Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to talk about how to avoid option assignment. I'm going to let you in on a little secret. There's actually only two ways to avoid option assignment. The first way seems pretty logical and easy and that's to be a long call option buyer or a long put option buyer. When you're an option buyer, you don't have the possibility of being assigned on those contracts because it's up to you to decide if you want to exercise your option contract or not. The other way to avoid option assignment is simply just not trade. And I know this seems intuitive and might sound a little bit crazy, but the reality is if you don't want to ever deal with assignment or being exercised on a contract, then just simply don't trade option contracts. Option assignment and options exercise is part of this business. It is going to happen at some point to you if you are an option seller and you have to learn how to deal with it.

Now, as we've showed in many of our weekly podcast case studies, (and on the website, we also have a bunch of case studies on assignment and video tutorials that we posted) option assignment is not always bad. It gets a really bad rap because people think that it's immediately the kiss of death, but it's not. In fact, many times and most of the time when we get assigned, it actually ends up turning around and becoming a favorable position in our portfolio. There's no way necessarily to avoid assignment as an option seller. Now, one way you can mitigate the risk as an option seller is to just simply manage your contracts the week before expiration. We know from the last two podcast that we've done here on the daily call that most option assignment happens near the week of expiration and in fact, the last couple of days of options expiration. If you want to avoid being assigned, take a look at that extrinsic value and make sure that you either close, adjust or roll your option contracts around the week before expiration. This generally will get your contract out of the assignment window and leave you with a position that you can still manage without having to deal with the stock. 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 talk about the number one reason not to be afraid of early assignment when selling options. Now, we briefly touched on this actually in the last daily call podcast, show number 502, but I wanted to dig into it just a little bit more here today because a lot of times, we get people who are afraid to sell options especially when the option contracts go in the money early in the expiration cycle and they think to themselves – "Well, I'm selling options and the option contract went in the money, so that has to mean that an assignment is coming soon and I'm going to be assigned either a long or short stock in this underlying position and I can't deal with that." The reality is though, is that you have to pay attention to the extrinsic value of the option contract that you're selling. Now, I say this because you can definitely look at this and you should pay attention to this, but is it something that you need to check every single day? Absolutely not. You just have to understand conceptually what I'm trying to describe here.

But when an option contract is priced, there's two pricing components. You have the intrinsic value which is the value should the contract be assigned or exercised immediately (that's one part of the options price) and then the other component is extrinsic value, so time and volatility. And so, when there's a lot of time left until expiration, then the extrinsic value of a contract can be really great. And this is why you should not be afraid of early assignment, is because of this extrinsic or time and volatility value still left in the option contract. Remember that if an option buyer on a long call or a long put were to exercise their contract, they're basically forfeiting the right to any of the extrinsic premium that's left in the contract. All they're doing is saying, "Hey, I just want to exercise my contract and capture the intrinsic value." But they would be stupid and dumb to do this because they're giving up the extrinsic value of the contract. Instead, a better alternative for them is just simply to sell back their contract in the open market and not take delivery or take assignment of the underlying stock. And so, this is why we see option contracts actually traded a lot more heading into expiration as opposed to actually being assigned or exercised.

Again, the number one reason why you should not be afraid of early assignment especially when you're selling options contracts is because of the extrinsic value. If there's still a lot of extrinsic value for an option contract, it's highly unlikely that that contract is going to be assigned early. Most option assignment happens the week of expiration, even the last few days of expiration and this makes sense logically because at that point, now, extrinsic, time and volatility value of a contract is now whittled down to something close to or at zero. There's no benefit necessarily to holding onto the option contract because all that's left is intrinsic value and at that point, assignments start rolling in. 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 not exercise your options early. I recently got an email from somebody and they wanted to know if it was a good idea to exercise their long call option early. They had bought a long call option ahead of earnings. The company had great earnings and now, the stock was really moving higher. And so, they wanted to know – "Hey, look. Should I exercise my long call option, take delivery of the stock because I made frankly, a guess in a lucky trade that the stock went the direction I thought it was going to move and it made a big move, so now, do I want the stock?"

The answer to this question is almost emphatically no, you do not want to exercise your option contracts early because what you give up if you're a long option buyer during early exercise of your contract is you give up the extrinsic value that is still left in option contracts. Remember, option contracts are comprised of two different value components. You have intrinsic value, the value that you would get if you were to exercise immediately which we understand intuitively and then you have the extrinsic value of the contract which is the time and volatility value that's still left. In this case, this person was still more than 30 days from expiration and a lot of the value in the contract was still tied up in extrinsic time value for the next 30 days. Should they exercise the contract early, they would basically be forfeiting that premium to the market. Instead, a better alternative would've just been simply to sell back the long call option, capture all of the intrinsic value, as well as the extrinsic value of the contract. This is also why we don't see contracts that go in the money ahead of expiration get immediately assigned or exercised.

A common thing that I see a lot with new traders when they start trading and they start selling spreads or iron butterflies or iron condors is that the stock may go in the money and breach one of their short call options or short put options and immediately, they think to themselves – "Well, now that it's breached my short call and my short put, I'm going to get assigned on these contracts." But it's not always the case. In fact, it's rarely the case because if they were to be assigned, then the long call option buyer on the other end would be forfeiting all of the extrinsic value in that contract. This is why we see most assignment happen the week of expiration and more importantly, the last couple of days of expiration because at that point, most of the option contract's extrinsic value has whittled away and is now down and near zero. 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 happens when options expire?" Options expiration can sometimes be a little bit confusing for people, especially if you're new to options trading. Even if you've been trading for a little while and you haven't yet come upon an options expiration where you have to deal with contracts that are either in the money or out of the money, it can sometimes lead investors to kind of roll their eyes and wonder what's going to happen.

When options expire, there's only two things that could potentially happen. Either your option contract is out of the money or your option contract is in the money. If your option contract is out of the money, then the option contract simply expires worthless. And so, whether you are shorting that contract or you're long that contract, if the contract ends the expiration period out of the money, then the contract expires worthless and there's nothing that you need to do. You don't need to take any action. You don't need to reverse the trade. It just simply disappears from existence. If the option contract however, is in the money, then the option contract will automatically be assigned or exercised by the broker and this again, leads to proper risk parameters and risk control. When you're heading into expiration and you notice that you have an option contract in the money, I generally say that you should decide what you want to do with that and not go through the options expiration assignment and exercise process. But if you happen to let a contract go or you forget about a contract or don't roll or close the position and it goes through options expiration, then again, the brokers will assign or exercise those in the money contracts automatically. That means that if you are long let's say a call option, then you will automatically get assigned long stock. If you are short a put, you'll automatically get assigned, etcetera, etcetera.

At expiration, again, the biggest thing that you have to worry about (and I say "worry about") is just – Is your contract that you're trading (whether you're long or short) in the money, near expiration or at expiration? If it is, then you should probably look to close the position before or roll the position before because if you let it go through expiration, it's going to be assigned or exercised and while that's not a bad thing, it just creates more chaos in your account because you have to deal with now, long or short stock depending on which side of the contract you were trading on. 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, "Is options trading safe?" Welcome to show 500 on the daily call podcast which is crazy. If you've been along this journey with us, I appreciate you guys being here. If you're new to Option Alpha, welcome to the family. And I wanted to do this episode today on show 500 because I get this question a lot actually. The question is, "Is options trading safe?" It comes up again and again through email and chat support and whenever I talk to people online. And the answer to this question is in the form of another question and I would dare to say that everything potentially has risk, doesn't it? Even stock trading could potentially be unsafe or the question is, "Is stock trading or stock investing or index investing or passive investing or real estate investing, is it safe?" Safe is a relative word. It's relative to the amount of capital you have at risk. It's relative to the amount of volatility in the underlying product that you're trading and it's relative to the potential returns that you could get from trading or investing in that product. To say that options trading is unsafe or that options trading is risky is frankly just a false characterization of the entire industry. In fact, we could say that everything has potential risk and is risky and unsafe. Stock investing is in my opinion, highly risky and unsafe because you have so much capital allocated towards a particular company or a sector or an index and you are trading one directional which is still to me, something that is very risky in a two-sided market. To say that options trading is risky is again, a bad characterization of the entire industry. What options trading is, is just a leveraged investment in an underlying product and once you understand what the investment is and what you're trading, then you can determine the amount of risk that you want to take for any particular option strategy.

What I love about options trading more so than a lot of other investing that you can do out there is that you can define your risk with very specific parameters when trading options. Unlike what you can do with potentially index trading or single company stock trading or real estate investing where you have to allocate so much money to actually see some decent returns, with options, you can use the power of leverage in an options contract and the power to specifically define how much risk you are taking to generate substantially better returns with less money allocated towards the market. And what I love about options trading as well is that when you look at what good systems try to teach and what we try to teach here at Option Alpha with our approach to systematic high probability trading, is that when you are using a leveraged product, you have to understand that you're going to have drawdowns and losers and you're going to have trades that don't go your way. And if you just understand this on the surface level and your rational and I would say adult about the whole situation, an adult about it, then you have to understand that position-sizing and diversification ends up being some of your best trading tools. And again, these are things that you can control. These are not things that are out of your control. You control your position size. You control the option strategy that you're using. You control what ticker symbols and what strategies you're using and how much diversity you add to your portfolio. To answer the question again, bluntly, "Is options trading safe?" I think it's completely safe, but I think it's safe only if the person who's doing the options trading, the individual investor understands the risks and understands the drawbacks and the benefits of trading options compared to other things. And so, again, I think that the risk in any investing strategy lies with the investor, not necessarily with the product. 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, "Do day traders make money?" I know this is a popular question and it's one that comes to the top of your mind especially if you're new to stock trading or investing or if you've probably been searching online for day trading strategies or options trading strategies. It sounds really cool and it's very enticing to be able to day trade stocks and potentially make money, but the question again, remains, "Do day traders actually make money?" Now, I'm sure that there are certainly people out there who make money day trading. I'm not naïve enough to think that there's nobody out there who makes money day trading, but I would dare to say that the number of people who make money day trading stocks, truly day trading stocks where you're buying and selling intraday is probably could be counted on a number of hands and it's just the reality that these people are the exception rather than the rule that day trading is really, really hard. The reality is that with the markets being so efficient and so fast and so unpredictable in many cases, it's very hard to be a day trader on a consistent basis and make money.

Now, truth be told, we actually went back and tested a lot of day trading indicators when we did our Signals research back about two and a half years ago and we tested all kinds of different indicators, all kinds of different parameters, all kinds of different metrics and what we found is that there was no indicator that made a significant difference in the predictability of intraday or day trading for stock securities. And so, this to me really kind of was the nail in the coffin that it's insanely hard to be a professional day trader and to make money on a consistent basis and to that point, I think it's crazy that people would want to do that nowadays knowing as much as we know from research and data and our own trading experience with options that you would want to sit in front of your screen and force yourself and subject yourself to the emotional roller coaster that is day trading when there's obviously a better solution by becoming either a swing trader with options or becoming a systematic and robotic trader with options. I think the reality is that if you want to day trade, you can absolutely try your hand at it, but it's probably something that's ultimately going to fail, so I would highly suggest that people start moving away from day trading and start moving into more systematic numbers or probability-based system whether it's with stocks or whether it's with options. 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, I want to give you a better alternative to swing trading stocks. We often get people who come to Option Alpha who are recovering swing traders. And I say recovering because they tried swing trading or day trading before and ultimately determined that it didn't work for them or that they basically just didn't generate enough money doing it. And so, the alternative to truly swing trading a stock where you are physically buying the stock and selling the stock using technical or swing trading indicators is to just use options whenever you get into a swing trade instead of the underlying stock. Now, we know that stock is incredibly inefficient on the outside already, but when you actually use stock for the purposes of swing trading, it can be really hard to make money because you basically buy the stock at a certain point and anything above that level, you make money, anything below that level, you lose money. It's really hard to do that line in the sand type trading.

What I suggest to people is if you are going to swing trades that you use options instead and you give yourself a margin of error by selling options outside of where the stock is trading, but in the direction that you want to see the stock go. For example, if a stock is moving lower and gives you a technical buy or swing trading buy signal, instead of buying the actual stock, why not sell a put credit spread below where the stock is trading and give yourself a margin of error should the stock actually fail or should the indicator that you're using fail and the stock continue to move lower. Let's say a stock is trading at $100 and gives us a technical buy signal. Instead of buying the stock at $100 hoping it goes above $100 by any penny to make money, why not sell the 90, 85 credit put spread? And so, now, you give yourself an opportunity should the stock actually fall between $100 and $90, so your indicator or your signal was wrong by $10, but you still have an opportunity to make money because you're using out of the money option selling spreads as a means to give yourself a bigger margin of error. 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 going over a question that again, was submitted on our Facebook group and the question was basically directed at me and said, "Given the choice, Kirk, what would you rather do? Swing trade or day trade?" The default answer to me is 100% swing trade. I tried day trading initially when I started over 10 years ago, thought I knew what I was going to do, thought I could day trade and I had good days and I had really bad days and ultimately, what I determined is that day trading is much more of a grind than I ever wanted to do with options trading. And so, I learned quickly that even though I could have a good system in place and I could potentially read the charts or read the market well or decently well enough to make trades, it was just never profitable for me. It was a lot of turn, a lot of in and out of trades, high commissions and it's not something that I would necessarily suggest for most people.

This then leads me into the idea of generally swing trading. Given the choice if I was going to trade, I would try swing trading first because I have some familiarity and some reliance on technical analysis indicators which we back-tested and know work well and we've actually used them over the last couple of years since we did that research and have had really good success overall using some of these indicators. I would still swing trade. For anybody who's out there swing trading or considering swing trading, I would still swing trade with the use of options contracts. I don't understand why people would actually swing trade the individual stock because I would not do that. I would swing trade the stock via a use of options contracts. For example, if I got a technical or a swing trading buy signal on a stock, I would sell put spreads below that stock and give myself a margin of error. Should I be wrong and should the indicator be wrong or fail at that particular moment, I still have say a $10 or a $20 margin of error that the stock can still fall and I can still make money by selling put spreads below the market. Alternatively, if I get a technical sell signal or a potential swing trading signal to go short or bearish on a particular ETF or stock, I might sell a call spread against that position above the market, so again, giving myself an opportunity to have a margin of error and potentially participate in the directional movement of the underlying.

For me, it's a very simple answer and I appreciate the question in our Facebook community. Different question than what we typically get, but I would definitely be a swing trader versus a day trader. 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 answering a question that was submitted on our Facebook page and that question is – "How long should you paper trade before making real trades?" This is a question we get fairly often and my default answer to this is that you should paper trade as long as you need in order to understand the mechanics and the terminology and the flow of whatever broker platform you're using. I think there's value in paper trading for sure in the sense that it helps you understand how an order is structured, how pricing goes into the market, potentially how P&L start to adjust and shifts over time, but ultimately, all of that stuff can be learned in a paper trading platform very quickly. What you should do then after you understand the mechanics and the system of the brokerage platform that you're using is quickly start changing over to real money trading and because I see a lot of people who end up paper trading for years on end, what they end up doing is wasting a lot of valuable time learning from actual and real market fluctuations because nothing is going to affect your emotions as much as having real money allocated in the market.

Now, this doesn't mean that you should be as crazy with paper trading as you are with your real money and I think that's another discussion for another day in how to accurately or correctly paper trade, but it does mean that when you start shifting over to real money that you can still be very risk adverse, very conservative with your trading by trading very tight spreads, a couple of different securities, maybe lower-priced ETFs and still get a lot of the learning out of the way, but doing it with real money trades, with real data and real emotional events. Again, the default answer here is you should paper trade as long as you need to, to understand the mechanics of the broker platform that you're using, the terminology, get a good idea of how the order flow works, how P&Ls work, how position statements work, how to adjust and close trades and how those orders work, but ultimately, you should be transitioning over to real money trading fairly quickly. 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 options calculators are a waste of time. I see this a lot and we've actually had a number of request over the last 10 years for Option Alpha to add an options calculator to our website, but I continue to refuse the request because options calculators are frankly a waste of time and the reason that they are a waste of time is because by the time that you enter all of the data into an options calculator to try to derive an option's price, you basically have already missed a market move and the market is already trading past your expectations or the data that you put in. It's basically just a fancy way of saying there's no reason for us to calculate option prices with a manual options calculator when it's already being done on the fly and in real-time by every single brokerage out there. You can look up options pricing even through Yahoo and Google Finance in many cases, but if you use a broker that gives you the ability to pull data down for free which many brokers do now, there's no reason for you to calculate the value of an option contract as a live market participant. Now, I do see some value in options calculators as a means to understand how option prices could move and change based on different inputs, implied volatility, time till expiration, etcetera, but ultimately, these things can also be seen inside of the brokerage platform using analyze and simulator tools for most brokers. Again, I see a lot of options calculators out there and a lot of people requesting us to build an options calculator, but again, I don't think it's a good use of time. I think it's a waste of time to use these. You get much better value from watching real market data from participating in real market pricing as you're trading. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.