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, "Can I earn money fast with options trading?" And the short answer to it is not likely. Is it possible to earn money fast with options trading? 100% it's possible to do. But is it likely to happen? Probably not. And in fact, if you do earn money fast with options, maybe you bought some option contracts and the stock moved or the ETF moved in the direction you thought it was going to move very quickly, yes, you can very quickly make some money. You can double, triple, quadruple your investment very quickly.

But again, what I'm planning and I am more than happy to play the long-term game here is the overall expected payout of trades like that versus trades that I'm making. As a net option seller, I know that the expected outcome of my strategy is a profitable position and a profitable outcome for my portfolio, but as an option buyer, I would highly, highly suggest that you reevaluate the expected outcome of option buying strategies because we have not found many, if any, that produce total net gains that are higher than option selling premium.

Again, can you earn money fast with options? Of course you can. You can earn money fast doing anything. But the real question is how sustainable is it, how likely are you to scale, how many times do you have to be lucky before eventually, the numbers come back to bite you at the end because you can't fight the numbers, you can't fight the math in this business. You can get lucky here and there, you can have a good run of trades, you can pick a couple of winners, but that is not a long-term sustainable model or system for building wealth. 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 uncertainty is the only cause of market volatility. This is really important because I think a lot of people get this wrong. But the only reason why stocks, options, bonds, real estate, anything is volatile is because of one thing and one thing only and that is uncertainty of the future. When the future is more uncertain than not, things will become very volatile and in many cases, will just go down. When the future is certain or close to being as certain as possible, then we see that many, many times, markets or securities or industries and sectors actually rally. Even though the news could be bad, even though it could be detrimental, it's still certain news. We know it's going to happen. The markets know how to adjust and know how to react. And I find this very fascinating because if you actually go back and you watch many times where a news announcement has come out and more recently with the Brexit vote that was then delayed in the UK, this was a bad announcement for the markets and the reason it was bad is not necessarily because Brexit itself is good or bad for the markets. It's just that the vote was delayed. Now, that causes more uncertainty in the market which is what is the cause of market volatility. Had the vote been set for a certain date or had the vote actually happened on the day that it was supposed to happen and then the Brexit vote was either good or bad, the markets could've rallied off of that information because it was said, it was known, it was certain.

We also saw this very briefly if you actually look at the intraday futures, the night that Donald Trump was elected as the president. We saw the market selloff hard when he was finally determined, I guess by the news stations to be the President-elect and the markets sold off really hard because what the market was anticipating was anticipating that Hillary Clinton was going to win the election. And so, when the news came in immediately that Donald Trump had actually won the election, market sold off hard on all this uncertainty because now, what they thought was going to be a sure thing is now not and so, the market sold off hard. But then very quickly, it took literally probably about 15 to 20 minutes for this to happen, the markets turned around because then, they started to realize and investors, people, us humans started to realize – Hey. Maybe this means that we're going to get a cut in taxes, more stimulus, etcetera. Again, not to say that any one of the candidates is better than the other, I don't really care, but that's what actually happened. If you look at the intraday futures the night of the election, that's the logic of what happened during those time periods and again, the only reason that the markets became more or less volatile is because of uncertainties. When you look at any new story, anything that's coming out, again, ask yourself. "Is this going to make the market more or less certain about the future?" And if the answer is less, then it's probably going to be bad for the markets. If the answer is more certain about the future, whether the news is good or not, it probably is going to be good for the markets moving forward. 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 20% volatility in stock prices should be expected by all investors. In fact, you could even substitute stock prices for portfolios, options trading strategy, basically any investment strategy at all. It pretty much is the standard that most investment strategies on a long enough time horizon are going to go through some sort of drawdown or drawdown period and probably a minimum, we're going to see a 20% drawdown at some point. In fact, most of the strategies that we back-test through our back-testing software and in the profit matrix research where we put together, went through a period of 20% drawdowns at some point in the cycle. It may have been 25%, may have been 18%, but somewhere around 20% drawdowns.

And so, for most stocks in general, 20% volatility is kind of the normal. I feel like people actually worry about a 20% move in a stock, but the reality is that if a stock moves 20% down or up, that's the normal expectation. If a stock moves down by 50%, okay, that's probably abnormal. But a 20% move in stocks is to be expected, so I don't know why people get so worried about it and frightened and it's because I know why they do it because they're just fearful and they don't understand the markets, but a 20% move is priced in. I mean, like most stocks have that type of implied volatility and that expectation that's priced into their security. That's why you can make so much money investing in stocks because there is such a high volatility and high risk associated with it that if you get it right, you should be able to capture a lot of that premium. Same thing with an options trading strategy. Because you're using a leveraged product, you should be able to capture above average returns when you're doing it right and using proper position sizing, etcetera. But don't be fooled into believing that you're never going to have a drawdown or that you're never going to have even just a small drawdown. We could go through a 20% drawdown at any point and that doesn't mean that anything's broken or bad or wrong. It's just how the numbers shake out. It's how the expected returns and the portfolio graph starts to move.

The other side of this is – Don't believe either that just sitting in cash or in bonds is the safe alternative to this. When you sit in cash, you get eaten away by inflation and inflation has been fairly tame over the last couple of years, but there's no expectation necessarily that it's going to be the same moving forward. Even sitting in something like cash, you're going to go through a drawdown. You just don't feel it. It doesn't look in your bank account like you went through a drawdown because you don't lose money in your bank account, but you lose purchasing power. Hopefully this helps out, again, just to kind of reset the bar for expectations. I see too many people that are just like absolutely freaking out about moves in the market and I'm sure there's probably reasons why you can freak out about fundamentals and macro type stuff, but when a stock moves down 10% or 20%, I mean, frankly that's the expected. We're expecting stocks to do that on a general basis. 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 the great depression stock market recovery timeline and more importantly, I think this is an interesting topic because as I've been reading a lot more about dead cycles, the great depression, the Weimar German Republic and hyperinflation, I think it's interesting because of the timeline that we're on right now where we could be entering into the next phase of this market which could potentially be recession/depression/some sort of consolidation and sideways movement. And so, I think it's important that we understand a little bit more about history and how long things might take to recover because the fact remains is that many of us have not gone through basically decades or even multi-decades of no growth or zero growth or low growth in the markets.

When you look back at the great depression stock market recovery timeline and the timeline that it took the market to get back up to its original peak right before the 1929 crash, on a nominal basis, it took about 25 years. Now, really think about that. Almost a quarter of your life is how long the market took to recover. Naturally, when I hear stories about how people were hoarding cash, hoarding gold and just like people's mentality coming out of the great depression, it's very easy for me to understand why they have such a saving mentality or kind of… I don't know if I'll call it hoarding, but just like a very conservative fearful mentality of the markets because on a nominal basis, it took 25 years for the market to recover. Now, many people would say, "Kirk. Well, that's not really true because that's just from a price. If we adjust for inflation because we actually went through a deflationary period during the great depression, then we readjust for inflation, it actually only took four and a half years." Okay, fine. Yes, if you adjust for inflation, it took four and a half years which is still a long period of time, but that is just the price wise, like most people actually never recovered from those events. And what I know for sure is that when you have somebody that goes through a 60%, 70%, 80% drawdown, there's almost no hope that you actually recovered. Now, yes, there's probably some people who held through that. Maybe. I don't know how many people actually held through the entire great depression and got back up to those levels that quickly, but I would dare to say that it's almost nonexistent.

The fact this is that although it took four and a half year on an adjusted basis, that doesn't really do us any favors because if inflation is running rampant and prices of everything are going up, then what does it matter for our stock portfolio. It's just basically catching up. We're losing here and gaining there. I think it was just an interesting period. I think the end result here is that if we go through potentially another period like that which is not off of the table by any stretch and anybody who thinks it is, is totally fooling themselves, then it could be a really long time before the markets recover. And so, that's why I think like… I'm telling you guys. I truly believe that options trading is going to go through this massive, massive growth during the next downturn in the market. With the number of people who are going to be interested in it, the number of people who are going to start trading, we're going to start to see a major shift in market dynamics from more equity style trading to more derivative style trading over the next 10 years than I think we've ever seen in the entire history of derivative markets and it's because we could potentially be in basically a lost decade or lost multiple decades potentially (who knows?) of the markets not really going anywhere, inflation going up, deflationary pressures coming back down (if that happens) and that could really be the catalyst to kind of propel the options market.

So, learn about some of this stuff. Read up on the great depression. Read up on some of these other market declines and dead cycles. Have an understanding of what happened during these events before it happens to us even if we're in potentially that time right now. I think it's really important. Hopefully this helps out. Hopefully it gives you some food for thought as always 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 strategies never change, but tactics do. Now, this is something I think is really powerful and if you take the time to understand it, I think it has a lot of different similarities to things that we are used to in our lives or in our world. Well, I don't know if I heard this originally from… Maybe I read it in a book or saw it somewhere or maybe went to a presentation and somebody said this, but I think it was just so powerful, it's kind of stayed with me and I want to talk about it today. But the idea is that most of the time, we see people and they talk about this new hot thing that they're doing or a new investing thing that they're doing, but it's actually nothing new. It's just that they're using a different tactic to go about this same old strategy from before. A lot of times, most people call it a new strategy or a new way of doing things, but it's really not. It's just a different tactic with the same strategy, the same end result in mind.

So, to give you guys some illustration of this, so we can kind of walk through it, in sports and particularly, in games like football and basketball, in soccer, lacrosse, hockey, etcetera, the strategy of those sports games when you actually break it down is separation and that's really all the game is, is most of those games are game of separations. The strategy is – How do I separate myself from the opposing player as efficiently as possible and with the most separation? If you can separate yourself the most, you'll probably win the game, right? When you see sports, people call different strategies things like – Oh, we're using a passing strategy or a run strategy or a sprint or they're doing some sort of full-court press strategy, but those aren't strategies. Those are tactics. That's how they're going about it. That's the tactical maneuvers they're using to then get the end result which is just separation. In business, the strategy is always the same. Every business has the same ultimate strategy and that's to create margin and margin is the difference between what you can sell something for and what the total cost of that thing or producing that thing, that service is and creating a profit margin. There's many ways you can go about it. There's different business models that you can run, there's different marketing channels that you can start to explore, but ultimately, every business has the same exact strategy which is to create margin.

In investing, what is that strategy? What is the one strategy that is universal across all different forms of investing? And if you answer this question, hopefully you get like 10 bonus points from me, so congratulations if you answered it earlier before I actually said it. But the number one strategy for all investing is this and it's spread and you could say it's edge. It's the same thing, but it's spread, it's edge. It's a spread between what you invest your money at or the return you invest your money at, the opportunity cost of your money and how much you can generate. And so, that spread is the only thing that we're going after. Many people go after that spread by being a fundamental investor. They buy companies that they think are fundamentally or having lower intrinsic value than what should be the value of the company. That's a fundamental tactical way to go after the same strategy which is just capturing spread. Some people are short-sellers. Like short-selling was a huge thing. Not so much that much anymore, I guess, but people used to short-sell companies because they knew that the value of the stock right now was much higher than the actual company's intrinsic value, so they would short-sell, but again, they were just capturing spread. It was the tactical way that they were going about it that changed, but the actual underlying strategy was the same.

In option selling, the way that we go about capturing that edge is by selling option premium and playing the overpricing of implied volatility compared to historical volatility. It's the same strategy. We're still trying to capture an edge. It's just the tactic that we're going about doing it is a little bit different. The path that we're going to take to get there is maybe a little bit different than somebody else. Again, I encourage you to really think through this over the next couple of days as you're kind of looking at everything in life. When you realize that most of the stuff has the same underlying strategy no matter what it is, it's just the tactics are different. The tactics are where the personality of people and how they like to invest or what sports they like or what types of businesses they like to run. That's how it all kind of divides up among these different personality traits and topographies and geographies, like how people move and interact in marketplaces, but the actual strategies never change. It's just the tactics or the tactical nature of how you go after that strategy or in our case, the investing edge. Hopefully this helps out. I know this was a little bit of a different style of podcast, but I thought this was really important that I just kind of (I don't know) start to get back to basics here a little bit and help you guys out. If you did find it helpful, let us know. 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 does low volatility mean?" You might have heard this before, whether we say it or somebody else says it online, but this idea of low volatility is a relative term in my opinion. Low volatility generally means a lower level of overall market volatility than we might traditionally see in a high volatility market or extreme market. Now, most of the time, most stocks and most indexes and markets experience a lot of low volatility which means that stocks are generally moving in a fairly compressed or tight range. That doesn't necessarily mean that stocks can't have large moves, but most of those moves are kind of muted. We see very small up-days or very small down-days. There's not too much going on. Now, this would be in comparison to a high volatility market where you're seeing lots of volatility not only on the intraday price, but also on the daily moves in the market. Recently, just in the last two months or so for the S&P and for the broad US indexes, we experienced a lot of high volatility. We saw the DOW go up 200 points and then down 200 points in the same day and that's probably more high volatility than normal.

But again, this is all relative. Low volatility for one US index or market could be a relatively high volatility for another market. You have to look at it on a relative basis which is why we like using implied volatility either percentile or IV rank as a way to neutralize this impact or this Industry or company specific risk in volatility and put everything on a level playing field between zero and 100 as far as ranking. Remember, a high volatility generally stock like Apple or Tesla, that has a whole different risk profile and volatility profile than say a small utility company and so, low volatility in Apple still might be relatively insanely high volatility for a small utility company compared to Apple. Again, low volatility to me can be different things, can be relative things and again, what we use as a way to judge whether low volatility is relatively low compared to historical trends in a particular security is looking at implied volatility rank or implied volatility percentile. Hopefully this helps out. 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 answering the question, "Does volatility increase option values?" Volatility as a standalone is actually a double-edged sword and what I mean by this is that implied volatility can either help option values or it can hurt option values depending on which way implied volatility is moving. As a general rule, remember that when implied volatility is increasing, meaning the expectation that the stock will have a greater move in the future than it currently has or is expected to have, then we see option values on both sides, calls and put options increase in value to compensate for the higher expected move of the underlying stock. Again, when implied volatility is increasing, that does help increase the value of options on both sides.

On the other side or on the flipside of the coin, when implied volatility is decreasing as we typically see after say an earnings event or a corporate announcement, then we see option values compress or decline on both sides because now, the stock is expected to move in a more relatively stable or narrow range moving forward. Again, when we see implied volatility or the expectation of volatility decreasing, that has a negative impact on option prices on both sides for both calls and put options. Hopefully this helps out. 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 answer the question, "What is a technical trader?" To me, a technical trader is somebody who trades mostly based on chart patterns, based on technical indicators, based on price action, implied volatility metrics or some other form of data entry. And so, in my case, I think that I probably lean towards more of a technical trader because I care much less about the fundamentals of a company or what the earnings report of a company is going to be or what the growth rate of an industry is than I do about what the chart is actually showing, how far the stock or underlying ETF has moved recently, is it reaching any new technical levels of being overbought or oversold based on back-testing research that we have and what indicators we use. And so, I'll use this in conjunction with implied volatility levels to make decisions on which trades we ultimately end up getting into.

And this is what we're going to be basing most of our decisions off of as well as we start rolling out our new automated trading platform. The automated trading platform is going to make decisions purely based on the hard analytical data that we have at the time that we place these trades for different securities. And so, this is a little bit different than say a fundamental trader who might trade based on some intrinsic or book value or fundamental value of the company and this person probably is going to take a little bit more of a longer-term approach than someone like me who's trading on say a 30 to 60-day time period. Again, to me, a technical trader is somebody who not necessarily ignores the fundamentals of a company and I think you have to know what you're trading and understand the product a little bit, but at the same time, more of your decision is being based on things that you can see analytically and data-driven wise on charts and indicators and through implied volatility, etcetera. Hopefully this helps out. 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 answer the question, "Are option contracts always 100 shares?" The idea behind this question of wondering if option contracts are always 100 shares is basically talking about the option contract multiplier and how many shares an options contract typically controls because remember, options contracts are not a position in the underlying stock, but yet, they control shares of the underlying stock or potential shares of the underlying stock. Now, while most traditional option contracts do control 100 shares of the underlying stock or ETF or security, that doesn't mean that it's always the case and you should absolutely check the specific product that you're trading to make sure.

With the introduction of mini options in the recent years, we've seen that actually, some option contracts control as little as just 10 shares for higher-priced and more liquid securities, things like Apple, Google, Amazon, etcetera. These mini contracts don't actually control 100 shares, they only control 10 and as a result, that means that their pricing is a little bit lower to reflect the lower underlying shares that they control. Also, when you're trading options on say futures or commodities, you just want to double-check and make sure you understand how those products are priced and what they control as well because there are different multipliers that could be layered on top of the option contracts for the particular futures or commodity contracts that you're trading.

Now, again, for most regular, traditional equity and ETF tickers that you trade out there, each option contract will control 100 shares, but if you start getting into some of the more advanced or some of the more unique option contracts out there, just again, double-check and make sure you understand how many shares or what it actually controls before making a trade. As always, hopefully this helps out. 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 answering the question, "Is a put option the same as short stock?" We get this question always and people are often confused when they start looking into or exploring options trading, wondering if a put option is the same as short stock. Now, while both of these things might behave very similar, they of course are not the same thing. Short stock carries a lot of additional capital requirements and is truly short the underlying stock security which means that it has a negative Delta of one which means that if the stock goes down by $1, then the short stock should profit by $1 as well.

With a put option on the other hand, you're basically taking a leveraged position in potentially short stock and it doesn't necessarily mean that the put option will move in parity with the short stock. Oftentimes, we find put options that have a Delta of say 50 and so, as a result, when the stock goes down by $1, the put option contract might increase by just half the amount or 50 basis points on the dollar. Again, they do act very different, they try to mimic each other, but in many respects, you have to understand the differences not only in the capital required for each of the different styles of trading, whether it's put options or short stock, but also for the potential payoff and time decay aspects. Hopefully this helps out. As always, if you guys have any questions, let us know and until next time, happy trading.