used to the idea of stocks because we hear about them all the time and it’s very easy to understand. You are purchasing shares in the company and you buy and sell the underlying shares. But the reality is that stocks have a high capital threshold to cross and ultimately, are a 50/50 bet unless you’re holding them for a really long time period. If you want to start trading and you want to learn how to trade, we believe that options trading of course, is the ultimate trading vehicle for you. It’s the only one out of the list that I presented before that allows you to trade with a high probability of success and defined risk reward characteristics. In addition, options tradin

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to help you guys understand the bid ask spread, talk a little bit about what the bid ask spread is and how it’s applicable to the markets. The bid ask spread is essentially just the difference between the highest price that a buyer is willing to pay for an option contract and the lowest price that a seller is willing to accept. The way that I think about it is I think about the analogy of real estate. When a property comes on the market and is going to be sold in a real estate transaction, there’s the price that the seller is asking and then there’s the price that a buyer could potentially place a bid for it. And so, that difference is the spread, the difference between what someone’s asking and what someone is willing to pay for that contract or is trying to pay for that contract. Now, ultimately, in many cases and especially in the options market, what ends up happening is that the buyers and selle

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 some stock basics, in particular, the three different types of stock. Really, when you look at the broad universe of different types of stock offering, there’s only really three broad categories. They can get a little bit deeper in some cases, especially with preferred and grants and warrants and things like that, but we’ll just stick to kind of like the broad strokes here. The first is common stock. Common stock is what most people are usually accustomed to trading or investing in. This is just generally stock or equity in the underlying company or ETF that you’re trading. Things like Apple and Tesla and GE or J.P. Morgan, those all are generally common stock issuances that you can trade. The second type of stock is preferred. Preferred generally doesn’t trade as easily or as liquid as a common stock because you have to get into preferred offerings that have preferred rights and