Hey everyone. This is Kirk here again from Option Alpha. Welcome back to the daily call. Today, we're going to answer the question, "Can options be assigned before expiration?" There are two things we have to cover in this quick little podcast. The first, of course is the difference between American-style and European-style option contracts. Really quickly, American-style contracts are basically all of the contracts that we generally trade on a regular basis. Those would be your contracts for Apple or Google or Netflix. Many of the ETFs, practically all of the ETFs are American-style. And so, what that means is that those option contracts could potentially be assigned before expiration or you could choose to exercise your contract if you're a long option buyer before expiration. The European-style option contracts which are more of the index style contracts, only assignment can happen or exercise can happen at expiration. That's the difference. Again, most of the option contracts that you'd be trading on a regular basis are American-style which means that they could be assigned before expiration.

Now, the next question is "Why would somebody do it?" It's really important that we understand that even there is a possibility that option contracts can be assigned before expiration, the likelihood of that happening is very, very small. Statistically, most option contracts are closed out of well before expiration and the ones that do get to the week of expiration, then it's the last couple of days until the last day of expiration in which those contracts are more likely to be assigned or not. It's really a very small percentage of contracts that ever get assigned. Now, the reason that somebody would ever assign a contract (and this is important to know if you are at risk) would only ever be for an option buyer in exchange for getting something else. People, I don't think would ever rationally… So, this is not to say they wouldn't do it irrationally here or there. But rationally, nobody is going to assign their long option contract to you as the short option seller unless they're getting something in return for that. Now, one of the ways that they can do that is through dividends. If there's a dividend coming up, they may want to go through that process and collect the dividend. But we talk about all the time in a video update on dividend risk assignment that it has to be in a way that that dividend then covers them to then repurchase a put option and basically get back into the same risk-adjusted position they were in before. Again, there's a lot that moves around here with dividend assignment and option contract assignment, but you have to think. What are they getting in exchange for actually assigning the contracts?

The big component that I think about besides even just that little example of dividend assignment, the big component for me is when somebody assigns a contract as a long option buyer and they assign it to an option seller, they are giving up the extrinsic value of those contracts. All option contracts have intrinsic value, the value if they were to be assigned and converted to stock right now and then extrinsic value which is the time and volatility value. Now, as soon as you go through the assignment process, you give up that extrinsic value. That's why most of the assignment happens closer to expiration because there's no or very little extrinsic value left in the contracts. That's why I tell people – Even though your contract is deep in the money or could be deep in the money early in the cycle, that does not necessarily mean it's going to be assigned right away and in fact, it probably won't be assigned right away because there's still a lot of extrinsic value in that contract. There's still value in the sense that there's a month or two months to go until expiration and volatility is still priced into the contract. Hopefully this helps out, again, just to kind of calm your fears if you are fearful of being assigned. Could it happen? Of course, it could always happen. Does it happen that often? Very rarely and again, one thing you want to look at is potentially what's left in the contract as far as extrinsic value. Most brokers have the ability to show this on the option pricing chain. You can see the differential between intrinsic and extrinsic value. If there's very little or no extrinsic value, probably are at a higher risk of assignment earlier in the cycle. As always, hopefully this helps out. If you guys have any questions, let me know. 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 Netflix's earnings expectations and why they were grossly optimistic. This I think is just more of a little bit of a case study in I guess understanding the market around earnings events. I have a little bit more experience than maybe some other guys in this industry on this because I used to be an analyst. I had a responsibility to cover REITs and all of these different REIT sectors, multi-family and industrial and corporate office, all of it. I have experience in going through these earnings cycles after knowing a little bit more about the company than maybe the average Joe. I had the ability to sit down and talk with the CEO and the CFO and we had models that predicted where the company was going to go. What I continue to tell people all the time is that even though we might have sat down with the CEO and we knew exactly what the company was valued at, they were pretty clear on their expectations of how much they would earn for the quarter, the one thing we never knew was we never knew what the understanding of the market's expectation of the company would be heading into earnings and then backing out from that, we never knew what the reaction would be from the market when you announced earnings.

There'd be a lot of times where a company would announce earnings and for all intensive purposes, great quarter, wonderful growth, hit all their targets and the stock is dramatically down and it's because people have these huge expectations of where the company is going to go and what I find more often is that those expectations are now trickling down into Wall Street analyst estimates. What's fascinating about this Netflix little case study here (just for a second) is that you have again, so much money and let's say power behind people trying to understand where Netflix is going, what the company is valued at, its growth rate and they still get it completely wrong. I mean, it's truly just a shot in the dark not only because the information is spotty in some cases or growth is hard to predict which is natural, (we can't always effectively predict the growth of a company) but because in this day and age, people's expectations just continue to rise and rise and rise and they just are not always met. It's just never an occurrence where the expectation that Netflix will grow at 100% every single quarter. It's just not a reality. I don't know why people think that that is a reality.

We saw this with Netflix just recently and this is back in July where the company was down. I think at one point, the shares were down like 14% during the day or something. I mean, it was a huge drop after earnings. But what's interesting about this is if you dig into like the report on earnings, they had added during that quarter, 674,000 new subscribers. Now, the estimate from all of the Wall Street analysts on average… Some probably got close to that estimate, some were obviously way above, but the average of everybody out there that is covering Netflix was 1.23 million subscribers, so effectively, they missed by half. The average mass of Wall Street intelligence, of all these guys that work at banks and they have all the money and power behind them to do whatever they need to do to understand Netflix and build models and figure out where it's going, on average, they were wrong by half as much. They expected 1.2 million subscribers. They actually got 674,000. Now, that doesn't tell you the discrepancy in just like market dynamic between the company and people who are trying to cover the company and have a really close relationship with everything the company does. If that doesn't prove to you that if those guys can't get it right on a consistent basis, then why do we ever think that we have a chance to do it as a retail trader?

Now, the point of saying this is not to say that that gives us some sort of disadvantage in the market. I think it's the opposite. I think just accepting and realizing that we have no real edge in trying to predict where a company is going to go during earnings or after earnings is extremely liberating. It's this thing that hopefully should free you to then make more neutral trades, to understand that the probabilities can work out in your favor, that you don't have to predict where something is going to go. I think a lot of people get their personal… I guess, their identity is drawn from the ability to predict where Netflix is going to go or where Apple is going to go or where Facebook or any of these other companies are going to go. Stop doing it. Just leave it alone. We have no idea where these companies are going to go. And even if Netflix hit its subscribe estimate, it still may have been trading down on the day because people are expecting it to always beat the estimate.

This happened with Apple like five or six years ago where Apple literally crushed all Wall Street analyst expectations. I mean, revenue, growth, everything. It crushed all Wall Street analyst expectations and yet, the stock was down on the day. I remember talking about this on a podcast going, "This is a classic example of – It's not just about beating estimates or not beating estimates. It's about the market's reaction to that. In the case of Apple, people still expected Apple to crush all estimates, but they didn't do it by a wide enough margin, so the stock was down. The point here today is look, we don't know where these companies are going to go, so stop trying to guess and that's okay. We don't need to know where they're going to go. In fact, it's probably better to in this case, act a little bit ignorant to where companies are going to go and always make neutral trades, keep position small, assume that a big move is going to happen here and there and let the probabilities work out. 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, were going to be piggy-backing on the show that we had yesterday, talking about the lowest cost ETFs and today, we're going to be talking about why more than 70% of mutual fund managers don't invest their own money in the fund. This is crazy to me. But I started going on down this rabbit hole yesterday because I really in some respects, have very strong distrust and dislike of the mutual fund industry now. I think it's been slow to kind of adapt to the modern world of finance and I think in many respects, it's doing people a disservice because they have their money in there and they haven't really had a need to change. But I think because of outflows in mutual funds, we're going to see that change in the future and that's a good thing for investors.

But I was going down this rabbit hole and I was wondering to myself – I wonder how many mutual fund managers actually invest their own money in the fund? I mean, that would seem logical. If they're touting the fund and they're heading the fund, they must have their own money invested in it. But there was a research report that was actually done by Russ Kinnel at Morningstar FundInvestor and I think the answer to this is going to be surprising in that when he looked across-the-board at mutual funds, what he found is that nearly 72% of mutual fund managers don't have any money invested in the fund itself that they manage. And even further, if there is a mutual fund money manager that has money invested, more than 85% of them have less than $100,000 invested. Really just a small fraction of potentially their worth or what they are getting paid is actually invested in the fund.

Why on earth this would happen and why more people don't know about this absolutely floors me. The good news maybe for you guys (I don't know, good or bad news, however you look at it) is that in many respects, what I've done at Option Alpha and have continued to do for 10 years is I eat my own blank, good, bad or indifferent. If I'm trading and I say that I'm going to be trading something, I actually trade it. It's my own account and I post all of this stuff publicly to YouTube after 20 days, 30 days to when we post it and send it out to our members. There's an entire catalog and history of everything that I've done publicly available. I eat my own stuff. If I say that I'm going to trade an option strategy, a covered call or a short strangle or a credit spread, I'm going to do it. I find it highly fascinating and crazy that more people don't know about this and yet, people pour money into the mutual fund industry.

Whatever food for thought this is today just to get you going and just to help you out and kind of shed some light on this I think is really what the purpose of today's daily call. If you do have people that are invested in this or if you want to share this online just to kind of spread the word about this because I think it's important, I think it would help a lot of investors out, please do so. That would really help us out and get a lot of this information out to the public. As always, hopefully this helps. 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 are going to be telling you guys' how you can own the best ETF portfolio for just 0.05% and that's an annualized expense fee. This is a really interesting development that we've started to see in the ETF space over the last say three to five years and that is this massive compression in the fees that these ETFs charge or these fees that a lot of equity funds end up charging. And what's really cool about this is that this not only is a product of just the capitalist markets and companies competing against each other, but it also helps out the individual investor like me and you because if we can have a choice to invest in a broad basket of ETFs, say a global basket on most of the ETFs and we can do it for basically $.5 on the dollar, then that is extremely attractive for… or like $.5 on the dollar really, then we can do that. That's extremely attractive for investors long-term. Remember, most of what really eats up investors especially in the mutual fund space which I don't even know how people are still invested in the mutual fund space is fees and taxes. And so, if you can accomplish getting most of that off the table which is fees, then that gets you halfway there and then taxes, in many cases are unavoidable unless you just hold forever like Warren Buffett, but that's one part of the equation.

Today, I want to go over what is currently the world's lowest cost portfolio, so global portfolio and basket of ETFs. Now, you can find some of this information if you just search the world's lowest cost portfolio. You can also follow Matt Hogan on Facebook. He's a pretty big influential guy in the ETF space and I think is worth following along and kind of seeing what he does because he always posts really great articles and stories about how the ETF market is compressing in fees. But right now, there's basically a basket of securities that you can buy in the ETF space which we'll go over here that if you combine all of the fees for these, you basically get a 0.05% expense ratio. The first one is the US equity basket, the iShares core S&P total US market ETF, ticker symbol ITOT. The next one is the develop markets ETF. This is the Spiders S&P world ex-US ETF, ticker symbol GWL. The next one is emerging markets equity and so, that's also the Spider portfolio emerging markets ETF, ticker symbol SPEM. Then you have fixed income, so an aggregate bond fund. This is the Schwab US aggregate bond, ticker symbol SCHZ. You have a mix of REITs in there, Schwab US REIT ETF, ticker symbol SCHH. And then finally, you have a little bit of commodities that you can roll in there and that's the Graniteshares Bloomberg commodity broad strategy no K-1 ETF, ticker symbols COMB.

Now, many of these ticker symbols which I think was fascinating when I saw this, you don't actually know or recognize. Like if I told you a lot of these ticker symbols, nobody would recognize them. If I told somebody the ticker symbol for Tesla, everybody recognizes them. But is that the best investment for us long-term, right? If we're trying to build and let's say we have to build a portfolio of ETFs, then this might be a good starting basis because it has lowest total cost and the broadest exposure in just literally a couple of symbols. And so, I think it's really good for people who decide that they either for some reason can't or don't want to trade options or use option strategies around these, they can absolutely invest in this basket and get the lowest cost possible. 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. Today, we're going to be answering the question on the daily call here. "What happens when options expire out of the money?" This is actually a really simple one to answer. When options expire out of the money, nothing happens. No premium gets exchanged because the options basically are worthless and you don't have to deal with any stock. It's actually a very simple process because they just cease to exist. It's very much like if you were to buy insurance on your car in case you get into a car accident. If at the end of the year, you don't get into a car accident, then nothing happens. The policy expires. You don't get any money back as the option buyer. The insurance company as the option seller collects and keeps the entire premium and you just have to renew your policy and basically start over and start a new one. It's very much the same process with options. When the options expire out of the money, the option buyer gets nothing, the option seller keeps everything at that point and then no stock is traded hands or exchanges in the open market. There's nothing to do. It's not worth anything. It just ceases to exist and you have to reestablish a new position maybe in the next contract month.

A very simple answer here. Hopefully this helps out. I know this was a short one today, but if you have any other questions that you want to get added to the daily calls that we do here or on our live stream that we do on Facebook every week, please head on over to optionalpha.com/ask and click the big red button in the middle of the screen and leave me a voicemail. That's the easiest way to do it and it gets your content here, so that we can get your questions answered. As always, hopefully this helps out and if you guys have any questions, let me know. 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 I think volume flow in options is overly subjective. I was on a radio show, an internet radio show just a couple of weeks ago. You may even be able to find it online or search it on YouTube. But I was on a panel, if you will with some other people and we were just talking about stocks that people had questions about and the markets and where things were going and I think it was interesting and I enjoyed being there because I found that a lot of these guys have so, so subjective views of the markets. And I don't know any of these guys personally as traders, so I have no idea if they're actually good or not or if they're just blowing smoke, but in many respects, the entire hour segment of this radio show with all of these different interview guest was mostly me sitting on camera in my little Google Hangout corner of the video, mostly me sitting on camera just sitting back in my chair, just rolling my eyes in my head and thinking to myself, "I cannot believe." And I will never go back on that radio show. But I cannot believe this is the kind of stuff that people are getting out there because it was all of this stuff so highly subjective on charting and volume and order flow. I mean, it's just crazy.

But two of the things that actually came out of that I think were interesting. It's that during the show, one of the guys was talking about options order flow on Snapchat and Twitter and he said there's some announcement that he was watching a news feed because that's what he does, that's part of his strategy to see what the chatter is and apparently, there were some newsfeed that Snapshot was going to either buy Twitter or Twitter is going to buy Snapchat, something like that. And so, he said during the show, he goes, "The order flow right now is crazy for the call options. People are really, really thinking this is going to take off, so I'm buying a bunch of call options right now." And I literally rolled my eyes on the camera and I was not in talking mode and I'm not talking to him. The camera was recording me nonstop. And I remember somebody adding in the comments like it's funny that we rolled our eyes at the same time, at this exact moment because what this guy didn't know about order flow in this case was that during that time that there was a lot of order flow for Snapchat and Twitter and the stock was rising just a little bit like intraday, was that a lot of that order flow seem to be closing positions, so seem to be potentially people closing out positions which may have suggested that they actually didn't think that Snapchat and Twitter was going to go higher. And so, you can only see that if you go back and look at the open interest and how that change kind of retroactively. And so, as a result, actually, Snapchat and Twitter both ended the day extremely lower and started to move lower, so whatever the news was. I guess it wasn't right or there was a knee-jerk reaction in the market.

But in either case, the idea here is that – Look. I mean, a lot of this stuff is highly subjective when you start getting into charting patterns and candlestick movements, stuff like that. I'm not saying it doesn't work. I'm not saying there are people who aren't good at it. I think there probably could be. There's one in every bunch. But it's really hard to do that on a consistent basis. And the same thing with option order flow, is how do you know if the options order of volume flow. Is people establishing new positions or exiting existing positions? You don't know that unless you look at the other side of the equation which is open interest. Where is that really going? And even if people are establishing new positions which means they're highly speculative anyway, you don't know if those new positions are hedges or speculation positions or even if those people are right. Recently, Facebook went through a huge decline in a stock, a 20% move in one single day heading into that earnings event. People were buying call options and open interest was rising and generally, people were either speculating or hedging that Facebook could've moved higher. But at an almost 2:1 ratio than put options on the weekly contracts, so a lot of people were expecting Facebook to have a huge move higher and it did the complete opposite. Even if we think we know where things are going to go, it may not be the reality. We may be totally surprised. And so, that's the real downer with a lot of people who try to read the flow or read the option order volume and see were orders are coming in. We have no idea what the makeup of those orders is and what the outlook of those people who are placing the orders are. Don't try to read it. I don't try to read it at all. Just look for good open interest and volume just for liquidity and move on from there. You really don't need to do anything else. Hopefully this helps out and as always, let me know if you guys have any questions. Happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we are going to briefly describe the differences between a short put option and a long put option. This gets back to some of the options basics that I think are really important foundational elements that you have to understand if you want to start trading options or trading for a living.

Let's talk about a long put option actually first. Long options are some of the first option strategies that you learn because they're very easy for most people to understand conceptually. With a long put option, you are doing two things. One, you are paying money to enter the position and two, in exchange for paying money to enter the position at a particular strike price, you have complete upside potential in the sense that if the stock continues to move down, you could make a lot of money on that contract. Long put options profit from a quick and rapid decline in the underlying stock price or a rise in volatility. What would happen with a long put option is if a stock was trading at say $100, you might buy a 98 strike put option for $1. And so, your hope is that the stock goes down below at least your breakeven point which is around $97. The strike price of the option contract which is $98 plus the premium that you paid to get into it gets your breakeven down to around $97. You can see that it would actually make money as long as the stock were to go down as low as $97 or lower. Every $1 or $.50 that the stock goes below that level, then you start making money on your long put option. Long puts are really popular on the outside for risk hedging and for portfolio hedging, but the reality is that this type of insurance contract which is exactly what a long put option is, is actually very costly for your portfolio unless you have the ability to pinpoint exactly when the stock is going to start dropping. Very much like insurance on your house or your vehicle, it's really not in your best interest to have insurance unless you get into a car accident. It only serves its purpose when the markets crash or when the stock crashes, again, which you don't know when that's going to be or at what velocity that stock is going to go down.

Now, let's contrast this with a short put option. Using the same strike prices from our example, if we were to take the other side of this trade and be a short put seller, then what we would be doing is two things. We would be collecting a premium from the long put option buyer (in this case, $100 from our example) and in exchange for collecting this premium which is the maximum amount of money that we can make, we take all of the risk that's associated with the stock potentially going below that strike price. If we were to sell a 98 strike put option which is the same strike price as the put option buyer that we had in the example and we collected $1 in premium which is $100 in notional value for the option contract, that means that our breakeven price is also $97 on the stock price. As long as the stock stays above $97 and assuming it's trading around $100, we've got about a $3 cushion, so that anywhere above that $3 range or above $97, then we make that $100 premium that we collected from the long put option buyer. It's a very similar concept as insurance. When you are an insurance company and you sell an insurance policy to somebody and you ensure their vehicle or their house against catastrophic loss, well, if the house never burns down or if the vehicle never gets into an accident, the insurance company keeps that entire premium for the duration of the contract. It's very much the same, similar concept. As an option seller or a short put option seller, what you're doing is you are trading a lower potential payout for a much higher probability of success. And so, that is the key, we believe to how you can generate long-term, sustainable growth and income in your portfolio, is to do strategies like short selling puts which can seem scary on the outside, but statistically and market wise, from all of our back-testing research as well as many other outside companies and firms is one of the more profitable strategies you can employ.

Hopefully this helps out. Again, it's just a very basic overview of both of these strategies. We do have much more training inside of the Option Alpha platform. You can just search long puts or short puts. There's tons of training videos, other podcast, as well as some live trading videos that we've recorded of us actually executing some of these strategies inside the platform. 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 talking about selling covered calls for a living. Is this a myth or really possible? This is a question that we had from one of our members and just the idea around it was – Can you sell covered calls for a living? When I think about trading for a living, I think about the income that comes in from a trading strategy. Does a trading strategy or does an investment strategy generate enough income to actually live off of? To pay bills and to put food on the table, a roof over your head, etcetera? In the case of covered calls, I don't know if necessarily that they would generate a living for you because all you're doing is buying long stock and then selling a covered call to reduce the cost basis on them. Now, do I think that it's a great strategy for long-term buy-and-hold investors? Absolutely because we've even seen in our own research, as well as outside research from CBOE and other options regulatory houses like OIC, OCC that selling covered calls even on the S&P500 index outperforms the market.

This whole notion that you can't use options to outperform the market is completely bogus. You can and just a very simple covered call strategy can be the first step in accomplishing that. Can you use covered calls for a living? I guess it depends on how much capital you have and how many shares of stock you own. Selling covered calls if you have hundreds of thousands of shares in an underlying security can absolutely generate some income and again, still reduce some of the cost basis in the position, but ultimately, the stock still has to continue to slowly float higher. I think it's a little bit of both. I think it could be a myth, but I think it could be possible to generate some pretty good income from selling covered calls. It's just wondering if you would actually live off that income or if it's just really for portfolio enhancement. 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 make money selling options?" I think this is one of the biggest questions that many new investors ask. In particular, many new options traders ask how exactly do we make money on a consistent basis, generating income for our portfolio by selling options. There's a couple of bullet points I want to go through here that I think touch on a lot of the big rocks that we talk about in our strategy, so the really important things that you have to master. In many regards, if you master these couple of big rocks, these really important key concepts, everything else should generally fall into place or it should be a lot easier to generate money selling options. Now, as we go through these, I want you to continue to remember or reference the concept of both the casino business as a casino owner and the insurance company business as again, an insurance company owner because the options trading market on the option selling side is very much like those two business structures. There's a lot of overlap and a lot of similarity and it's no wonder why in many respects, Warren Buffett is one of the biggest option sellers and single individual biggest options traders in the market because he does option selling strategies which many people don't know and he publicly discloses all of this in his quarterly and annual reports for Berkshire Hathaway. Now, that also means he does this because he's also in the insurance business. He sees the value in this type of framework, in this type of philosophy not only in the equity markets because he's selling option premium outright, but also in the insurance business because he's selling insurance which is very much the same thing.

The way that we make money selling options is purely by getting paid the volatility premium. If I could narrow it down to one thing, the thing that makes money, the edge that we have in option selling is the volatility premium, this concept that when options are priced on a forward-looking basis or a future value basis, they are priced assuming that the stock makes huge moves, but the reality is that the stock on a consistent basis will not meet up to those expectations or outperform those expectations. To put this in hopefully better terms, if the market participants are expecting that the stock is going to move 10% over the next month, we may actually see that the stock only moves 8% and it's the same concept that insurance companies use with actuaries and with probabilities and death rates, etcetera. They basically assume that people are going to get into a car accident or their house is going to burn down many more times than it actually might happen in reality. And so, they base all of their insurance premiums, all of the money that we pay as individuals to insurance companies to ensure our stuff, they base that off of higher expected default or higher expected fire or crash rates or ratios than what might actually happen in reality and that difference, that premium is where they make their money. As option sellers, we are selling options and taking in this lower payout that most people don't want to take in, but in exchange for doing that, these smaller premiums on a consistent basis, we have a much higher probability of success. It's again, very similar to a casino or to an insurance company. Casinos will take in small… Basically, I call them donations. But they take in small bets and every so often, they might have to pay out a jackpot, but it never overshadows the small bets that they take in on a consistent basis. With insurance companies, they take in small amounts of premium. Maybe you pay $200, $300 a year for your car to protect it against the crash and every so often, people do get in a car accident unfortunately and the insurance company has to pay back the value of that car, so $30,000, $40,000, but it never overshadows the small premiums that they collect across-the-board.

If we use this analogy then and kind of continue moving forward, then the next logical step is that in order for this option selling system to work, to make money selling options, we have to stay overall neutral in our portfolio. We have to not be directional traders in the US equity markets. Now, it's easy for insurance companies and for casinos to be neutral because every game is an individual occurrence and outcome. In the equity markets, we have trending markets and we have sectors and industries that we have to hedge against. And so, one of the ways that we do this is by selling options on both sides of the market, so selling put spreads and puts and selling calls and call spreads and this keeps our overall portfolio neutral to any expected move. I think this is one of the coolest things that we can do as options traders that is totally unique in our business in that we have the ability to very quickly on literally an hour or a daily basis, reestablish new positions based on new information. There's no other business on the planet where you can actually change the entire business model or a potential payout as quickly as you can in the options industry. If you're running a restaurant, you can't just close the restaurant and move it across the street if you get new information that across the street, it has better traffic for that restaurant and it's really hard to do. But in the options market, if the market starts moving down, well, we can move all of our positions down to compensate for that accordingly. Staying neutral is one of the key concepts to making money selling options.

The next one that we have to talk about is keeping position sizes small. If we think about again, insurance companies and casinos, they don't just gamble with one person. They don't just ensure one person's house. Insurance companies and casinos know the value of small, manageable risk positions. That's why they try to ensure hundreds of thousands of people. That's why casinos try to get hundreds of thousands of people into the casino to play. It's not just one table at the casino. If it was more profitable for the casino just to have one table in the casino, then that's what they would do, but it's not. They have to keep lots and lots of small positions going at all times, so that no one single person or one single position could ever knock them out. And this is a key concept that many traders don't understand. They try to over-allocate with their position size. But when you do this, you run the risk of one single bad trade or a single sequence of trades knocking you completely out of the market. We have to keep our position sizes extremely small and then the next step from there is we have to play the expected values. If we understand that we got to stay neutral, we understand that we have to sell premium, then we have to (the next logical step) play the expected value game which means that we have to do this on a reoccurring basis, so that we increase the number of frequency of trades or occurrences of trades or high number of trades in order to hit some sort of expected payout. Again, if you think about an insurance company or a casino, none of their business models work if they only ensure people and they ensure a lot of people, but they only do it for one year. The model may not work in a single given month or year or quarter because they may have at any one period of time, a sequence of returns that is not what it should be. It's like flipping a coin. If we expect to flip a coin and hit 50-50 heads and tails, we may run into a sequence of 10 heads in a row when we flip that coin. Now, that's not the expected outcome, but we may run into that string. When you're trading options, you may run into a string of losers, you may run into a string of winners, but it's only where the income and the portfolio really solidifies itself, is when you start trading and reaching higher trade counts overall because then, the expected value starts to gravitate more towards its true probability and that's where you get a lot of stability in your account, you get a lot of stability in your income and it actually makes this entire thing so much easy.

Hopefully this helps out. I've tried to condense it down into what I think are kind of the top things. I'd love to hear what you guys think. If this is helpful, please let us know. Share us online, like us, thumbs-up. Do whatever you need to do to let us know that this was really helpful and as always, if you have any questions, let me know. 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 time of day do options expire?" This is an important question because as you're getting closer to options expiration, even trading options during the last day of expiration, it's really important to know what time of day they expire. Now, there is a difference between the time of day that they expire and the time of day that you can exercise or assign the contract and the time of day that they stop trading. There's a lot of different days and times that are kind of rolled up into one. The first thing you have to understand is that for most option contracts, they actually stop trading at 4:00 o'clock Eastern Standard Time. And so, that's when you can place your last potential possible trades in the market to close your position or remove the position from your account or get rid of the option position completely. That's the last kind of trading time during the day. But when you actually look at when the options expire, in many cases, they actually expire later in the evening that time afterhours trading. If the stock that you're trading ends the day at $5 per share at 4:00 o'clock, but it actually starts trading up to $6 a share in afterhours trading, in like the hour, hour and a half after that, then you could actually be subjective to that option contract going in the money or not, depending on how you're set up because of that afterhours trading. You have to keep that into account. You got to keep in mind that where the option stops trading at the end of the day is not necessarily where it will expire at the end of the day because it has to include afterhours trading if they do.

The other thing that you have to remember is that different exchanges like the NASDAQ and CBOE, the Chicago Board of Options Exchange have different times in which you have to send in your notices for expiring options to convert them or exercise them. In the case of the NASDAQ, they publicly say about 5:30. The CBOE I think right now says about 3:00 o'clock on the last trading day, third Friday of the month. Again, you just got to double check and see maybe potentially where those contracts are or if anything, just basically if you want to exercise your contract or assign it, you would want to do it literally the last day of expiration early in the morning and at that point, you probably made your decision, whether you want to keep the contract or keep the stock or not. The rule of thumb here is – Don't give yourself the last minute of the trading day to make a decision. Make those decisions during the week of expiration. At that point, most of the option contract, extrinsic value, time value and volatility value is out. You're basically just dealing with intrinsic value or the value if it was assigned or exercised. Make those decisions on whether to close or move the positions early in the expiration week. Don't run it all the way up till the end and then you have to deal with all these different time parameters. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.