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 Buffettology is missing one key investing concept. Buffettology is just framework around how Warren Buffett invests and there's actually a couple of good books on this that are out there. You can just search Buffettology and pick one up at Amazon or wherever you buy your books. But I think that the books and just this whole framework around investing is really interesting and a lot of good stuff that comes out of it naturally and Warren Buffett is probably one of the best investors of all time, if not, arguably the best investor or all time and I think he got a lot of things going for him. Obviously, he started at the right time. He was big on compounding. He was big on intrinsic value. A lot of that stuff worked in Buffett's favor. One of the things that we talk about at nausea here is why Warren Buffett is actually a big time option seller. Now, he does this not only through actually selling options where he sells out of the money options on the indexes, but he also does this through his insurance companies. And one of the key lessons in there and then we'll talk about the one thing it's missing. But one of the key lessons in Buffettology is this idea of insurance float and why Warren Buffett holds basically the biggest single person conglomerate of insurance companies in the country and the reason he does that is because of insurance float because he knows he's taking in premium and then every so often, he might have to pay out a big sum, but it never overshadows the small premium that he takes in from selling insurance policies which is exactly the same business of selling options.

But what he doesn't include in there or what this book doesn't include is… I won't say it's Warren Buffett, necessarily. But what the book doesn't really include or talk about or any of these Buffettology, like summaries that I see online is the concept of frequency or the number of trades, this large number of law. Everything works really good if everything works out, right? If you invest in a company and it says you have to wait for five or 10 years before you see returns, that's all good if it actually works out. But in many cases, the reality of people who are investing at their kitchen table, meaning they're talking with their significant other, husbands, wives and deciding where to put their only $10,000 or $15,000, that doesn't work out so well because you not only have to hold for five or 10 years to see if you're right and you waste all that time, but what if immediately, we have this Netflix effect and the company that you thought was safe that had a "moat" around it, that had predictable returns now has completely turned around? And we're seeing this more and more with disruptive technology and disruptive companies. The company that you think today is totally safe, totally secure could be completely gone in five or six years. And so, that type of black swan event, that risk is really not accounted for it and I think it's a big, big misconception. And so, what I think the book is missing is this idea of frequency or the law of large numbers that all of this stuff works really, really well, but you have to do it on a consistent basis. You can't just invest all of your money. I'm not saying they suggest doing that, but you can't just invest all of your money on something that has a positive potential expected return, but that still has really negative downside when you're only doing five or six companies over the course of the next five or 10 years or even 20 companies over the course of five or 10 years. It's not a big enough sample size for these expected returns to actually play out.

Why I love options trading more so than long-term buy-and-hold investing on a wild scale (I love it way more than long-term buy-and-hold investing) is because with options, you have the ability to quickly and accurately get to that expected payout in the next two or three years. You're going to need to make a lot of trades to get to that expected payout, but it doesn't take five or 10 years to see if your mentality held true. And the reality is again, is that most people are investing at the kitchen table. If you're going to wait five or 10 years before something works out, are you really going to wait that long? I mean, what if the company has seven really bad years? Do you think you're still going to hold it? Do you think you're going to be determined enough and confident enough to keep holding after it's had a huge drawdown and it's not really going anywhere? No. Most people are going to dump the stock. Like the actual mentality or psychology of investors is they're going to dump it and try to chase higher returns someplace else. The beauty of options is that it focuses our attention on really like the next 30 to 60 days every single time. And so, we have the ability to quickly recycle our capital and increase our frequency of trading which gets us to that expected payout much faster. And so, I think that's why that's a key concept that this book is definitely missing. But great read overall, good general investing concepts. But again, keep some of these things in the back of your mind because what may work for somebody who's got a lot of money and companies that have a long maturity to hold may not work necessarily for somebody who's really trying to maybe live off of that income or get some consistent income and not willing to hold or not able to hold for 10 or 15 years before they see if it works out. Hopefully this helps out. If you guys have any other thoughts or comments on this or any other recommended books, as always, send them over to me, kirk@optionalpha or just Tweet at us @optionalpha, Facebook, same thing, Instagram, the whole deal. 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 talking about liquidity considerations for closing option trades. Again, another question that was sent in from one of our members and he basically said, "If I decide to close out a position and there's no liquidity, does that mean that I'm stuck with the options or does it simply mean that I can sell back or buy back for a lesser or worse price?" This is a great question because what we talk about often with options trading is that liquidity should be one of the things that you look at on a consistent basis, that you can use our watch list and toolbox software, in which case, we screen and kind of filter out tickers for liquidity already for you. We try to close that gap and remove that barrier immediately. But if you are going to trade say a random stock or a random ETF, you should be looking at the liquidity. We've done shows on this that you can search in the podcast app or on our website about liquidity requirements. But liquidity is so important not only just because you should be trying to trade something that's liquid where the pricing seems to fit and there's a lot of action in it, but because it allows you the flexibility to get in and out of the contracts very quickly. When you have no liquidity and in this case, this guy was asking when there's no liquidity. No liquidity could be just under maybe 100 contracts of open interest, maybe one or two contracts a day. It does leave you with two choices. The first choice of course is you can stick with the contract and go through the expiration cycle. Now, that of course is up to you, it's up to your account, but it also means you're going to incur a lot of higher commissions because closing out an option contract might cost you $.75 in commissions, going through the exercise process might be $12, $15, $20 as some brokers charge a lot of money to go through the exercise and assignment process.

If you do get stuck with the option contracts which you can do, you can go through that process, but in many cases, you don't want to do that and so then, your second choice is, "Well, how do I close?" Well, if there's no liquidity there, then what you have to do is you have to reduce or increase your price to entice someone to take on enough risk that compensates them for the lack of liquidity. It's very much like real estate. I think real estate is a great analogy for this because if you're trying to buy a piece of land in the middle of nowhere that nobody really wants, that no utilities are connected to, it's probably not that expensive because a land has to be cheap enough to entice somebody to want to come there for whatever reason and to overcome enough risk to be out that far from civilization, to potentially have no electricity, no water, no conveniences around, no Targets or anything around you. And so, the price has to be low enough to entice people to come there. And so, that lack of liquidity means that something has to give and usually, it's price. In the case of option contracts, when you're trying to buy back a contract if you're short before, you might have to buy back that contract for a much, much higher price which reduces the potential profit that you have if you have a profit and that slippage can really, really hurt over time because you don't know what that threshold is. Maybe you have to buy it back for $50 higher than what it says it could be traded for right now and that slippage could be really, really damaging. I think that you have to really look at liquidity as a big means for deciding whether to get into contracts or not.

What I found over just the last say four or five years is that as we start to scale up and our portfolio size starts to grow, I'm really concerned more so now than I was before about liquidity and I'm even forward-looking and saying, "Okay. If my portfolio was three or five times higher than it is right now, how does this change what I would be trading right now? Should I be trading the same products that have the scalability on the liquidity side to handle many, many more contracts?" And if you're looking at something and there's not enough liquidity, it's not worth it. It's just really not because as much as that trade maybe looks like an amazing setup, an amazing trading opportunity, the liquidity really reduces that profit gap and could actually lead you to making a losing trade when you should have made a winning trade. 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 be trying to answer the question, "Should we stop estimating earnings for stocks?" Really, where this came out of is – Recently, we've gone through another earnings season here in the US markets and a lot of companies have had huge gyrations or volatility swings in their stock. In particular, we've seen companies like Netflix and Facebook that got absolutely crushed after their earnings and it was all based on expectations and growth. But Facebook alone was down more than 20% the day after it announced earnings. Now, just to again, put it into a little bit of context, they literally went through a bear market decline in one single day. Investors in Facebook lost 20% of their equity and they one minute full swoop between the time that the market opens and started trading and it's huge, huge gyrations. And so, the question that some users had brought up to me was, "Should we stop doing all this estimating of earnings?" Because if Wall Street is terrible at estimating earnings which it looks like they were in the case of Facebook, they grossly maybe overestimated where Facebook was going to be or the growth rates that they expected Facebook to be at, does this really help investors? Does this help investors because it then turns into all of these huge gyrations where stocks are up 10% or down 20% and is that good for investors? I think the answer to this is no. We should not stop estimating earnings. The idea that companies that are public have a public display of information and we tried to present as much information as we can to the markets I think is a good thing. I think hiding information is stopping the allowance of analyst and investment companies to predict and talk with management and try to get a sense of where the company is going I think ultimately is a bad thing for free capital markets like this. I think it crates this illusion, so that when actually events transpire and then they get publicly flushed out, it could be much worse for companies. Imagine that we stopped estimating earnings, we didn't really know what a company was going to do, there was no guidance from management at all, then if we had a big surprise, who's to say that the stock wouldn't collapse 40% or 50% on some of this information versus maybe 10% or 20%? I think ultimately, though it hurts for most investors to go through these gyrations, I think the allowance of free information and as much of free flow of information as possible in the markets is actually a good thing.

The thing that most people should take away from this and I consistently preach about is that we have no idea where companies are going to go after earnings. I love seeing, truly love… I get like a weird thrill out of seeing people on Facebook and all of these investment groups that I kind of like follow and watch online about people who are always bullish on something or always bearish on something and they're just buying these ridiculous options far out of the money and sometimes they hit, no doubt. Sometimes they hit, but it's the exception to the rule, not the rule itself. But they do this with the understanding or estimation that Facebook is always going to continue to make money. And I saw this just recently with Facebook after it went through a 20% decline. The number of people who are buying call options that were out of the money in Facebook was staggering. I think it was almost a 2:1 ratio of people who are buying call options to put options which means that the whole entire herd mentality was absolutely dead wrong. And I talk about this a lot because I used to be an analyst. I used to cover companies. I would sit with the CEO and the CFO and I ask them questions about, "Where do you think the company is going? What's the growth? And where is the stock going to be in the future?" And one of the coolest things about that was that when you sat with the people who are really good at what they did, I'm talking the CEOs that had been there for 15, 20 years, their realization was that even though they knew the company might be worth X dollars per share, say $20 per share, what nobody knew and what every good CEO would tell you is that they still don't know how the market perceives the value of the company. See, a company can be worth $20 because of cash flow and everything else and just even raw book value, but the perception of the company is what ultimately drives the stock price. Where do people perceive the company? Do they see that the company is growing at a good rate or not? This has happened to Apple a number of times before in the past. I mean, I'm talking like five, six years ago when Apple was really kind of growing at a great clip and people had such high expectations and I think one quarter, Apple grew at like 35% which blew out expectations, blew out Wall Street analysts assumptions, but yet, the stock was still down and people kept asking, "Well, why is the stock down? It beat estimates. It beat expectations." And the simple answer is because it still wasn't enough to satisfy the hungry market, the hungry herd.

That's the key for me today, is absolutely another refresher and reminder that with all of these earnings stocks and all these earnings events, we have no idea where the company is going to go. The company could announce bad earnings, but have great guidance and vice versa and that has a huge impact on the market. Stop trying to guess. Stop trying to predict where the stock is going to go. Make small trades, high probability setups. Force these companies on a consistent basis to outperform their expectations which we know they won't do. We have the data that shows that. They won't do it on a consistent basis. And so, you just have to play the long game here. 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 talking about why you're running out of time because the next opportunity is so close. This is one that I think took a little while for me to really understand what this means, but I actually had somebody, a coach of some sort or like a mentor of some sort tell me this a while back and they said, "You never know really when that next opportunity is and when that next opportunity might come." And so, you just have to keep pushing forward and keep pushing forward because it literally could be around the next bend. It could be the next door that you open up. And it's tough because sometimes, like even in let's say like business or in relationships or even in finances with trading, you just feel like you're just pounding the wall and nothing's happening, but it's just that that next hit, that next opportunity to knock down the wall or break through is one more step away and you never know how close you are. And I think most people are so close to doing what they want to do, they just need to push a little more and I think that difference, maybe even that 1% difference in effort or in sticking with it or consistency could make massive improvements in their life, in their finances, relationships, everything.

I do think that you're running out of time. I think many people push things off and they say, "Oh, I'll get to it later." But you don't have that much time especially in the world of investing. The sooner you start, the better compounding returns can work in your favor. We all know this. We've heard the stories. We know the charts of – If you invest early and then never do anything, compounding just takes over. That's what I'm talking about. We have to recognize right now that this is our best opportunity to start investing, to start changing our mindset around trading because one more big drop in the market could knock people out for decades, literally decades. And if you don't have the strategies in place that can help protect against that or hedge against that or trade neutral around that event, then you're going to be really kicking yourself in the butt later on because you're not going to have the stability that you wish you would've had.

And so, I think a lot of people are very well-off generally right now, so you may not be or you may be in that camp. This is a great opportunity to start trading and investing because the markets are not that volatile right now, but I expect that they will be more in the future. It's only a matter of time before we see another bear market. It's going to happen. We're going to have a black swan event. It will affect everybody. It will affect the entire global markets. It's just a matter of when. And so, you have to be prepared and you're literally running out of time. It could be tomorrow. I have no idea. It could be tomorrow, it could be two weeks, it could be two years from now, but it's going to happen. And so, the question is, "Are you prepared to trade through that event? Are you prepared to let your portfolio of stocks (if you only trade stocks) go down by 50%, 60% and try to hope to come back?" I just done think many people would. I think one more big drop like that… And many investors who went through the 2000 crisis, went through the 2008 crisis and potentially go through some sort of crisis in the future are going to give up and I don't want to see that happen to many people. Hopefully you take this as a little kick in the butt to again, just push a little bit further today, push a little bit more than you maybe would've before and 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 answering the question, "When is it worth it to pay a debit to roll an option spread?" This is actually a question that comes in from one of our members and he said, "As I'm preparing or following, training for expiration, I see small debits to roll larger positions like QQQ, IWM and SMH, so definitely not paying to roll even if a small debit. Is this acceptable? What do you think about rolling for a reasonable debit just to extend the trade?" I think just for clarification, sometimes when we roll positions, if we have an iron butterfly or an iron condor, we sometimes might have to roll one side of the position for a small debit, but in our case, that other side that we roll is always taking in a credit that is more than the debit we paid on the previous side. For example, if we have to roll an iron butterfly, we might roll out the put spread first and pay a debit of say $5, but when we roll out the call side, we would've taken in a credit of say $10, more than enough to cover the $5 on the put side.

My philosophy on this is that we should always be rolling for a credit. If we are not rolling for a credit, it's generally not worth rolling the position and the reason is because when we roll for a net credit… So, still a net credit like what we talked about on the example I just gave. If we're rolling for a net credit by extending our trading duration, if the trade still goes against us and nothing else works in our favor, at least what we've done is reduce risk if only by $5 or $10 or however small that credit is because doing nothing sometimes is the worst thing. If we can roll for a credit and extend our trading timeline, take in a bigger credit which reduces our risk, widens our breakeven points, then I think it's worth doing. The reason that rolling for a debit doesn't work is because when you roll for a debit, you are really taking on more risk. You're saying to the market, "Yes, I'm willing to pay money to stay in this losing position for another month." And if that position loses at the end of that following month, then I would've lost not only the original risk that I had in the trade, but also the additional debit that I paid to stay into it.

I really don't think it's worth rolling the position for a debit. Now, of course, people are going to get really technical with me and say, "Kirk, if we roll for a $1 debit, is it worth it?" Okay, maybe. Maybe it might be worth it and I'm talking very granular here and obviously, we can't paint broad strokes for everything. But if you roll for a $1 debit, but it's a $700 position, okay, you might be willing to accept that $1 debit. But the problem with doing that is that if you do it one time, then you start rolling for a $2 debit and a $3 and a $5 and a $10 and you start having trades that shouldn't really be the right type of strategy and mechanics and those trades come back around and you say, "Ha! See? I told Kirk that I should roll for a debit and that trade came back around." I'm sure those are going to happen, but I think that's the exception to the rule, not the rule itself. 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 answering another member question which is, "Will my GTC or good-till-canceled order fill if I'm away from my desk?" The simple answer to this is that it should fill if you're away from your desk. Now, filling trades is a function of a couple of different things. One is mainly the liquidity of the underlying contracts in which you're trading. Just because you have a GTC or a good-till-canceled order going on a stock doesn't necessarily mean that it's going to fill unless there's a liquid market for those options. For example, I always use the ticker symbol GOOD, G-O-O-D. They have options that are optionable securities or optionable contracts to trade, but there's actually very little to almost no liquidity in those contracts, so even if you had a good-till-canceled order, there's probably a good likelihood that it won't actually fill in the market because there's no liquidity. Now, if you have a GTC order on SPY, there's probably a better chance that that would fill because of the liquidity of SPY being one of the most liquid underlyings for options. So, if you are away from your desk and you're trading liquid options, there's a pretty good chance that that GTC order will fill.

Now, the other component to this is if you're trading a limit order or a stop order or a market order, basically. You can use a limit order which is what we typically suggest because then, you know exactly what you're going to get into or out of in the price and yes, it may take a little bit of extra time to get that trade filled even if it's a GTC order, but it will get filled at the exact limit price that you set. You set the price. You know exactly what you're going to get out of or what you're going to get into whenever you're doing that type of trade. You can also use a stop limit or a stop market order which basically means once the price reaches a certain point, it'll then set a limit order or you can use a stop market order which means once the price reaches a certain threshold, the next order that goes in is a market order. So, it basically is saying, "Hey, look. Once the price gets to this level, exit the position no matter what the next price is." Now, in these cases, you do sometimes have a little bit more slippage and the markets can run beyond your target price that maybe you're setting. Maybe if the markets are moving very fast or volatility is changing very quickly, then it'll move beyond your pricing. It's not a huge difference if you're trading liquid securities. You may see a dollar or two of slippage, but it does add up in the end. That's why we always suggest just using limit orders. Don't mess with any of the stop limits or stop market orders. It's just not really worth it. As long as you're trading small contracts, you can afford to have a little bit more patience with your fills. 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 a user question or a member question which is – "What happens to deep in the money option spreads at expiration?"

The question really comes out of this idea of – Well, if I have a spread and the spread is deep in the money… Let's say I've sold a call spread and the stock has rallied well beyond my call spread strikes, both the short strike and the long strike. If I let it go to expiration, what happens? And so, if you do let the spread go all the way to expiration and then go through the expiration process, you will be assigned on your short option contracts and the broker will assume automatic exercise of your long option contracts. Now, this should result in basically no stock to you at the end of the day because you are assigned stock on one end and you are let's say buying stock on the other end and so, that should equal each other out. As long as you have the same number of contracts, it should net out to no additional stock to you, but you will be out obviously the commissions that went with the assignment and expiration or exercise of those contracts.

It is always in your best interest, in our opinion to close out of your spreads even if they're deep in the money at expiration and buy back those spreads either at or maybe even a penny above their full value. And the reason that we sometimes would buy a spread back for a penny above its full value is because paying an extra dollar to close out of the position even if our max spread is $3, we might pay $3.01, is much cheaper than paying let's say a $15 or $20 assignment or exercise fee to the brokers to let it go through expiration. The dollar is much cheaper just to remove the position and exit the trade than to let it go through the expiration process. Hopefully this helps out. As always, if you guys have any questions like this, 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, I'm going to go on a little bit of a rant and tell you why I think this 9:00 to 5:00 collective social agreement is completely ridiculous. What am I talking about? I'm talking about this idea that everyone in the entire world, all the people in the world somehow should get their work done between 9:00 and 5:00 and that seems to be the collective social agreement that work starts at 9:00 and it ends at 5:00. And while I understand the need to separate church and state, meaning the need to separate work from family and life, there's no possible way that everybody in the entire world gets all of their work done in the exact same time block every day, week after week, year after year. It's not possible. I do not believe that this is going to be how many companies are run in the future and I think we're already starting to see that this transition is starting to pick up a lot of steam and the transition is really away from this 9:00 to 5:00 working schedule to just basically getting stuff done however long it takes to get done.

So, of all the people that work now at Option Alpha and we have 12 people who work at Option Alpha now, contractors, developers, people who help out with support now, back-testing team. We have 12 people on the staff right now, basically and of all the people that now work at Option Alpha, nobody is on a regimented 9:00 to 5:00 schedule. In fact, it's one of the things that I really talk about and preach as I'm getting people onboard and showing them the systems and tools that we use to kind of run Option Alpha and help you guys and I tell everyone, "Look. This is not a typical 9:00 to 5:00 job." And that could be good for some people or maybe who's not used to for other people, but all I really care about is making sure that what we need to get done in a given day gets done. If it gets done in three hours, great. If it gets done in five hours, great. If maybe one or two days, you need to work longer into the evening and take the afternoon off to recharge, great, that's fine.

It is not possible for us to totally focus immediately every single day on the most important work just between 9:00 and 5:00 and in fact, me, myself, like I wake up many days very early. As you guys know, my routine is to wake up very early, do all of my emails and all of my most important stuff early in the morning and then for the later part of the morning, I spend with my wife and kids. We go to the gym, we go to the pool or hang out and then I come back in the afternoon and kind of finish up tidying up things that I need to do in the afternoon. For me, that works out really well and I can't just say to all the people that we have here working on our team, "You have to do the same thing as me." or "You have to be here at 9:00 to 5:00." I really don't care. I think that in many respects, as long as work is getting done, if it can be done in 20 minutes or an hour and they can take the rest of the day off, fine, I'm good with that and I think that that mentality is a lot more attractive to people and leads to I think more productivity because what you end up finding is that the people who are most productive, most efficient and most eager to grow and learn and develop rise to the top naturally. It's kind of this self-selection process that you put everybody through.

I think it's just fascinating because where I live in Pennsylvania now with my wife, this area as a whole is really still stuck on this 9:00 to 5:00 I would guess like workers assembly line mode. In fact, many places here because of unions and contracts around working prohibit people from leaving the building one minute before 5:00 o'clock. I mean, they literally have to just sit there locked in a cage, in my opinion until 5:00 o'clock and then they are allowed to leave because God forbid, they would leave one minute before, they could get written up, they could have their contract canceled with the employer. I mean, it's really just a bad… It just feels like it's such a David and Goliath type of situation all the time and that's not what it should be. It should be everyone collectively working together, people choosing to be at that job or not be at that job and employers understanding that it doesn't require just 9:00 to 5:00 to get things done. Sometimes it may require less, sometimes it may require more, but ultimately, I think this whole social agreement on 9:00 to 5:00 is ridiculous and I think it's totally outdated. Feel free to send this to any of your employers or bosses if you want to and I would be happy to argue on your behalf as to why people are actually more productive if you don't give them strict boundaries. Hopefully this helps out. As always, 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 how to convert a bull put spread into an iron condor. Let's start with the first part of this trade which is entering into a bull put spread. The idea behind a bull put spread is that you're selling option contracts on the put side below where the stock is trading, hopefully seeing the stock either stay the same or potentially rally higher. Now, you could actually see the stock fall and still make a profit as long as it stays above your short strike price. If we have a stock that's trading at $100, we might sell a 95 strike put and buy a 94 strike put to create a 95/94 bull put spread. The idea is we hope that the stock continues to rally higher or stays the same around 100. It can fall. As long as it stays above 95, we'll still make money. Now, when you want to start converting these into an iron condor would be when the stock starts to move against you. One of the very easy techniques that you can use to adjust bull put spreads is to convert them into an iron condor and why this works so well is that it takes advantage of the stock moving in the direction of your spread to increase the overall credit while not taking in additional risk on the trade. It's a very easy technique that you can use to make an adjustment.

Let's say that the stock is again, trading at $100 and starts falling towards your 95 strike put option which is your short strike level. In this example, if the stock starts to fall, what you could do is then sell a 100 strike call and buy a 101 strike call, basically selling the opposing or corresponding call spread and that in turn would create an iron condor payoff diagram. Now, when you sell the opposing call spread, you want to maintain the same width of the strikes, so a $1 wide spread if you did a $1 wide spread on the put side. If you did a $5 wide spread on the put side, you'd want to sell a $5 wide call spread and you still want to sell the same number of contracts. If you sold three put spreads, you want to sell three call spreads. Now, when you mirror this trade with the opposing call spread side, it adds no additional risk to the trade and what this does is that it only adds additional credit from the selling of the call spread. That additional credit then moves your breakeven point further down and moves it away from where the stock is trading at this time. Again, it's a very easy adjustment strategy that we go through a lot here at Option Alpha. It's a very easy way to convert a bullish position into a more neutral position to hedge and protect it and it's something that we've talked about a lot inside of our training courses. You can just search put spread adjustments or iron condor adjustments on the website. We've got lots of videos, lots of case studies that you can go through and look at examples. 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 a question, "Can you close short option trades before expiration?" The simple answer to this is yes, you can always close your option contracts before expiration and this does mean that you can do so on American-style and European-style option contracts. I think where people get confused is that they think about American and European-style options, but that only refers to the exercise process that it goes through. American-style options can be exercised at any time between now expiration and that means that most of your general contracts you'll be trading on ETFs and stocks are American-style. European-style option contracts can only be exercised at expiration. These would be things that are more cash secured like RUT, NDX, SPX, etcetera. Now, again, this only has to deal with the exercise of the contracts and the conversion of those contracts from options to stock or cash. It has nothing to do with actually trading the option contracts themselves and that's where people get confused.

See, all option contracts have the ability to be traded and/or closed before expiration, so it doesn't matter if you're trading American-style or European-style option contracts. If you decide that you want to close your short option trade, you can do so. You can buy back your contract and remove the position before expiration regardless of the style of option contract that it is. It's a really easy way to remove risk and to exit the position, is just to simply close out of the option trade. And what we tell people all the time is that we generally like to close all of our positions for an expiration cycle the last week of expiration. Any trades that have not been taken off or rolled for a credit, we would close before the last couple of days of expiration just to remove the potential risk of being assigned on those contracts. Again, the option contracts themselves can be closed or opened at any time. The only thing that changes is if you ever wanted to exercise your contract or the assignment process and that deals with the difference between the American-style and European-style option contracts. Hopefully this helps out. As always, if you guys have any questions, let us know and until next time, happy trading.