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 day trading illegal?" The short answer to this question, "Is day trading illegal?" is that day trading is neither illegal nor unethical. In fact, the SEC defines it as both neither illegal nor unethical, but actually, just highly risky. And so, as a result, people should just be cautious of how they use their funds and what type of approach they take when they are trying to day trade.

Now, truth be told, I tried to be a day trader myself more than 10 years ago when I started in this business and found out very quickly that day trading is a very hard process to follow and a very hard system to get right on a reoccurring basis and takes a lot of time and a lot of effort. Not that there are not people out there who could be great day traders or who are great day traders, but I just never found that it fit well with what I wanted to do lifestyle wise and where I wanted to be with my income and my portfolio moving forward. So, is day trading illegal? No, of course not. Is it highly risky? Probably and most people should not be day trading especially with smaller account sizes and no experience in the market. As always, hopefully 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, "What happens if your option contract expires in the money?" If your option expires in the money and you get through the expiration process, you will be going through now, the assignment or the exercise process for option contracts and this also depends on which side of the trade you're on and which type of option contract that you have. But generally, there's only two things that are going to happen. If you are long option contracts, meaning you owned a long put option or a long call option, then you will go through the exercise process automatically with your broker. Your broker will assume that by you leaving the contract on through expiration and leaving it on to expire in the money, that you wanted to either take delivery of long or short stock depending on what side of the contract you're on.

The other side is if you are short an option contract. Whether you're short a call option or short a put option, you'll go through the assignment process. Again, the broker will automatically assume that you wanted to be assigned those contract shares because the contract was in the money and so, they will go through the assignment process and then deliver the shares either long or short to you as a result of that. Now, as always, it's important that you double-check all of your positions as you're heading into options expiration even the last day of expiration and make sure that you try to clean up a lot of these positions that are in the money, not necessarily because it's a bad thing to have these contracts go in the money if that's what you wanted, but it often does come with a huge commission fee for most brokers to go through the exercise or assignment process. 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 going to answer the question, "Can you trade options on Robinhood?" If you're not familiar, Robinhood is a fairly new brokerage that came out that has zero commission fees and they recently launched and one of their public announcements was actually on one of our podcast as I interviewed one of the cofounders, Baiju on the podcast just a couple of months ago, that they allow people now to trade options commission-free on their platform. So, to answer the question broadly, "Can you trade options on Robinhood?" Yes. Is it easy to trade options on Robinhood? Yes, it is easy to get into single contracts, but it's probably not so easy to create very high probability spreads and high probability rolling situations. I find that the complex type orders on Robinhood to be much more confusing, very less intuitive at least right now at the time that we're doing this podcast.

Although you get a platform for free and commission-free, I feel that in many respects, you could be losing out sometimes on the lack of technology and the lack of insight and analytics for the particular option contracts that you're trading. What you might feel like you're saving in commissions, you might lose in slippage or lost opportunity by using the wrong option strategy at the wrong time or not having the ability to quickly hedge and roll positions inside of the app or platform. I think it's a work in progress. I think it's something that is very interesting. As I've said before, I think all brokers eventually will be zero commissions, so I think it'll ultimately come down to who has the best technology stack, who offers the best tools for zero commission as this race to the bottom continues in the industry. But right now, you can trade options on Robinhood. I don't think the best platform for complex trading and for high probability trading, but it at least gets the job done. 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 covering the four ways you can control your trading emotions. Again, I believe that there's only four ways that you can control your trading emotions and those four ways include the following. Number one, experience. I can't argue with the fact that if you've been in the market for any set amount of time, it gives you a little bit of an edge up the longer that you survive and watch and experience different market environments. I've been doing this now for over 10 years and so, I have a lot more experience than most people who are starting though I know that there's other traders out there who have traded longer than me. But the idea is that I've seen a lot of different setups occur in very similar fashions, in very similar industries and I've seen implied volatility expand really fast and contract really fast. I've seen markets go down fast, markets go up fast and things just trade sideways. And so, experience to me is one thing that I think does help out because if I see a situation where a stock is maybe rallying too far, too fast, I've maybe witnessed that experience and experienced it before in the past and that helps maybe give me a little bit of a leg up on figuring out what might happen next or how I can control my emotions because I've seen that happen before. It's like parenting. When you have your first kid, everything is new, but after the second and third kid, then everything is pretty much the same. Obviously, each kid is a little bit different, but everything is pretty much the same. The same things generally happen at the same development period as they grow and learn and develop, so you get a little bit of experience and you help control how you react to those situations.

Number two is data. Data is really important for me. I lean on back-testing data, historical data, implied volatility data, research data that we do, that other people do. I think this is critically important for options traders especially because if I know for a fact that using stop-losses creates more losing trades, then I won't use stop-losses. Even though emotionally, it might feel like I should use a stop-loss on a position because I want to cut my loss or I want to reduce the pain or stop the bleeding, if I know for a fact that during a given time period, using stop-losses is not something that creates more winning trades, then I won't use stop-losses. Using data and leaning on data is really, really important to me. Number three is having rules. I think rules are the framework for trading. Now, rules, I think people can get a little bit carried away with in the sense that you can't have a rule for everything. There have got to be a set of framework, guidance, rules that you should follow and everything else is more or less an art than a science. And so, for me, rules would be no position ever risking more than 5%, keeping 50% of my account in cash at all times, having a portfolio that is balanced to the S&P 500, having a good diversity of ticker symbols, usually about 10 different ticker symbols in various industries or sectors for every single month. Those are the kind of guidelines and framework rules that I use. And so, I use those as a backstop when I get into a situation that is not comfortable or it's not usual or not typical. I might lean back on those rules to make sure that I'm following my plan.

And number four is obviously, automation. As we start to progress and as we start to get closer to the rollout of our new auto-trading platform, one of the key things for us is going to be the use of automation technology. Right now, a lot of things are manual click trading and that means that we have to interact with the markets every single time that we want to make a decision and that unfortunately is not the best approach. It means that we're exposed to our emotions, to our emotional swings, to this fight or flight, fear or greed, all of these emotional imbalances in our mind and that's never a good thing for traders. In fact, when we get more emotional, we end up trading worse. The use of automation tools can help curb those emotional swings and use technology and automation to play off of the rules and the data that we know generally works. Again, that's number four, is automation. Hopefully this helps out. Again, there's four things you can do. I think all of these things touch on different areas and aspects, but use them to your benefit, to your advantage and as always, if you have any questions, let me know. 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 historical volatility?" Historical volatility is simply the volatility that has happened historically in the past for a particular security at any given time or during any given time period. Now, most people actually honestly still confuse this with implied volatility. But implied volatility is forward-looking. Implied volatility looks at the possible or projected or expected volatility that a stock might exhibit moving forward into the future. Historical volatility is easy to figure out. We know historically that Apple might have been volatile with a 20% up or down move in any given time period. That's something that we can look at retroactively or retrospectively and figure out what the historical volatility is of Apple.

Now, the reality is that historical volatility has sometimes very little to do with what their projection of future implied volatility could be. We could see a dramatic shift in a company and they go from a low volatility company to a much more high volatility company or vice versa. We could see a company go from high volatility to an extended period of low volatility. But again, historical volatility is only one metric that we maybe should be looking at or factoring into our analysis when trading options. The good news is that most things that are highly liquid, most ETFs, most highly liquid stocks already factor in historical volatility to its implied volatility projection and again, implied volatility is more often than not, going to be an overstatement of the actual or historical volatility that happens in the future. It's important that you understand the difference between historical volatility, what happened in the past and implied volatility, what is expected to happen in the future. 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 great swimmers can't beat strong currents. And this topic comes in the face of potentially a declining market in what we've seen over the last couple of months, is definitely the markets having a little bit more volatility. And what I think is particularly interesting about this market downturn is that you could even say that some of the tech sector stocks including most of the FENG stocks have really kind of led the decline. In fact, some of the FENG stocks are actually technically in a bear market or at least intraday, we're in bear markets this last week.

It's interesting to me because I think a lot of people have this misconception that great companies have this ability to circumvent the broad economy, the broad market dynamics and I always think about this line in that great swimmers can't beat strong currents. No matter how good a swimmer is, no matter how good a company is and how great their trajectory is and how fantastic their product is, sometimes they just can't beat, they can't overcome the overwhelming force of a strong current pulling them lower or pulling them back and I think this is what we're seeing now in the FENG stocks and I think it's a great reminder of the age-old saying that a rising tide lifts all ships and that's the whole saying in the market, is that the market is still one big economic force in the ecosystem. And so, when the market goes down, when the global economy starts to maybe falter a little bit and we start to see declines in the global economy, that doesn't mean that all these great companies are going to buck the trend always. They still might have some sort of exposure to global economies, to other sectors or other countries that you might not have thought about, but the market does and the market always is right in that it's always looking forward in the future and sometimes these really highflying companies just don't have enough power to power through a market downturn.

I think it's a good reminder again and just keep it in the back of your mind. Again, even if you Michael Phelps on your team, he can't probably beat the current and the power of the Amazon River. Strong currents are always going to beat great swimmers. 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 do you find weekly options contracts?" If you are interested in trading weekly contracts or if you have an interest in trading the nonstandard monthly contracts, then the easiest way to find these weekly contracts is most likely to go into your broker platform and just simply look at the date of the options expiration and what you're looking for is you're looking for the expiration date to be not the third Friday in the month and that's a very simple way of saying basically, you're looking for every expiration date that does not line up with a regular or traditional expiration dates for monthly contracts which is the third Friday in the month. For example, heading into December this year because we're doing the podcast right now in December, the December contracts that would be the monthly contracts would expire on the 21st of December. That would be the third Friday in December. You would look for weekly contracts which would be any other expiration date in December except for the 21st.

Now, as one other additional caveat, what you have to understand is that the December 21st monthly contracts will basically act as the weekly contracts once you get into that week of expiration. There's no weekly contract for the same expiration date because the monthly contracts, the last week or that last week of expiration will now act as the weekly contracts. But for example, you could trade the December 7th contracts, the December 14th or the 28th. Those are pretty standard weekly contract dates. Now again, many broker platforms have some sort of way of distinguishing between the monthlies and the weeklies. Thinkorswim and the other brokers like Tastyworks also just label these as weeklies or monthly contracts, so you have a better understanding. But again, all you're looking for to find these weekly contracts is any date that is not the third Friday in the month. 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 investing styles do not exist. Now again, I know this might be a little bit controversial and I want it to be. I want to get your opinion on this. I want you guys to hear my opinion on this. But I've often seen and people actually just sent me an article the other day which kind of prompted this quiz as to – "Kirk. Take this quiz and see what investing style you are." And I thought to myself – There are no investing styles. I totally do not believe in this ideology that there are investing styles that exist in a vacuum and that everybody no matter what style you are could eventually get to the same point because it doesn't happen that way. In investing, there are things that are and are factual-based investment decisions and things that are not and you have to differentiate between those and there's no style that one style would then get to the exact same point as potentially say another style. For example, if somebody walked up to me and they say my style is high-frequency penny stock trading. Well, that's great that that's what you like to do, but that style does not exist. That's just your vehicle of choice that you're choosing. You're choosing a vehicle which is high frequency penny stock trading, but the fact remains, the data proves that that is not the most optimal vehicle that you could possibly select for your portfolio. In investing, I think of kind of in black and white terms like either something increases my ability to generate income and generate wealth while reducing risk or it doesn't. It just increases risk and it's very speculative, super low probability of success. That's why I don't think that there's any styles. You hear styles like, "Oh, I'm a diversification guy." or "I'm a value and growth guy." But the end result is that some of those things either work or they don't and just because your style is to have a propensity towards investing in growth companies does not mean necessarily that that is the best avenue and just because you're going to force it with your style of investing in growth companies does not mean that you can't be beaten by somebody else.

I think about this in terms of like even people who graduate from high school or college because this is where we see a lot of style and diversity, but people get to the same result and then they think that it can translate over in the investing world, but it doesn't. You take somebody who is a night owl and they study all the time at night and they do all of their best work at night. They could end up graduating with the same degree, the exact same outcome as somebody who would wake up early in the morning and study and do all their work early in the morning. Two different styles of studying or learning, the end result is that graduating or getting that degree is the same exact outcome. Well, that does not happen in the investing world. You have two different styles of people, one person who invest high frequency penny stock trading and another person who might run an option strategy. Those outcomes are going to be completely different. And so, we can't say, "Oh, it's good to have your investing style." I think it's probably bad to choose an investing style. Your style of investing should be to generate the most amount of money on a per unit of risk basis humanly possible and whatever that ends up being for you ends up being where you should gravitate towards. I think it also pigeonholes people to choose an investing style because it limits their ability to then select a different type of trading vehicle or to move funds into a different vehicle. If you say that you're a growth person, well, now you've pigeonholed yourself into only growth companies and although it might seem kind of trivial that you wouldn't think to yourself – "Well, I could definitely change, Kirk. I can move." But once you have identified yourself as one style of trader and you've put your flag in the sand and you've made your public or private declaration to yourself, in either case, you actually pigeonhole yourself mentally and psychologically to only looking for those opportunities and you miss a huge sloth of opportunities that could come down the pipeline. Again, I don't think that there's investing styles. I would totally disagree on this. I think there's things that either work or don't work in this business especially in the investing world and I think you just have to find the things that work. And so, maybe my style is find the things that generate a positive expected return and go after those. 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 financial markets often do what we least expect. This is a really interesting topic and I think one that I really wanted to drive home today in the daily podcast, is this idea of taking the contrarian or opposing view with respect to where financial markets are and where financial markets might be going. Now, it's hard to do because we are so bombarded by media and what we hear and what we read and influences of others that we often get pigeonholed into an ideology or a thought process that can be completely backwards from what actually might happen in the markets. And so, what I try to do often is try to remove myself from all of the noise and the chatter and try to figure out what do most people expect the market to do and then assume that the market does the complete opposite because what I know to be true is that the market is a very difficult thing to manage and I'm not trying to predict where the market goes on an ongoing basis, but basically just try to keep my head on a swivel and look at different opportunities and play through different scenarios in my mind in case the unexpected happens. And I'm sure there's a zillion examples of this, but I want to go through potentially three examples of the markets doing exactly what we least expected them to do and these are really good examples to remember as you keep moving forward.

The first example would be the Trump election. Heading into the Trump election, everyone would have thought that a Trump election was going to be bad for the markets. In fact, the initial kneejerk reaction of the markets after Trump was elected was that the S&P 500 futures were basically crashing. I mean, the overnight futures were crashing. But then everything turned around and we had a massive rally in the stock market. Now, I don't care if you like Trump or not and it doesn't really matter on this podcast which political opinion you're on or which side you're on. The idea is that most people would have assumed heading into that, that a Trump election was bad for the economy, bad for the markets, bad because it was unexpected and it ended up turning out to be a huge rally in the stock market that nobody saw and "nobody saw this coming." Another example of this would be potentially the dollar run that we've had over the last year. If you would've looked back over the last two years or so, we would've seen that the dollar had a huge drop and nobody would've maybe expected the dollar to be as strong and as stable as it was. And even in the face of potentially higher interest rates and a higher deficit and all this additional spending at the government level, many people might have assumed that the dollar was going to go lower, but it didn't and that's again, a huge disconnect between what people expect and what actually happens in the market. Another great example of this is just literally this month with the huge rise in natural gas prices. Natural gas has been basically nonexistent, has been a no headline type of event and then out of nowhere, natural gas prices rise I think 30% or 35% in a matter of a couple of days. It did exactly what people least expected it to do and as we talked on the last podcast, blew up one hedge fund as a result of it.

The idea here is that when you're trading, please don't assume you know where the market is going to go and I'm not saying I do for any at all. I don't know where the markets are going to go and that is a huge advantage I think to trading, is just having this understanding that – "I don't know where the markets are going to go and that's okay." But try to put your head on a little bit of a swivel and think to yourself – "Okay. At this moment, everyone's thinking this is going to happen, but what if the other alternative happened?" I often think right now as we're maybe in some sort of topping process or not in the markets, we're starting to slow down with the gains on the S&P and the US equity markets. What if the markets did turnover? What if we were in the middle of a correction and we don't even know it? What if we're in the middle of the next recession or depression and we don't even know it? And trying to get your head to start thinking about these alternate paths that the market might take, so that you preplan your trading strategy around that. We've talked about it before on the podcast, this idea that in football, a quarterback would go to the line of scrimmage and they have an idea of where they're going to go with the ball if six or seven different things happen in that play. They don't just walk up and say, "Okay. I assume that this guy is going to tackle me." No. They know that – "Hey. I could get pressured from this guy or this guy could come off the edge or they could blitz from here or they could not." And that could change the whole dynamic of the play kind of mid stream. It's having this awareness of different opportunities that you might have in different markets or how you might adjust your portfolio if different things happen. I think it's really, really important and this kind of preplanning and mental game is not something that people talk about often, but I think it's super important. Again, expect that the markets are going to do what is least expected. If everyone's expecting a huge rally, expect a decline. If everyone's expecting a decline, potentially expect a huge rally and try to prepare yourself for either scenario. 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 go through the only two reasons why I believe optionsellers.com blew up their hedge fund. If you're listening to this podcast or if you clicked on it from Google or somebody shared it with you, hopefully this will give you a little bit of insight and understanding as to why this hedge fund that was shorting naked calls and puts in the market blew up and I think that the reasoning behind this is a little bit different than what most people would assume. I think the problem that I see with optionsellers.com is twofold and then at the end, what I want to talk about is why they were basically doing things completely wrong. You'll see as we go through the number one and two reasons here, but again, you'll see why these things are completely wrong and backwards even probably based on their own logic and in-house risk management system which they probably just failed to follow. But the number one reason why they blew up is probably over-allocation and position size. I would dare to say that once all the information comes out that this is probably the number one reason why their hedge fund blew up and it's because they had too large of a position not only in natural gas, but also in short contracts in crude oil. And so, this huge exposure on the short side when selling option contracts leaves you open to the possibility that a random black swan event like what we saw in natural gas just recently and crude oil creates an exponential type of risk scenario. And so, an over-allocation or too large of a position is cardinal sin number one for me and has been something that we always talk about here at Option Alpha as being the first line of defense for any option selling activity, is to keep position sizing under 5% of risk for the position, not premium, but risk and I would almost 100% bet that optionsellers.com had way too large of a position size for all of their accounts.

The number two reason why I think that they blew up their hedge fund is because they were too focused or highly concentrated in one industry and sector which again, is probably cardinal rule sin number two for us here at Option Alpha, is not to have too much exposure into one industry or sector. Look. They had a huge position size in natural gas and crude oil and not only that, but they had it in basically just the energy sector with almost nothing else in their portfolio. And again, I don't know for sure what they had in their portfolio because none of that stuff is out, but I'm assuming that based on the fact that they blew up overnight and it was mainly tied to those based on the video that they put out that those are probably the largest positions and potentially the only positions that they had in their portfolio for clients. Now, this is a problem because again, what you have here is you have this sequencing risk that if you're focused on one or two industries and just randomly, those industries at the same time or those sectors at the same time experience a black swan a-systematic event, then you have the propensity to have massive drawdowns and huge risk to increasing implied volatility and they basically got hit with the one-two punch of like "Don't do this and don't do this." and they did them both at the same time and basically, their number just came up and the market wiped them out. The lessons that we can learn from this I think are many, obviously and if you're not looking at this as a huge opportunity to learn as an options trader, you're totally missing the boat here.

The problem that I'm going to definitely see with option sellers is that people are going to assume that what option sellers did is then standard for what most options traders do which is probably not the case. The way that you should be trading options includes not doing those two things and it's something that we've always talked about here at Option Alpha for decades now. We've talked about keeping your position size in check all the time, trading small allocations, keeping risk in check for every single ticker that you're in and in addition, what we talk about at nausea is the idea of diversification of tickers, this idea that we never want to be selling options as high as implied volatility is, as lucrative as one industry or sector might be. We never want to be selling options in the same one or two or even three industries or sectors of the market. Many times, we often add low implied volatility option selling strategies to our portfolio in order to reduce the systematic risk of one of these industries or sectors blowing up like what happened in natural gas and crude oil. Oftentimes, we'll add exposure to utilities and retail and financials and bonds in many cases just so that we don't have all of our eggs in one basket. I mean, it really comes back down to like investing and portfolio management 101 and again, why they didn't have these checks and balances in place, I have no idea and maybe that'll come out in the future, but it's pretty clear that these two rules here were violated.

I think the other thing that I'll mention here is kind of like rule number three for us if we were to rank them is cash, is having lots of available cash. Now, I don't doubt that they probably had more cash available at the time that they entered the trade, but clearly, they were not anticipating the huge run-up in implied volatility and by shorting so many naked contracts, they left themselves overexposed to a run on cash. Now, our suggestion for all of our trading is that basically, you should have at least 50% of your account in cash at all times and that includes making the assumptions that if you have some short option contracts that those could double or triple in margin exposure any time. In fact, we often tell people to reduce the number of contracts that they have with short option trading. If you're going to do short naked calls and short naked puts, that's not a bad thing as long as you keep them low and low proportion or percentage of your account. You have to keep those in check because they could double or triple or quadruple in margin requirement overnight and you need to have ample cash to be able to handle those. Again, it's not something I think that they probably did not do over there or at least did not do well. It's a really good learning opportunity. It's a great reminder of why we tell people to keep things small, not to be greedy, to play the long, steady, consistent game which oftentimes does not look appealing and is not sexy, it's not what people want. People don't want slow and steady or low volatility in their account, easy up and down months. They want these massive gains and sometimes this comes back to bite them in the butt because they take on a ton of risk, they over-allocate, do all the things that they shouldn't be doing which ultimately ends in massive failure. Hopefully this helps out. I'm sure there'll be more on this and we'll continue to chat on this, but if you have any questions or have any comments, as always, please reach out to me and let me know and until next time, happy trading.