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 is the value of a call option on its expiry date?” This is a very simple answer. The value of any option contract at expiration, whether it’s a call or whether it’s a put option, is simply the intrinsic value. Once you get to expiration, there’s no more extrinsic value component left in the option contract. That means no more time value, no more volatility value, no more interest rate value. There’s just value left intrinsically in the difference between the strike price and where the stock price is right now. For the value of a call option, if a call option expires in the money, then it would have value between the strike price and the stock price. If you have a call option at a $99 strike and the stock expires at $100, then the intrinsic value is simply $1, the difference between $99 and $100 for your call option. If the stock expires at $100 and you have a call option at $105, then you have no value left at expiration because there’s no intrinsic value left in that contract. You cannot buy a stock at $105 and sell it for $100 and gain value. You actually lose $500, so you’re better off just simply letting the position go to expiration and expire worthless. And so, that’s where the value of a call option (that’s expiry date) basically comes into play. It’s just the intrinsic value, just the value that is derived from the differential between the strike price and where the stock price closes. 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, I want to answer the question, “Can I have multiple brokerage accounts?” I think the short answer to this is yes, you can and should have multiple brokerage accounts. Now, don’t go crazy with this, obviously. But because all brokers are now effectively at zero commissions, there’s no reason why you can’t have multiple accounts and therefore, have the ability if you need it, to more quickly transfer funds from one account to the other. A lot of the pain for most people when starting to trade is actually the process of opening up a brokerage account. Now, this process has been made easy by the likes of Robinhood and some of the other brokerages that are out there that really do make the process a lot more streamlined, but this still becomes a big hurdle for many people to actually go down the path of starting to trade options.

My opinion is when you start trading of even if you’ve been trading for a little bit now, open up a couple of different brokerage accounts and try out different platforms. See which ones you work best, see which ones you like the best and therefore, when you’re ready or if you need to, you can more quickly move money back and forth between platforms. Truth be told, my main account is obviously at TD Ameritrade with Thinkorswim has been for a really long time, but I do have a Robinhood account with $100, $200 in it and I do have a Tastyworks account with $100, $200 in it as well and I keep those there because I like to use the technology. I like to look at it. I like to see what other people are doing. If the time comes where I think it’s worth it to move all of the funds to one of the other accounts, then I’ll do it. But I keep them there and just keep them stale and stagnant just to have the availability there if I need it in the future. 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, “What does buy to open mean in options?” Buy to open, buy to close, sell to open, sell to close, all very confusing terminology when you start getting into the world of options trading. Now, this is different than stock trading because what most people are used to is simply just buy stock at a low price and sell stock at a high price. But in the world of options trading, you have all these different terminologies for how the account position is starting to change and evolve. Buy to open basically means exactly what it sounds like. That is you are buying options, either net options, a spread, you’re buying a spread or you’re buying individual option contracts and you are opening a position and you have a new position open that needs to be closed in the future. Now, this is important because in the world of options trading as in the world of stock trading though it’s just not as traditional, you can actually sell to open a contract which means that in order to complete the trading loop, you would have to buy to close. That’s how this differential kind of works out. There’s usually just four types. You can buy to open or sell to open and then of course, you have to sell to close or buy to close to complete the trading loop for each of these types. Hopefully this helps out. Again, as always, if you guys have any more 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, “Do penny stocks ever go up?” And this is really a two-part thing. It’s more of a question that we’re going to try to answer on my side, just what I’ve seen before and then two, just the solicitation of feedback and resources. If anybody’s out there that has seen any conclusive research, real research on penny stocks, I’d be interested just to see it. I don’t think it’s anything we’ll ever do here at Option Alpha. I have no intentions of ever doing research in penny stocks, but I would always be interested to see what the research is. Every time I try to go search for a penny stock research and just dig around, I really come up with just a bunch of scam sites that are just trying to sell me next best pick every single day, but I haven’t really seen any research that says, “Yes, this is how penny stocks perform or not.” I think it’d just be interesting to see. If you’ve seen it, let me know. Shoot us an email. Add a comment, whatever the case is.

I think that penny stocks of course can go up. I’m sure that there’s a number of companies that have started as penny stocks and have gone $2, multiple dollars, maybe even hundreds of dollars. Do I think that they are the exception to the rule? Probably. I would assume that would be my expectation. Like I said, I have no research to back this up. I have no basis for this other than just what I’ve seen before in the past with hundreds of thousands of penny stocks listed. Again, people are doing a lot of pump and dump schemes to get the price up. I know that Tim Sikes is a big proponent of going the opposite direction on these which I think is a really cool strategy. I just don’t have the patience or the wherewithal to understand the world of penny stocks versus options trading. Options trading is more interesting to me than penny stocks, but I think it’s a cool strategy because you usually get these huge run-ups in penny stocks that are over-exaggerated and then they dump and that’s a really interesting way to trade penny stocks. But I think they do go up. I think obviously, the good companies will always last, will always be around and their share price will be reflective of that. 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, “Should I pay for a financial advisor?” I know this is going to be a touchy subject and it’s going to probably ruffle some feathers for some people, but I have all the world of respect for financial advisors, I just frankly don’t think that people are using them the right way. I think that the value of a financial advisor is more on the strategic planning side, the tax planning side, making sure that all of the components of your financial picture are put together, not just your investment portfolio. Well, where people I think usually overpay is in the side of the investment portfolio where they’re paying 1%, 2% in some cases for management fees for something that they could do by themselves. Now, again, this is not to knock any financial advisor or planner, but generally speaking, we have access to as retail investors, all of the same products, all of the same resources, all of the same funds that everyone else does. And so, if you put together your own portfolio which I believe you can do and this is the whole premise of Option Alpha, is I think you can do this by yourself without entertaining the use of a financial advisor, then you don’t necessarily need to pay one for those types of services. I think the fee-only financial advisors that are also fiduciaries that you pay for when they actually perform a service for you, so again, tax planning, strategic planning, trust planning, family planning, whatever it is, insurance planning, life insurance, like if they do that stuff, that’s where it comes into play.

I think the other side of where financial advisors are really helpful is in just being there as a cheerleader and as a support foundation for you in not making bad decisions. Where I think that the value comes in is not necessarily in the fee that a financial advisor would charge you because I don’t think there’s value in just charging a fee for assets under management. I think there’s value in being there to say, “Hey. Remember our plan was X and you said you wanted to get to Y? This is how we’re going to do it. That means that we’re going to go through some drawdowns. It means that we’re going to go through some volatility in the market.” That’s where I think that the value of a financial planner comes into play. But again, when we specifically talk about the investing side of it as far as making strategic decisions, allocating capital, buying the global market portfolio, you can do that now for basically five basis points with ETFs. You don’t need somebody to say, “We need to go into this mutual fund or this fund, whatever.” You can basically do all of that practically free on the investing side as a baseline case scenario and then on top of there, you can start layering in other strategies, trend strategies, momentum strategies, options trading strategies, trader strategies on top of just that baseline case scenario. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “What does out of the money mean?” When we’re talking about stock options and in particular, the strike price of an option contract relative to where the underlying stock price is, you will often hear the terms “out of the money” or “in the money” be talked about. And so, what out of the money means is that there’s no intrinsic value in that contract. It means that if the stock was to move, it would have to move dramatically in the direction of that strike price in order for the option contract to go in the money. And in the money means that basically, there’s value in that contract when it reaches expiration, there’s intrinsic value that if you were to exercise that contract, you could generate a profit or a differential between the stock price and the strike price of your option contract.

Typically with call options, any call option that has a strike price that is higher than where the stock is trading now, those call options are all out of the money. If a put option has a strike price that is lower than where the stock is trading now, then those put options have strike prices that are out of the money. Again, all that out of the money means is that the option contract has no intrinsic value, so if it were to be exercised right now, there would be no value in exercising it. You could not generate a profit by exercising and going long or short the stock and then selling or buying it back in the open market. As always, hopefully this helps out. If you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What happens in a short squeeze?” A short squeeze is actually a really popular thing with people to talk about. You often hear about a short squeeze happening or potentially happening after a stock has had a big run down and then potentially gets some news that could turn it the other way. All that really happens in a short squeeze is that there becomes a lack of supply of the stock available and then excess demand for the stock and this is where the shorting really comes into interest because when you short a stock, you have to have supply of that stock available to borrow from the brokerages or from the market itself. If somebody wants to short stock, they have to borrow it from somewhere. If there’s a lack of supply, now there’s this demand, what happens is that short sellers have to cover their positions on the stock. If they get good news or if the company has a good announcement or it’s just really, really oversold and due for a bounce, then somebody who’s a short seller, well, in order for them to cover their position, they got to buy back stock. And so, if there’s a short supply of stock out there and there’s a lot of demand for it, then that results in the price being driven up with all this additional volume.

You typically see this in really low float, low liquidity type stocks where it really, really is exaggerated, not necessarily in broad market indexes or ETFs because there’s probably enough available to borrow and there’s enough shares out there, but it’s a really interesting thing. Sometimes they happen pretty quick, pretty fast, they can move pretty dramatically, but you don’t really know when it’s going to happen or how much of an impact. Again, all that really happens in a short squeeze is we get this really big move up potentially also driven by the fact that short sellers have to cover their positions and buy back stock, but it’s not necessarily just them. It also is probably the market driving in demand from some outside reason. Again, a great earnings announcement, a great report, a great global economic number that came out that impacted the ETF or the sector or the industry. That could always drive demand as well and kind of exacerbate the issue. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Do you pay capital gains on stock options?” And we’re specifically talking about stock options that an employee might get in a company. If you’re an employee of a company and you get stock options, how do they get taxed as gains? Well, there’s two kinds of stock options for employees. There’s nonqualified stock options which are called NSOs and those are usually granted to people who are employees, advisors or potentially consultants to the company and then you have other ones which are incentive stock options which are ISOs which are really only for employees. This might incentivize you to reach a certain quota or to be there a certain amount of time or for your team or your group or your division to reach a certain level or a production level. These are really what kind of tie people’s incentive to the company and to the overall company profitability to their own pay structure.

With NSOs which are the nonqualified stock options, you pay ordinary income tax when you exercise the options, when you convert it over and then you pay capital gains tax when you actually sell the shares. You pay ordinary income tax when you say, “Look. I want to exercise this and I want to actually buy stock in the company.” but you won’t pay capital gains until you actually sell the shares. You could exercise your contract, buy stock in the company at a strike price and then you could sell the shares two years later, five years later, whatever the case is. At that point, that’s when you pay the capital gains tax. With ISOs which are the incentive stock options, you only pay taxes when you sell the shares and it’s either ordinary or capital gains depending on how long you’ve held the shares. That’s really going to be case-by-case, but you would only pay the taxes when you actually sell the shares, not necessarily on anything when you actually convert it over. It’s a little bit more advantageous potentially depending on your tax situation maybe to go with an ISO versus an NSO. Anyways, we’re not tax accounts, so obviously, you can’t blow your tax account on this, but we do get a lot of questions on just general stock options as employees, so we want to do this podcast to kind of help bridge that gap. As always, if you guys have any questions, let us know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What is the difference between a full-service broker and a discount broker?” This question came up recently because of the podcast we just did a couple of days ago which is talking about all these commission-free brokers and now, we’re starting to see differentiations in marketing between one broker and another. Some brokers are saying, “Hey. We’re a full-service broker, so you definitely want to be with us.” Other brokers are saying, “Look. We’re a discount broker. You definitely want to be with us.” What’s the difference, right? Ultimately, every broker is a broker. It’s just the services that they offer and how they distinguish themselves or what names they call themselves. Full-service brokers tend to offer a more wide array of services and products, so they might offer financial planning or retirement planning or tax advice or regular portfolio updates and modeling or research services, so that might be considered more of a full service broker.

If we were to compare say a full-service broker to potentially a discount broker, though they may not say that they’re a full-service or a discount, I would look at them as maybe TD Ameritrade, more of a full-service broker when you look at it compared to a Robinhood. A Robinhood can only do a couple of things. You can go in, you can buy stocks, options, crypto, etcetera. With TD Ameritrade, yes, you can go in and buy stocks, options, but they also have a lot of tax planning stuff, retirement planning software. They do offer advisory services. They have a full-fledged research department and research reports they’re pulling from Morningstar, etcetera, so it’s more services that they offer. Ultimately, I think it’s going to be really interesting to see where this whole industry goes because as the battle lines are drawn on the commission front which is what most people really care about when they start looking for brokerages, then we’re going to start to see now coming to the forefront, what services and what technology each broker has. We talked about this in the podcast two episodes ago, so you can go back and review that one if you haven’t already. But again, hopefully this helps out. If you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “How is SPX calculated?” SPX is the ticker symbol that basically tracks the S&P 500 index. That ticker symbol is calculated using the S&P 500 index as the base. The S&P 500 index is a floating adjusted market cap weighted index. What does that really mean? It just means that it continuously adjusts and it also means that it’s market capped, so it’s based on the capitalization of the individual components that make up the S&P 500. This means that companies like Microsoft, Apple, Amazon, Facebook, etcetera which have higher capitalization than the rest of the components have higher weightings. Microsoft for example I think as of right now has a weighting of 4.32. Apple has a weighting of 4.06. Amazon has a weighting of 2.93. Because they’re higher valued companies based on market capitalization, they therefore get a higher weighting index. That’s probably the floating side of it. As things change and as prices of companies change, then their impact on the index obviously changes as well. And then, so you take the sum of all these adjusted market capitalizations and then you basically divide it by the index divisor which is the Standard & Poor’s proprietary figured that they have. They just take all these, they divide it up and then they come up with this number, this S&P 500 SPX number that they use. And so, right now, the S&P is trading around (what is it now?) $29.97, so almost $3,000 and we’re starting to rally up towards the $3,000 level at the time I’m recording this. That’s basically what the S&P 500 index is comprised of and how it’s calculated. As always, if you guys have any questions, let me know and until next time, happy trading.