The "Daily Call" From Option Alpha

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 fear comes from a loss of control. This is actually really interesting if you think about it, but we have this really strong primitive desire to control everything in our environment and really, the people and the things that we interact with. We see this all the time in markets because people will pay thousands of dollars for indicator signals and for forecast, for glimmers of hope into what the future might bring. This is why actually, analysts just really hang on this idea of future casting earnings or future pacing growth because everyone wants to know what's going to happen in the future. If they know what's going to happen in future or they have a good idea of it, then maybe they can control it or take advantage of it some way. We actually do this in our personal lives all the time in the sense that we always check the weather, right? You will always have an idea of what the weather is going to be maybe five days out or seven days out and this gives you a sense of control because if you can predict potentially what the weather's going to be, you have this desire to control the situation and make sure that you're all ready and available in case it snows or rains or there's a tornado or a hurricane or whatever the case is. But in both the markets and in the weather, we know that even though we might have an idea, maybe an inkling of where things are going to go, we still don't know exactly how it's going to work out. The best forecast in the market have turned out to be in many cases, sometimes completely wrong. The best weather forecast as to where a storm or a hurricane or a snowstorm might hit turns out to be completely wrong as well. And so, we know that we can't control these situations which creates a lot of anxiety and so, what we fear is this loss of control and it's actually nothing mental.

If you really think about it, fear has nothing to do with anything mental that manifest in your body. It's all physical. We know that if we slow down that the weather changing and going from snow to rain or rain to snow really doesn't change you. It doesn't really impact your life really one way or another. Does it change maybe what you wear one day or where you drive or how long it takes to you to get to work? Sure, but is it really going to impact your life? But for some reason, we fear this anxiety that we have physical harm that's going to come to us from having a loss of control and the physical harm doesn't have to be that you're going to die or get hit or be in a car crash. It could be just losing a family member. It could be losing relationships because of some event that happened. Oftentimes actually, people are really fearful in trading because they're quiet and they're very subdued in their trading activities. They don't really share it with anybody. They don't really talk about it because what they fear is not necessarily that people will ask some questions or that they will be inquisitive, but they fear is they fear a loss of relationships, that if they look and act like something different out of the norm that they might lose relationships that they really care about. And so, it's this loss of control that develops fear around trading. "I don't want to look stupid. I don't want to look dumb. I don't want to look like I did something and lost money and now, I look like an idiot and I lose my relationship with my wife or friends or family or kids or whatever the case is."

The key message today is just to understand that fear has nothing to do with anything that manifests mentally. It's all actually just a physical reaction to this loss of control that we are feeling in our body. We're losing control. We're developing anxiety. We're developing an awareness that we might be disconnected from other people or other situations or relationships or things that we enjoy. And so, this is really where it comes from. If you can learn to overcome this and learn to control this, then the sky is the limit for you because you can basically take fear out of the equation and you can live more freely, trade more freely, invest more freely. One of the ways that I've been doing it in my life and trying to work around this as well is I've been not checking the weather. I don't check the weather now moving forward. In fact, I often hear from somebody, "Hey, it's supposed to rain today." And I just learn through the fact that other people are telling me. But I don't check the weather. I know what season it is. I know what time of year it is. We're getting into the holidays obviously. It's getting colder in Pennsylvania. We've had some snow. I'm aware of that, but I'm not checking the weather anymore. I don't know if tomorrow's going to be a blizzard snowstorm. I don't know if it's going to come in a week. And so, this is a way for me to control this fear that I have of understanding what the weather is going to be even as small as this and I can then now dovetail this into other areas of my life. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

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 trade without technical analysis first. I'm a big proponent of using technical analysis, but I think that technical analysis is a secondary type of analysis that you should do when you're trading. I do not think it's a primary source of analysis. And what I mean by this is that a lot of people when they start trading, they get into technical analysis and it's very easy to do because it's visual, it makes sense, it's intuitive, you use all these technical indicators, they tell you when to buy and when to sell and this is all great, but what we found in our research is that technical analysis is not as successful as just a high probability options trade. What I would rather see people do is I would rather see people use technical analysis as a secondary level of analysis and the primary level of analysis is going to be the probability of the option strategy winning, the balance of the portfolio, the position size, the distribution of tickers in their portfolio. You do those things first and you should be well on your way to a successful trading system.

You can then layer in technical analysis to help tilt and skew your portfolio and positions as needed, but in my opinion, too many people lean on technical analysis completely and what we found is that some of the best indicators might be just 60%, 65% accurate versus an options trading strategy could easily be created with a 70%, 75% probability of success. Although people love technical analysis, (and I like to use technical analysis myself as a means to tilt and skew positions) it should not be the primary source of analysis for your positions. You should use technical analysis as a secondary confirming metric potentially when you start to analyze trades and positions. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

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 do you need to start trading." I think this is a two-part answer. I think the first part of this answer is if you're going to start trading and just learning the mechanics, learning how brokers work, how order entry and position flow works, then you don't need any money to do that. You can use a paper trading account at many of the brokerages that are out there and start to get a feel for the mechanics and the way that the markets work, how pricing works, how positions react to different news environments. That is all something that you can do for free. Now, we do suggest that people start paper trading and use paper trading for what it's meant to be which is this mechanism by which to practice a lot of different repetitions in order entry and trade management and rolling, etcetera. When you start gravitating towards actually really trading, so starting to actually put some money at work, I think you do need a little bit of starting capital to really make a good go with this.

Do I think that $1,000 is enough? No. I think that something around $5,000 is probably a good starting point. Could you do it with $3,000? Sure, but you're not going to have enough capital available at $3,000 to really leverage the power of distributing your trades across different uncorrelated tickers and keeping your position size low. I think it's really in your best interest if you are going to start trading, that you try save up at least $5,000 to start. I think you could do it with $1,000, I think you could do it with $3,000, but you really put yourself into a hole with those types of starting account balances because it's going to force you to trade larger position sizes as a percentage of your account and that, by virtue of the fact that we're trading a high probability system, will lead you into making decisions that you might not have otherwise made had you had a little bit more starting capital and a cushion. Hopefully this helps out. As always, if you guys have any questions, let us know and until next time, happy trading.

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 I stop feeling impatient when trading options?" Now, look. I think this is a really important topic because a lot of traders feel like when they start trading options, they have this sense of anxiety that starts to swell up in their body where they get impatient waiting for trades to come around or for positions to come in after they've been waiting for weeks and weeks for something to happen and still nothing happens. But I think that we have to first understand two things first about impatience before we can move forward and start to conquer it in our trading. The first thing we have to understand is that impatience is not a lack of patience. It's completely different. Impatience is basically a reaction to something happening and it gets triggered under very certain circumstances. It's not that you are either patient or impatient. It's that you can be patient, but you can be triggered into this state of being impatient because you're triggered to go after something that happened or some special set of circumstances that motivates you differently.

Now, the second thing you have to understand is that impatience then is triggered mostly when we have a goal and then we realize that we're not going to reach it or it's going to cost us more potentially to reach that goal. And so, that's where things get triggered. For a trader, what happens is that they start to convert over to options trading or they start trading options and they become impatient and it's because they have a goal potentially to make a lot of money very quickly and they realize that maybe it's going to cost more or it's going to take longer to reach that goal. I think it's actually probably a very typical scenario. A lot of people transition from stocks to options because they see that they can make more money with options potentially, but they don't realize the time and effort and the patience that's required in order to be able to reach that level of success. And so, because they're triggered to have this goal, make more money in a faster period of time or increase their returns, have no drawdowns, that's the goal and then when they realize, "Oh my, gosh. This is a high probability system. It's not a 100% system. This means I got to hold contracts for 30 days and wait for this trade to come all the way in after 30 days. This means that I might have to hold a couple of losers during the process and I might have to trade through those losers." they become impatient and their impatience is not that they're impatient people. It's just that they were triggered because their goal was out of alignment with how much it would cost or how much time it would take to reach that level of success.

And so, I think the way to cure impatience if you are a trader, is to realign your priorities. Get your goals and get your expectations set up correctly and when you do, you'll find that you become less impatient and you become more patient with trading. You don't worry about a trade that goes against you because you know it's part of the process. You don't worry that you have 10 trades that are starting to lose halfway through the month because you know potentially five of those are going to come all the way back around. And so, if you have the right expectations, you have readjusted your goals, I think you'll start to feel yourself becoming more and more patient and less and less stressful when trading. Again, to me, somebody who's impatient with trading just has a misalignment in goals and expectations. They think that their goals are going to be achieved potentially in the near future or very quickly. I say a lot of people look for overnight success and they tell me no, but the reality is that many do. And so, when they realize that options trading is not that, then they start to become impatient, they start to become irritable, irrational, they do things in order to try to cut steps and try to hack their way through the process, all long the while, they're basically thrashing and throbbing, keeps them contained right where they are. And so, hopefully this helps out. Again, if you are feeling impatient about it, just try to look at your goals and try to look at your expectations a little bit differently first and that might help realign yourself into a less stressful trading environment. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

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 TD Ameritrade good?" Truth be told, I actually get this question a lot. It comes from a lot of our members and subscribers here at Option Alpha and they always ask me, "Hey, look. I know you use TD Ameritrade, but is TD Ameritrade good to use?" And my answer is always the same, is I think that they're one of the better brokers out there. I think that there's no perfect broker. There's no broker that does everything that I would want. Probably no broker that does everything you would want for the same price. But I think for the offering that they have in totality, I think it's really good. I think for me, one of the big concerns is things like risk management, an FDIC insurance, an SPIC insurance and I think that TD Ameritrade does a good job of not only those, but then also layers in Lloyd's of London insurance for portfolios which is something that most people don't even think about.

But I also think that their technology is pretty good. They acquire Thinkorswim which I daresay I was one of the first customers or first handful of customers of Thinkorswim way back in the day before it was acquired and I still love the platform today, but one of the downsides to TD Ameritrade is they really haven't done a lot of technology innovation in the last say 15 years. Thinkorswim was probably the biggest acquisition that they made and it was a great acquisition, but they really haven't evolved the platform dramatically beyond that stage. It's still very much the same platform that it was back in the day as it is today. Does this mean that it's a bad broker? No. Not at all. I think they're a great broker. I've always had good customer service with them. They're very reliable. They're always there. They're always fixing problems if bugs come up. And so, I think it's definitely worth a shot looking into. Are they perfect? No. I think that there's ever a broker who can improve and there's obviously cheaper brokers out there, but you pay for what you get in my opinion with the commissions in cheap brokers. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

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 need a lot of money to invest in stocks?" The short answer to this is yes, you do, relative to something like options trading. Now, you don't need a lot of money to buy any particular stock in and of itself, but if you don't have a lot of money to start with and you have a smaller account, many brokerages defines smaller accounts as accounts under $10,000 or $25,000, then it requires a lot of your capital as a percentage of your account to invest in a couple of shares or a handful of shares in popular stocks or ETFs or indexes. For example, Apple stock right now is trading at $260. The S&P 500 is trading at over $300. Those are really capital cost intensive stocks that you can purchase that will very quickly dwindle the value of your account and take up space in your portfolio.

When you compare stock investing to something like options trading which allows you to use the power of leverage and if used appropriately, then that leverage allows you to more effectively diversify your portfolio, more effectively protect against downside risk in your portfolio, more effectively give yourself an opportunity to increase your probability of success and have more upside potential, then to me, the answer is really pretty simple. Yeah, you need a lot of money to invest in stocks because stocks are capital intensive. This is why we shy away from stock investing as a generality. We don't mind handling stock or being dealt stock on an assignment basis or through an options trading strategy like a covered call, but as a regular course of business, we try to avoid as much as possible, the availability of stock in our portfolio because it's just too capital intensive for us. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

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 process of online trading?" Online trading is simply the process of buying and selling securities, whether it's stocks, options, futures, Forex, commodities, etcetera through the internet. This process is actually relatively new because say 25, 30 years ago, very few, if any, brokers were actually allowing retail traders to go online and actually process buy and sell orders. Although it seems like it's been around forever for most people who are new to trading, it's actually not the case. Now, this is good for retail investors because as the industry continues to consolidate, as technology advances, this has definitely reduced the price and the hurdle to get into online trading. We've seen a lot of broker commissions start to decrease. Even just in the last 30 days, we see a lot of brokers start going towards zero which we have predicted for many years.

This trend will continue and the process of online trading is now going to start to evolve into the next stage which is through automation, through the use of better technology and AI systems and bots. What once was online trading as a process and means where an investor could point-and-click to choose their investments, we are now starting to see the shift and have already started to see the shift in the last couple of years towards the process of automation through online trading. I think that's going to be the big trend in the future. Again, if you are a retail investor, this is really exciting stuff for you because all of this means better returns, less friction in the market, better and more efficient cost structures and this is better for your portfolio in the end. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

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 bet against the market and going over three ways in which you can do that. Again, there's essentially three things that you can do to bet against the market or basically take advantage of or profit from the market moving lower.

The first and most obvious way is you can actually short stock. Now, this is the default mechanism for many investors because they only know one side of the trading world which is the stock side. They choose to short stock which means that they basically borrow stock from their brokerage or borrow from the market, sell the stock in the open market and then hope to repurchase the shares later at a lower price to complete the trading loop. And so, this takes advantage of the stock going down, but it's obviously very capital intensive, leaves you exposed to the stock continuing to move higher. Another thing that you can do which is similar to number one (so we didn't really put it as number two, but it's similar to number one) is use inverse stock. There are a lot of inverse ETFs that are bullish or leveraged or triple bear ETFs that take advantage of the stock market moving down or an index moving down and they go up as a result to that. Again, you just got to be careful with the pricing. Those have what I call just like negative drag in pricing, they tend to just fade lower over time because of the way that their pricing structure works. We've covered this in the Weekly Podcast before, but you can go back and look at these inverse options pricing structures, but you should just be aware of that.

Number two is you can use bearish options. Bearish option strategies would be things like long puts, short call credit spreads that would take advantage of the market moving down, but would do it with the use and the power of options trading. This is probably one of our preferred methods of betting against the market if we do feel like the market's top heavy or we need some bearish exposure in our portfolio. We would rather use just a bearish option strategy directly than short the stock or short an index. And the third way that you can bet against the market is to go long volatility. Not only can you bet against the market going down, you can also bet against volatility increasing. This would be trying to make a play on things like VIX or VXX or UVXY which are all volatility ETFs and indexes. And so, you could bet in a long volatility strategy that would profit if market volatility just increased in general. Again, if you guys have any other questions, let me know and until next time, happy trading.

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 ignorance in trading is actually bliss. And don't get me wrong and don't start sending me a bunch of emails about this. I'm not talking about ignorance when it comes to market risk and position sizing and trying to pick tickers and strategies. What I'm talking about is once you actually have a system in place, you know what strategy you're going to use, you know what position sizing you're going to use, you're using enough cash reserves, you have maybe a hedging strategy on. Once you actually start making trades, then at that point, it really is kind of interesting that ignorance into the outcome of the individual trades is really bliss. You should be focusing more on the process versus the individual outcomes. We see this all the time here at Option Alpha where people start trading, they understand it conceptually, they understand the high probability nature, lots of trades, but then they make their first 10 trades and they don't go well and they think to themselves, "Something is broken. Something is wrong."

Well, if they were just ignorant to the outcome of those trades, they would realize that it has nothing to do with potentially those 10 trades that they made, that those 10 trades could just be a random string of 10 trades that went wrong. And so, what you should focus on as always and as many very successful, very sophisticated investors say, is you should focus on the process. The process will eventually lead you into making profits. And so, if you focus on the outcome of any one particular trade, then you find yourself in a situation where you start getting down this hole of analysis paralysis. Now, again, this is not to say that you should not analyze your performance, you should not make course-corrections and adjustments. What I'm saying here is that I find that people often are overanalyzing their positions and have too much analysis paralysis on things that go wrong. If you're using the right mechanics to enter positions, to manage them, position sizing, the risk metrics, risk management techniques, you should be fine given enough occurrences. And so, that's why I say in trading, a little bit of ignorance could be a little bit blissful for you. Hopefully this helps out. If you guys have any questions, let me know and until next time, happy trading.

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, "What happens when you close an option?" This is actually a question we get often and the short answer is nothing. Nothing happens when you close an option because if you are closing the option order, whether it was on the buy side or the sell side, if you have now completed the trading loop as we like to refer to it here at Option Alpha, then nothing happens and the position is closed and done with. If you sell to open, then you would have to buy to close and once you do that, you're done. You've completed the trading loop. If you buy to open, you would have to sell to close, but again, once you do this, you are done and you've completed the trading loop. There's nothing else that happens after a contract is closed. If you have truly removed the contract and all of the positions around it, then you don't have to do anything. The position's closed and you're free to move onto the next trade. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.