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 college degree should I get to work at an investment bank?" This is kind of a piggyback off of yesterday's podcast where we talked about the fact that you don't need a degree to trade or to be in the investment space. The natural progression then is – "Well, if I don't need necessarily a degree, what degree do I need if I need any to work in an investment bank?" And I talked about it yesterday, but I'll reiterate it today. I don't think necessarily, you always have to have a finance degree. Now, this could be totally different and I'm not connected to this space like I was 10 plus years ago when I was working in it, but even then, when a lot of people went to work at an investment bank, they didn't necessarily have a finance degree or a degree in economics. There were a lot of people who had history degrees or psychology or physics or some other science degree and I think again, the key is that you have to be able to think critically and solve problems because ultimately, whatever job you're going to go into, they're going to scrap all of your knowledge and teach you the way that they want you to do it.

For example and I remember doing this when I went to work for Deutsche Bank, is they basically said... Everybody who's coming in, in a room for… It was two and a half or three weeks and the guy came up the instructor and said, "You're going to forget everything you learned in college and you're going to do it this way." And so, the next two and a half or three weeks, whatever it was, we basically learned to do financial modeling the way that they wanted us to do it. We learned on the programs that they wanted, we understood the research and the quarterlies and the 10Ks and the 10Qs the way that they wanted us to interpret them. And so, they basically said, "Look. You got to wipe your hard drive clean and you're going to learn it the way we want you to learn it." Was this probably a little bit more difficult for people who don't have a finance degree or a finance background? Of course. That's probably self-explanatory. But does that mean that you can absolutely not get a job at an investment bank or work in investments if you don't have a finance degree? Then definitely not, right? You can definitely do it even if you don't have a finance degree.

Hopefully this helps out. Again, I don't want to discourage people from doing it because I think it's really cool. I think it's a good industry to get into if you want to do that thing. Do your homework, do your research. Figure out where you want to be. Talk to some people in the industry and make sure you want to get there. But again, don't let any sort of degree necessarily hold you back. Hopefully this helps out and as always, if you have any questions, let us 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 be talking about why you don't need a finance degree to trade professionally. A big misconception I think in this industry and I get why people have this misconception, is that you need a finance degree specifically to be able to either work on Wall Street or to be able to trade professionally. But the reality is (and even more so today than it was even say 10 years ago or 15 years ago) is that you don't need a finance degree to trade or work on Wall Street or work in investments, any of the above. In fact, I'll even use a quick example of that like really proves this point and was really kind of actually shocking to me at the time because I didn't know any better kind of working from school and going to work on Wall Street for Deutsche Bank. A lot of the people that worked in our M&A department with us actually did not have finance degrees. Now, were there a decent amount? Of course. There was probably the most prevalent degree, but there's actually people in our like pod that we were in specifically that had degrees in history or psychology or physics.

I mean, it doesn't matter necessarily that you have to have a finance degree. Do you have to understand finance? Should you probably have a little bit of like a financial background to do something, trading or investing professionally? Of course, that's definitely going to help, right? That's like a mechanic in an auto shop not having any idea of what a car is or what the engine is versus the transmission. You should have an understanding of what those components are, but do you need to have a finance degree to do this? Absolutely not. I think one of the things I learned for sure being in New York and kind of seeing other people is that most banks and most institutions are looking for people who can think critically and solve problems. And so, that's not limited to just people with a finance degree. It's really anybody. In fact, you don't necessarily have to have a degree if you have experience and you've taught yourself and you can prove that you can think critically and solve problems. Hopefully this helps out. Hopefully it kind of gets you over that hurdle. If you've been searching or you just have this question and this kind of popped up online, we'd definitely like to help out. As always, if you 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 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 about the same and they're really clustered together or tightly bound together, that generally means that you're in a market that's moving range bound or sideways or it doesn't really have a large outsized move to one end. But when you see ribbons start to expand or fan out as some people would call it and you start to see the disparity or the difference between say the five-day moving average and the 10 and the 20 and the 50 and the 200 or the 300 and this disparity starts to become wider and wider and the ribbon start to almost fan out and they create like a pattern on the chart where they're not necessarily bound tied together, this to me is a really good indication of markets getting overstretched in one direction or another and the reason they're getting overstretched is because now, the shorter-term moving averages are moving very quickly away from say the longer or medium-term moving averages.

Now, does this always mean that we're going have a peak in top of a market? Of course not. Does this always mean that we're going to have a bottom or a rally in the market? Of course not. But as a trader and as a contrarian trader that I naturally am, when I start to see ribbon studies start to get really exaggerated on one end or the other, it's telling me that we're starting to reach some sort of parabolic extreme, that the market is moving too fast for its own good and it's likely to snap back. We saw this in natural gas last year. We saw this in oil and gold and commodities and bonds and even the US markets in the bottom of the December kind of mini crash in 2018. I think for me, it's not, again, the only indicator that we look at, but it's very interesting to look at definitely in times of extreme moves in the market. Again, if you want to check those out, we have a nice podcast and a video on those, as well as a cool blog post. You can just search Option Alpha ribbon studies and you can see a couple of different chart examples on the website. Hopefully this helps out. As always, if you 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 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 one of these hurricane or storm zones. Right now, just at the time I'm recording it, it seems like tornadoes are the big thing right now. If you own a house that's in tornado alley or could be subject to mudslides or fires or whatever, you basically want to buy insurance on that place when the skies are sunny, when there's no hurricane or tornado or fires on the horizon because what's going to happen is if you try to go back and retroactively buy insurance when a fire is three miles from your house or when a tornado is just about to touchdown or a hurricanes is 20 miles off coast, that is probably going to be really expensive insurance because there's a good chance that something is going to go wrong. Does that mean that you shouldn't buy the insurance? No, not necessarily. It means that still buying the insurance and maybe paying a really high premium might still cover you and protect your asset or your home or your property. But would it be better for you to buy that insurance when there's no storms or tornadoes or hurricanes on the horizon? Of course.

And so, the same concept applies with options trading. It's not necessarily that you should always buy put protection when implied volatility is low, that it will always protect you because what we've seen in our research (and other people can also confirm this and there's a lot of research out there on volatility risk premium in the market and even the risk premium that's present during low volatility) shows that buying options even when the skies are sunny and low volatility is in the market doesn't necessarily lead to a positive expected outcome. Now, in our opinion, this is probably your best chance at making money with an option buying strategy. It's your best chance at potentially curbing some sort of black swan event. But the problem with it is you have to be very, very good at timing and that's where most people get stuck. Do I think that buying option premium is a winning strategy? Absolutely not. We've shown that. Other people have shown that. It's definitely not a winning strategy long-term even during low implied volatility. But do I think that buying options and if you happen to time the market right or you happen to get into a situation where you can curb a downside move in the market of 20% and only lose 10% because you bought insurance? Yes, I think that's probably something that could happen. It's probably not going to happen all the time, but I think it could happen in certain instances and that could be just enough to kind of save you from a large drawdown. Again, the idea here is if you are going to buy insurance, if you are going to buy put options for your portfolio, again, the best chance you have for that insurance to pay out is when implied volatility is low, when the skies are sunny and no one's expecting a big move lower. Hopefully this helps out. As always, if you 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 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, a lot of people don't like this about a collar strategy. I personally think it's one of the better ways to use a slight hedging strategy for whatever underlying stock or ETF you happen to be holding. But when you cap your upside potential by selling a call option above the market, you then can use those funds to purchase the out of the money put option on the other side and in many cases, the best way to do this is to do it in what's called a costless fashion. A costless fashion means that it does not require you to actually pay money to execute this strategy. You could collect even just a penny of net credit between the sale and the purchase.

I want to walk through an example, so you understand kind of how it works. But let's say you have a stock trading at $100. You might sell the 110 call option and collect $50. If the stock rallies to 110, you participate in all of the gains from 100 to 110, but then after 110 which is your call option strike price, you no longer participate in any of the gains above that for the option expiration period that you selected. If you sell the 110 call option for $50, you can then use that $50 to buy let's say an 80 strike put option way below the money. And depending on the skew of the underlying contracts you're in, it won't always be the same distance from the market. Just like my example right now, we're selling a call option $10 above the market and that will effectively buy us premium that is $20 below the market. We buy this 80 strike put option for $50 as well, so now, the call option that we sold has financed the purchase completely of the put option now below the market. The trade-off in doing this, of course, is you give up your upside potential, but in doing so, you execute a strategy that does not cost money to get insurance exposure or protection below $80. In my opinion, again, I think this is a better way to go than the alternative which is what a lot of people use which is just simply to buy the 80 strike put option and outlay the $50. Now, we know intuitively from research and data, not only from Option Alpha's team of researchers, but also from other people as well and many other research reports, that when you consistently buy insurance and you outlay that capital, that capital becomes a drag on your account and it starts to actually erode the value of your account over time because insurance cost money.

When you use a costless collar like we tried to portray in this example in today's podcast, it doesn't require you to actually outlay money. Yes, you might not participate in a 12% gain one month and only participate in 10% of the gains, but that's still a lot of upside potential for you to participate in. Our opinion is it's a really good way to go. It's a really easy way to hedge a lot of downside risk for any long security that you have. In fact, if you're trading a long stock, an ETF, an index, you should almost certainly be using some sort of costless collar strategy at all times because it helps curb that rare black swan event that might happen. Now, is it going to protect from say a 10% or a 15% drop in the underlying stock price? Probably not. It's not really what it's intended to do. It's intended to really protect from the sudden crazy black swan event that happens overnight or over the course of a couple of days. That's where the costless collar starts to come in. As always, if you 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 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 friends and nice and cordial with people. You just don't want to spend your time with people who are going to drag you down to their average level.

And I learned this lesson not in a hard way, but I learned it really, really quickly about three years ago when I started in this new mastermind group that I've been a part of and it's literally the only group I'm a part of. It's the only association that I'm with right now and I couldn't be happier, honestly. It's a very expensive mastermind group to be in, but I know why they do that. They prescreen people before they come in, so you can't just pay and get in. You got to be prescreened to get in. You have to have a relationship with somebody or a couple of people in the group. You have to be at a certain income or net worth or business level to get into the group. And I thought that was crazy initially, but it actually is very smart now because what they're doing by creating this group of likeminded people is they're trying to move up the average of all of the members in the group. If they were to accept everybody who was let's say a newbie investor or a newbie business owner, then it would end up dragging down the group and the group could not elevate on its own.

And so, I learned this because what I was a part of before this, even going back five, six years now, I was a part of other little groups and little associations. You probably have them in your town, little meet-ups and I went to all these things and I always want to be connected and learn from other people and figure out what other people are doing. But what I found is that all of those little associations and groups, while great to start, didn't really get me where I wanted to go and it was because I was associating with, in many respects, people who are just getting started too. And so, that wasn't appropriate for me then moving on in the future. I needed to disassociate myself with groups and people who have chosen to either stay at the status quo or have chosen to quit or stop. I can't be associated with those types of individuals anymore. And again, this is not a knock on people personally. I like a lot of people from the last 10 years that I've met. I like them personally. I still message them on Facebook and they're great people, but when it comes to business and investing and building wealth, they're not the people that I want to associate with. I want to associate with a different group of people who have my same ideals, who are going to help support me and I'm going to help support them.

And so, today, if nothing else you get out of this podcast, is it's okay, like I give you permission if you need my permission or you need somebody to say it's okay to disassociate yourself and cut ties to some degree with people who are dragging you down. And you know who they are. You know who the people are that are in your life or you're even thinking to yourself right now – "I really shouldn't be spending this much time with this person because all they do is complain and all they do is whine and all they do is talk about the things that are wrong in life." And so, it's okay to cut ties with them and frankly just stop communicating with them and be more busy, have more things come up that you can't go and meet them every single weekend to sit around and lounge and talk about how miserable life is. And start finding people who are like you or start finding people who you want to emulate that have had success because I'm telling you, what's crazy about even the group that I'm in right now is that nobody complains. I mean, it's insane. It's a very high end, very expensive mastermind to be in and everyone supports each other 1,000,000%. Nobody complains.

And the disparity in income even at this level is ridiculous. I mean, there's people in this group who are just crushing it on every level. It doesn't matter what it is, commercial real estate, investing, business, I mean, you name it. And still, even in this group, everyone is so, so supportive because they've all been there. They've been through the beginning stages and now, they want to elevate their life. And so, someone who's making $100 million a year, he wants to learn from the person making $2 million a year and you don't find that that often when you start to associate with people who just don't have the same mindset. Hopefully this helps out. Like I said, if you have any questions, comments or feedback, 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 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 options to be worth less than many people are paying for them.

Now, the usual argument when I talk about why these are a terrible investment is people will bring up stocks like Tesla or Netflix or Facebook or any of these other highflying tech stocks. And so, we did the research on a lot of these and what we found is that when you go back and look at some of these highflying tech stocks and it doesn't have to be tech, it could be other things as well, but stocks that have had a really parabolic move, there are some instances where out of the money call options do make money. But the problem with that strategy is that you could have gone in many cases, 36, 24, 48 months before you hit it big on one particular month. It acts more like a lottery ticket than anything else.

And so, when we look at the research, basically, what we see is that many of these strategies went 36 months of losing trades in some cases before they had one single month that they hit it big. And so, although yes, it could be profitable to do that, the question is – "How many months can you go of consistently losing $100, $200, $300 on these out of the money call options in hope that you time it right for the next big move?" And that's really difficult. That seems almost impossible. It's like trying to time the lottery. And so, this is why to me, it's a terrible systematic investment. It should not be part of anybody's portfolio. If you want to go long the stock, go long the stock or buy deep in the money call options that replicate long stock. But trying to buy lottery ticket out of the money call options is a losing strategy long-term. Hopefully this helps out. As always, if you 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 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 going to come a point where stock charts potentially become obsolete for many traders because you don't need a stock chart to make a decision. Stock charts are great for engagement, they're great for looking at a couple different technicals, depending on which ones you use and ultimately, as an options trader, you don't need to use the stock chart. Everything that you need is in the options pricing table, using the probabilities and the Deltas and the underlying stock.

Now, that being said, I think the other part of this question is – "How long should you spend analyzing stock charts in your career?" And I think the analysis of charts and markets I think is really important for again, perspective and just understanding how fast things might move in the future. I think a lot of people nowadays, especially in the last couple of years, have not been through the 2007s and the 2008s of this world or the oil crashes or the gold crashes or any of the other major market events that have happened since the last recession. And so, they haven't really experienced very fast moving markets. They haven't experienced insane volume and volatility. And so, by going back and looking historically, day by day, how things are moving and how quickly things could change, I think again, it gives you a level of perspective that is going to be beneficial to you in the future. Markets do not repeat themselves, but they do rhyme as people say and we do see the same types of moves over and over again in many different sectors and industries and different underlying commodities, Forex, utilities. I mean, we see it over and over again, very similar moves, but it takes a long time to get used to watching and looking at charts and seeing what's normal or what's abnormal and getting comfortable with all those different nuances. In my opinion, I think it's a lifelong journey to watch and study the financial markets. That's personally why I love it, is because it's constantly changing, it's constantly evolving. It's really a never-ending process which is really cool in my opinion. Hopefully this helps out. As always, if you 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 – "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 anything higher than $152, the order will not execute. It could trade for $152 and execute. It could even trade for $151 and execute.

A limit order is just simply saying – "This is the highest possible price I'm willing to buy." or in reverse, "If I'm selling an option contract, it's the lowest possible price I'm willing to accept to sell." If I'm selling an option contract and I place a limit order to sell a contract for $152, then it will not sell the contract for $151. It could sell for $152 or $153. It will sell potentially right around the limit price, but could sell a little bit better, but it will absolutely not fill at a lower price or worse price. Now, I usually only trade limit orders and this is because I want to know exactly what I'm getting into and exactly what the price is. I often will change my limit orders during the day or if needed, to fill contracts. If I see that the price that I'm shooting for is not filling and it's $.3 or $.5 away from my targeted price, well, then I'll manually change my limit order and redo my order dialogue screen to a new price, but I am in control of the prices that I get for the contracts I'm trading.

This is in comparison to a market order. A market order is filling at the next available price in the market. And a lot of people like to use market orders because they're frankly, impatient and they just want to get the order in and they don't want to mess around with it and I do not agree with this because in many cases, you're going to find that you're filling these trades at vastly different prices than what they're trading at right now. And this doesn't necessarily have to be on the furthest end of the bid ask spread. In some cases, I've seen people fill orders that are just totally out in the field because when you place a market order, you're accepting the next marketed price and that does not mean the last price that the contracts were traded. That means the next price someone else is willing to pay. To use our example again, if I'm trying to place an order for $152 and instead, I get frustrated and I just want to place a market order, I could fill anywhere between (I don't know) $145, $165. It could fill way better, it could fill way worse, but you're going to get filled immediately.

To me, as an options trader and as a position trader, there's really no scenario that I would think of that we need to use a market order. I think market orders are there for people who want to get into things fast and they are willing to accept large amount of risk in exchange for what they perceive as immediate fills. Many times with filling limit orders, you can get filled very quickly as well if you adjust your own pricing and you can still be in control and fill pretty quickly if you have a little bit more patience. In my opinion, again, use limit orders. Do not use market orders. You'll be better off long-term for it. Hopefully this helps out. As always, if you 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 – "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 impossible that the move is now supported by all of this new buying activity. Same thing happens in reverse. When we see stocks start to break down, it's usually a better sign than not for those large break down days and selloffs to be supported by large volume as a confirmation that the move is justified and won't reverse any time soon.

Again, thin volume, thin liquidity means that really, anything can happen and when you have more volume spikes and larger volume spikes on those important days where the stock is really moving a large percentage, then again, it could be more of a confirmation signal than anything else. Hopefully this helps out. As always, if you guys have any questions, let us know and until next time, happy trading.