Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we're going to be answering the question, "How do I keep my covered call stock from being assigned?" And so, the short answer to this is that since you are an option seller, you really don't have the choice. It's the choice of the option buyer, whoever bought that option contract from you, as to whether they want to assign the contract or not. Now, it's not the direct person, obviously. It goes through a whole random process, through the OCC and then down to the broker. It is a random process, but I'm saying anybody who bought the other opposing side to that. They ultimately have the choice as the option buyer.

But there's a couple of things you have to know about assignment and I think this will help out as to understanding if your option contract is at risk of assignment, so if your covered call is at risk of assignment. The first thing is how much time you have until expiration. Now again, most option assignment happens the last week, even the last couple of days of expiration and even more so than that, many option contracts never actually go through the exercise and assignment process. They're just typically closed out of. If you have a lot of time between now and expiration, there's probably a good chance that you're not going to be assigned even if you're in the money because there's a lot of extrinsic value that's left in those contracts. As you get closer to expiration, then your risk of assignment starts to increase and then would depend on how far you are in the money or not.

Now, the second thing is how far your option contract is in the money, how deep are your strike prices from where the actual stock is trading. If you sold the 105 call options and the stock is trading at 125, then yeah, that's a pretty deep in the money call option. You probably are at higher risk of assignment. Again, all other things being equal, you're probably at much higher risk of assignment. Now, if you have that same position and you're five days away from expiration, there's probably a really good likelihood that you're going to be assigned because you're much closer to expiration and because you're really deep in the money. Now, if you're five days away from expiration, but you sold the 105 call option and the stock is trading at 106, well, it's a little bit in the money, but it's not too far in the money at all. It probably has a lot of extrinsic value still left because it's right on the edge of being profitable or not, so you're probably not at that big of a risk of assignment.

Again, it really kind of depends on those two main factors, is how far you are from expiration and how deep in the money or not is your option contract. From there, ultimately, it is up to the option buyer to decide if they want to assign you the shares or not. Now, as an options trader or a covered call trader, in either case, it really doesn't matter. If you were to be assigned and then your stock were to be covered by that position and go away, well, guess what? If you want to get back into the position for the next month, buy 100 new shares at whatever the market price is and sell another covered call in the next month. Ultimately, it really doesn't matter. It's not going to make that big of a difference. Whether you go through it, your call option gets assigned or not or your stock gets assigned away or not, you could get right back into the same position, basically reengineer it from the ground up and keep trading that covered call position.

Hopefully this helps out. As always, if you guys have any questions, let us know. Just head on over to optionalpha.com/ask and leave me a private voicemail. You just have to click the big red button in the middle of the screen and we'll get your question queued up here for the daily call. 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 my personal consistency hack that I've been doing the last couple of weeks and it's been a huge difference and that is, "I never walk by another dirty sock ever again." You might think to yourself that's totally random and totally weird, but here's the idea. Well, we have out third kid now, Colin and he's growing up really fast and it seems like every day, the house is a mess. I mean, like we work and live in the house. We do not go out to work. We work where we live and live where we play and the whole deal with three kids in a small house. And so, what I have found to be really annoying because I'm the type of person that wants everything very much organized, always clean, always put away, is that having three kids seems like I'm just chasing a dumpster all over the place every day. What I started to do awhile back was I started to ignore it. I said, "You know what? I just can't even deal with it right now because I feel like I'm always picking up or I feel like I'm always doing something." And then it got too out of control. Then I wasn't contributing the way that I should contribute to this household and I wasn't picking up things and I ended up just walking over toys and walking over stuff all over the place and what I started to think to myself is, "Look. There's got to be some way I can turn this around because I know I need to do better about it, I know I want things to be clean and tidy and orderly, but I also know that sometimes kids are kids and they're going to just cause a mess. It's just how it is."

What I decided to do is I decided and I was actually literally (no joke) walking up the stairs and I was looking up the stairs and one of my kid's dirty socks was just sitting on the stairs and I said, "You know what? That's what I'm going to do. I'm never going to walk by another sock again. I'm going to make every trip that I am doing throughout the house as I move throughout the house during the day, I'm going to make every trip work for me. If I go upstairs, I'm taking something up. If I come back downstairs, I'm taking something down." And it seems like over the course of the last couple of weeks or so, things have just really kind of gotten much more organized, much more together. It seems like there's a lot of stuff I was taking every single time, but now, things are orderly and I don't have to pick up socks. I've also noticed that now, my kids are doing it which is kind of interesting. It's like my kids, if they go upstairs, like my oldest one will now pick something up and take it. And even this morning, I came out in the living room after having coffee and my kid was folding the blankets because that's what I usually do in the morning. I just kind of fold all the blankets that they've had out from the last night. And so, that's been really interesting.

But I think this concept of just never walking by something as small as it possibly is, is a great way to get on the right consistency path and developing this really strong habit loops in your life. That's ultimately what habits are. Habits are just things that we need to do that become subconscious, that our mind just takes over and our brain just does automatically for us. But we have to force that. I would say today to maybe try it. Just try making every trip that you do, everything that you do have a purpose. If you're going to go upstairs, take something up with you, like take the laundry up with you. If you're coming back down, bring down the dirty laundry. Just make every trip work for you and so, it becomes a habit and then you really don't have to think about it anymore and I think you might even see maybe a change in family or spouse or significant other that might help out. Anyways, that's my hack for today. It's been really cool and I think about it. I think about like, "Don't walk by dirty socks." That's kind of what I've been telling myself in my own mind here in the last couple weeks, is just to make every trip work for me. Hopefully it helps out. Like I said, if you need anything or have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from optionalpha.com and welcome back to the daily call. Today, we're going to be discussing why doing a lot of things never substitutes for doing the right things. Now, this is a favorite topic of mine because as many of you guys know, I geek out on all of this efficiency, market psychology, personal psychology, personal development, all of that stuff. I really, really love this is topic and I think this is one of those ones that I really love this kind of thought process around doing the right things versus doing a lot of things because in this day and age, it seems like everybody's really busy and it seems like the person who looks busy ends up being the most successful. But I don't think that's obviously true. I think it's the person who just does the right things and focuses all of their time and energy on the right things ends up being the most successful. I would start off by saying this. We are all wasting a lot of time and we rationalize it with a lot of really stupid excuses. Please stop wasting your time, stop rationalizing how you're not wasting time at all because we know we are and myself included. Like I know there's times where I'm just wasting time and I'm doing things that are not important, that don't actually drive results, that serve no value and I get that and I recognize that. I think I'll always recognize that I'm doing it and I try to improve on that. I'm not saying I'm perfect. But I think a lot of people out there and you're probably listening to this and you know it too, like don't shake your head. You know that it's absolutely true. You're in many cases, wasting time either in the morning or the evening or at lunch, whether it's on social media, watching TV, just mindlessly going about your day and what you need to be doing is focusing just really, really hardcore on the activities that actually drive results.

It's amazing because when I started doing this daily call podcast, I honestly didn't know. You can go back to some of the first episodes. It was a real challenge for me to actually put this thing together and put together the system to do it. Our system of recording and getting these shows out is totally different than what it was, originally. I mean, we had to kind of learn and adapt how to do it. But I knew I wanted to be really consistent and religious on getting the show out because it was exactly what I needed to help you guys. It was a medium that I enjoy doing as well, so it kind of served two purposes. And so, I had to really focus on just recording every single day because that was the most important thing. And everything else took a backburner to some degree for the first couple of episodes or the first two, three dozen episodes because we were just trying to figure out what we needed to do on the backend to streamline things. But had we stopped, we might have lost a lot of momentum. And the core of what we are trying to do with this project and kind of putting out this podcast is actually getting out a show every single day. Initially, it was really kind of loosey-goosey. A lot of people were working on different parts of the show to get it out really quickly and to produce the show and now, it's a lot more streamlined. We've kind of smoothed out the inefficiencies and it makes it a lot easier for everybody to do. But again, if I would've stopped and wasted time on the streamlining process initially, I would've lost the core of what we were trying to do, I would've lost the real value that hopefully it delivers to you guys.

Maybe that's just one example that might help you out today, but again, just please stop wasting time. We know we're all rationalizing it, but it's okay to let go of things and say no to other things. In fact, I actually have found it to be quite enjoyable to say no to a lot of people lately, people who reach out to try to do partnerships with Option Alpha or try to have us be affiliates for their product. I mean, it's just really easy for me to say no because I know where we stand, I know where we're going, I know the types of projects that we want to work on, so I focus all of my time and energy on those. Hopefully it 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 optionalpha.com and welcome back to the daily call. Today, we're going to be talking about how to convert a bear call spread into iron condors. The process is actually pretty easy to do. It's actually probably one of the easier adjustments that you can make and it's maybe one of the first adjustments that you make to a position as it's starting to get challenged. Again, the starting position that we're working with is a bear call spread. That's basically a credit call spread where you are selling a call option and then buying a call option at a higher strike hoping that the stock either stays the same or generally goes down. Now, of course, the stock can go up a little bit. As long as it stays below your strike prices, you're good to go. You make all of that premium that you collected as a profit at expiration. But when the stock starts to move up against your bear call spread and starts to challenge you, then what you can do is you can convert the position into an iron condor and the reason you would want to do that is because if you have an iron condor and basically sell the opposing put spread side to your bear call spread, if you do this by not increasing the number of contracts that you're trading and not increasing the width of the spread, it gives you no additional risk in the position and in fact, it actually reduces risk by the amount of the credit that you take in.

Let's say that you sold a 105/106 bear call spread and now, the stock is starting to challenge your position. You could choose to adjust this position by turning it into an iron condor and you might sell the 103/102 put credit spread. You might sell that spread, again, the same width of strikes, $1 wide and however many contracts you sold on the bear call spread. Let's say you did five contracts. You would also do five contracts on the put spread side. Again, this gives you no additional risk. It doesn't require any additional margin and in fact, it starts to reduce risk by the amount of the credit that you received. If you took in an initial credit on the bear call spread side of say $.30, you might then take in another $.30 of premium selling the put spread side to convert it into an iron condor. And so, now, you've taken in a total amount of $.60 in credit. That leaves you just $.40 in risk for that position. Now, again, this is a very easy adjustment to make because all you're doing is you're just physically adding another put spread side to your position and basically balancing out the position and that additional credit that you take in moves your breakeven point just a little bit further out on the call side to give you the opportunity to potentially make some money if the stock does continue to move higher. Again, this is a risk adjustment type of position where you're reducing risk along the way, potentially giving yourself a little bit more wiggle room as the stock starts to rally and challenge your position, but honestly, a very easy adjustment that you can make to your bear call spread.

As always, we've got additional training on adjustments on bear call spreads, iron condors, etcetera inside of the Option Alpha platform, so I encourage you to go through the course modules and take a look at those if you want some more examples and video walkthroughs on how we've done it with other trades. In addition, we've also adjusted a lot of trades inside of our live trading section on the website. If you want to watch me adjust some of these trades in real-time, go over to the live trading section under the education dropdown. If you guys have any questions, as always, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha. Again, welcome back to the daily call. Just to kind of dovetail on the podcast that we had yesterday, today, we're going to be answering the question again that relates to option assignment and out of the money contracts and that is, "Is it possible for out of the money option contracts to get assigned?" The question really comes from a member who was wondering, "During an expiration month, if you have a contract that's out of the money, typically, people would associate that contract with having very little to no risk of assignment." But he was wondering, "Do they ever get assigned and if so, what would be the reason that somebody would then assign an out of the money option contract?" To back up a little bit, I would say that it's very unlikely that out of the money contracts get assigned. Again, if you listen to yesterday's show, 289, you'll understand why those out of the money contracts are very unlikely to get assigned and it's because there's no intrinsic value for out of the money contracts. If somebody was to do this, they maybe are just making a bad decision, ultimately. I wouldn't ever say that it's 100% not possible. I mean, somebody could absolutely choose to assign a contract. It could even be a fat finger trade which means that they just did it and accidently hit the wrong button and assigned contracts, didn't know what they were doing. But on a rational level, most people would never assign out of the money contracts because they have no intrinsic value. They would never assign a 105 strike call when the stock is trading at $104 or $103. It'd be much cheaper financially for them to actually just go out and buy contracts in the open market.

Now, the other reason why they would potentially not assign these contracts and this is actually the case in many respects for in the money contracts as well, is that until you get up till expiration, in the money and out of the money option contracts have extrinsic value. They've got value because of their lifespan and because of the possibility that the stock could continue to move in a favorable direction. This time value and volatility value in these contracts are going to be forfeited if somebody were to exercise their contract. If I bought a call option and I bought the option, obviously paying for the extra time and volatility value of that contract, if I decide to assign that contract early, even if it's in the money or slightly out of the money, I'm basically forfeiting the value that's left in those option contracts. I would be much better suited just to actually reverse the option trade and never deal with the stock itself. Again, it's kind of weird because it actually could happen. I mean, again, I'm not going to say it can never happen. I don't think we've really ever had it happen to us, maybe one time before. I can't even remember if it has happened like that before in the past for us. But if it were to happen, it would totally be a mistake on the other person's side and it would be a trade that they probably are going to lose money on because of either the extrinsic value factor or just the fact that the option contracts are out of the money and they'd be much better served to buy contracts or buy shares in the open market.

Hopefully this helps out. Again, hopefully it kind of clears it up a little bit. I love these types of questions. If you do have more questions that you want to submit to us, so we can get them queued up here for the daily call, please head on over to optionalpha.com/ask and leave me a private voicemail. Again, there's no software to download or install. You just have to click the big red button in the middle of the screen when you get there. Again, optionalpha.com/ask 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, "Why do all out of the money options expire worthless?" This is a common question that I get, honestly from newbies and the question is, "Well, why do these things expire worthless? Why don't they have any value at expiration? Why do we, in many cases, leave these out of money option contracts on to expire worthless? Whether they're long contracts or short contracts, why don't we just let them go through the expiration cycle or choose to exercise those contracts and deal with the shares?"

I want to use an example which hopefully will illustrate this point very clearly as to why these option contracts expire worthless when they're out of the money. Let's say that you have a stock that's trading at $100 and you buy a 105 call option on that stock. You might buy that call option. Of course, since we're at Option Alpha and we do option selling, we might be the person that sells you that option contract at a $105 strike. Now, that $105 strike gives you the right, but not the obligation. There's where your choice lies. You have the right, but not the obligation to buy stock at $105 any time between now and expiration. The stock is trading at $100 right now, so clearly, you're not going to buy stock or exercise that option contract right now because then, you'd be forced to buy stock at $105 when stock is trading at $100. That would create a losing trade for you. You'd buy a stock at $105, you'd sell it at $100 and you'd lose $5. The value in that contract is obviously not at exercising the contract right then and there. There's got to be some sort of external or extrinsic value between now and expiration and maybe you think that the stock is going to go much higher than $5 much more than $105 in the future.

Now, what you do is you say, "Okay, look. I'm going to buy this option contract at a $105 strike, but I think that the stock is going to go up to $110 or $120 or $115." It doesn't really matter. But let's say you get all the way to expiration and the stock has now gone to $104. It's actually moved up. It did what you thought it was going to do, but it just didn't move up far enough. Your $105 strike is still out of the money and it's out of the money because if you were to exercise that option contract, you would put yourself in a financial deficit or a losing position willingly which is what nobody would actually do, no rational person would actually do. If you were to exercise your call option as the option buyer, you would buy stock at $105 and you would be forced in the open market to then immediately liquidate and sell that position for $104. Now, of course, you can hold onto the stock if you want to, but the idea is that if you're going to exercise your option contract, you're going to do it in a way that would be advantageous to you. If you have to buy stock at $105, but it's trading in the open market for $104, why even deal with the option contract? Just go out into the open market and buy $100 shares at $104 and let the option contract expire worthless.

That's why options that are out of the money always expire worthless because at expiration, if they are not in the money, they have no intrinsic value and because they're at expiration, they have no extrinsic value. They've run out of time. Their life has come to an end. There's no more time. There's no more possibility that they could move higher or that they could be traded further out on the time horizon or duration. Those option contracts always expire out of the money and worthless. It's just exactly how it happens. Hopefully this helps out, just kind of again, looking at a very simple example with a long call option. But what you have to realize is that for options to have any value, they have to have value intrinsically in the money value at expiration. If they don't, then they just expire worthless. 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 discuss the only two absolute truths when it comes to time management. Time management is a favorite topic of mine because I'm always trying to manage my time a little bit better and now that we have three kids and a baby, it's becoming increasingly difficult. I have to get back to these hard truths about time management and it is hard. I mean, it's not easy to manage yourself and to manage your time at home and even if you have a job, it's hard to manage that free extra time that you have because we always want to just relax and chill out or have a drink or just sit outside. I mean, we want to do something besides actually doing work in many cases, so we have to motivate ourselves and we have to figure out what do we do and how do we do it, so that we make the most of our time, whatever time that we do have during the day.

Two things that I get back to when I was actually reviewing a lot of notes that I have on time management because I kind of keep everything in little folders and files on my computer about different topics, time management and efficiency and I mean, everything. I'm just again, very much a geek and nerd out on the whole idea of self-improvement. Two things that I came back to were these two truisms. One is that doing something unimportant well does not make it important. This one's a favorite one of mine because I really got into this a long time ago. I would do a lot of things that made me look busy, whether it was on the site or work or at home. But ultimately, they were just unimportant tasks and when I did them well, they really serve no value for me, whether financially, health wise, relationship wise. I mean, doing something unimportant well doesn't make it more important. Like tying your shoes perfectly does not make it insanely important that you did that. I mean, you could tie your shoes terribly as long as they're tied. It's just done. You complete the task. And number two, the second truth is requiring a lot of time also does not make a task more important. I think nowadays, what I spend a lot of my time doing is actually kind of thinking before I start working and trying to figure out – Okay. What is that one domino or that first or second domino that I could really knock over here today that maybe doesn't take a lot of time or maybe I think is going to take me a lot of time, but it won't if I focus on it? And that will start a cascading effect or a ripple effect of other activities that are going to get done.

I think a lot of people just run around and as my mother would say, they look like cats on a marble floor. They just are lots of activity and absolutely getting nowhere. The fact that people say that things require a lot of time and they spend so much time on it doesn't mean that they're actually doing something really important. Where this comes to sometimes is actually just having this idea of just quitting on a project because a lot of people, they think, "Oh. Well, I can't quit because I'm halfway into it." Well, if you're halfway into a project that really serves no value, you're much better off to actually just quit and give up on it and move to the thing that's more important or that is going to serve more value. That's the one I find all the time, is that people just end up putting out a lot of garbage or doing stuff because they want to feel like they've completed it. But if they're working on the wrong stuff, then it doesn't matter if they complete it or not. It's the wrong thing to be working on. Again, what you do is infinitely more important than how you do it, so take some time today to do less meaningless work. Do less meaningless work, so that obviously, you can focus on the things that have greater importance, greater value, greater impact. That's not laziness. It's not lazy to sit and think about what you're going to do before you do it, to really spend some time analyzing your next move and your next position, your next project that you're going to be working on, your next job, your next investment. Spend some time now to do it because that is where the efficiency lies. Hopefully this helps out. Hopefully it motivates you a little bit. As always, if you guys have any questions, let me know. Until next time, happy trading.

Hey everyone. This is Kirk here again from optionalpha.com and welcome back to the daily call. Today, we're answering the question, "Can you sell options without owning at least 100 shares of stock?" This is actually a really interesting one and a very common misconception that people just don't understand as they get started into options trading. Now, it's not their fault that they don't understand it. I don't think anybody really explains it. That's why I'm trying to do this podcast about it, so that people understand what the risks are and what you actually need to do or what capital you need to have if you actually want to start selling or buying option contracts. A big common misconception is, "Well, I can't sell options if I don't have 100 shares of stock." And what I think the root origin of this misconception comes from is from when brokers initially approve people to start trading options, they usually approve people to trade covered calls and covered puts. And when you do a covered call or a covered put, yes, you do need 100 shares of stock, either long stock or short stock to be able to then sell that option contract, but that's where it kind of ends. After that, if you wanted to sell option contracts, you don't necessarily have to own 100 shares of the underlying stock and in fact, 99% of the time when we're actually making trades, we do not own the underlying shares of stock. The only time we would ever own shares of stock is if we got assigned and then we wanted to sell a covered call and maintain the position. But for the vast majority of trading that we do, we never actually deal with the underlying stock.

I think the misconception is – Well, if I don't own the shares of stock, then how can I sell options against it? And the way you can sell options against it is either one of two ways and I guess they both actually work the same, but generally, you can do it two different ways. One is you can put up what's called margin. Now, margin is not the margin that you're typically associated to learning about and that's borrowing on margin to buy stock. I'm talking about putting up margin in your account which means that the broker basically takes a certain portion of capital associated with the risk of that trade and sets it aside, so that you can't trade it. Now, it's your own money, but they're basically just saying, "Look. You can't trade this amount of money in your account because you have this short option contract and if that option contract goes bad, we need to make sure that you're not trading some other part of your account or some other capital that could then cover that risk in that position." Say you have a $10,000 account. You sell an option contract. The broker might take $1,000 of margin and put it aside. Now, again, they didn't take it out of your account. They're just saying, "Look. You can only trade with $9,000 now for any new positions that you enter because the $1,000 that we took aside in margin is basically to cover that one option contract that you sold." You don't actually need the shares of stock to do it. You can do it by putting up margin.

Now, the other way you can do it is you can trade a spread. You can sell one contract and buy another contract and in that case, you just put up the difference between the contracts less the credit that you receive as again, the margin. It's much less capital-intensive. You're going to make potentially less money on the trade because you have to buy and sell contracts instead of just selling options without buying. But in that case, you also don't have to own the shares. You're basically covering the position by buying the other option contract. This is a great alternative if you don't have a margin account that you can trade in and you want to sell options, but you're in an IRA or retirement account. IRA or retirement accounts don't allow you to sell naked option contracts at many brokers. And so, if you want to do that, you have to go ahead and do a spread or a very wide spread to synthetically replicate a short option contract. But in either case, you don't have to own the underlying shares of stock.

The last question is probably then, "Well, what happens is I get assigned? Because I don't have the underlying shares of stock, what would happen?" Well, there are two things that can happen. One, you either have enough cash in your account to then cover the shares. If you get assigned stock, now the broker will assume that you had to buy or sell those underlying shares at whatever the market price is and whatever the strike price is. If your account does have the amount of capital in there to cover that, well, then you can choose to hold the stock or not. You can decide – Hey, I don't want the stock, so I'll sell or buy it back in the market or choose to hold onto if you want to. If you don't have the capital to then cover the 100 shares of stock, then what the broker will force you to do is just to liquidate the stock position the same day. And so, yes, that means that if you are assigned 100 shares of stock, then you can go ahead and sell back that stock because the broker knows that you're liquidating the position and you're not taking on risk for more than a day. They're going to force you to do this. Now, you can do this yourself or if you just don't have the time to do it or missed an opportunity to do it, the broker will do it for you. They'll do it for you by the end of the day, so that you basically don't carry risk overnight. You don't have to have capital in there to deal with it. Again, the brokers know that you're basically removing risk or you don't have the capital to deal with it, so they'll allow you to sell or buy back the shares in the open market to close and liquidate the position.

As always, hopefully this helps out. I know this is a common misconception, a common point of confusion for many people, so hopefully this podcast cleared it up. If it did, let me know. Share it with your friends and family and as always, if you guys have any questions, please let us 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 the pros and cons, generally of Forex trading for the average investor. We did a little bit of a series a couple of weeks ago on Forex trading and I wanted to circle back and just go over some of the pros and cons, I guess for the average person who's maybe considering it or thought about Forex trading. Look. Forex trading in general, I think is very attractive to a lot of people because of the liquidity, because of the 24/7 markets that you can trade Forex in. I think it draws a lot of people in because of the appeal and the size and just this connotation that Forex trading is awesome. But I think it carries a lot more risk than people are really ready for. And so, I think for the average investor, it's not something necessarily that they have to do or that they need to do to be successful. I think Forex markets serve a very definitive purpose as we talked about in other shows in allowing companies and nations to basically hedge and trade risk and I think that that's what the purpose is. I don't think it's meant necessarily for the average regular kind of retail trader like me and you. Now, if you wanted to trade Forex pairs or currencies, you can easily do it with ETFs and that's the way I'd suggest doing it. Use an ETF product and then trade options around that. That's a much better way to control risk and manage positions as opposed to just getting into some of these Forex pairs and taking on a bunch of risk that's associated with it. The Forex market can move very fast. I don't think people understand how fast and how violently things can happen even when they're sleeping, so that's definitely a risk that I think many people don't associate with trading until they get into it. Hopefully this helps out. As always, if you guys have questions, let us know. Until next time, happy trading.

Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we're going to be talking about risk-free option trades. And yes, it is possible to have risk-free option trades, but I see a lot of crap being submitted out there online and people writing up articles about this and honestly, trying to bait and switch people into getting into programs that teach you how to do risk-free options trading. But I'll show you how you can do it here. It is possible to do, but you can't do it right off the bat. You have to do a position that actually takes on risk before you basically convert an option trade into a risk-free potential trade. Now, we've done these a couple of times. It doesn't always work out perfectly, but we've done them a number of times and we have case studies on the website that you can check out. You can look up one that's called risk-free DIA iron condor. That's a great little case study that we walk through and I'll mention this as we go through today's daily call, but that's probably one of the better ones that we took our time and really, really walk through that process with you guys. But look. The idea here is that when you make a risk free trade that you have absolutely no downside, not even like losing any money at all. Option buying in and of itself is not a risk-free trade. Some people actually say option buying is risk-free because you have no downside. Well, you actually lose the premium that you pay if you're wrong, so there is some downside. You have to lay out some investment. Yes, that investment is capped as an option buyer, but you also have a low probability of success. That's the first hurdle we have to cross over, is that option buying is actually a risky investment and some people out there I think are maybe promoting it as not a risky or a risk-free investment, but it actually does carry risk.

Now, when it comes to actually getting into a risk-free trade, you have to start with a risky trade to begin with. Now, the reason is because there's no free lunch in the market. There's very little, almost no arbitrage possibilities, meaning you can't get into something and then immediately reverse and sell that thing that you got into or vice versa, sell and then buy back and create an arbitrage opportunity where you make money without taking on any risk. There's got to be some sort of transfer of risk or obligation. Something has to transfer from one party to the other. That's why we see markets with a bid ask spread because that bid ask spread prevents people from buying one contract and immediately selling it back, like literally, instantly selling the contract back and then profiting. You can't do that with a bid ask spread because you'll have to buy at a lower price, sell at a higher price. If you sell at a higher price, you'll immediately have to buy at a higher price, sell at a lower price, buy at a higher price, but you can't immediately do that with an efficient market. Now, what you can do is you can get into a risky position and then convert that position into a risk-free position if the pricing works out. What we did is we actually got into basically like a broken iron condor a while back in DIA. We sold a $1 wide call spread above the market and then we just sold a flat-out naked put below the market. We had a call spread on the top side and then we had a naked put. Now, obviously, this original position, this is what I said in the video on the case study, is that this original position takes on, obviously a decent amount of risk because we're selling still naked options on the bottom side and we took in a $1.33 credit for this whole combined position. The call spread plus the naked put, we took in $1.33 of credit. But later on, as the market was actually moving, we had an opportunity to buy a put below where we had sold our other put that created a $1 wide put spread below the market effectively creating just a $1 wide iron condor on either side, so we sold the 179 calls, bought the 180 calls. We sold the 160 puts originally and then later, bought the 159 puts and we bought those puts for a $.30 debit which means that we still took in a total net credit of $1.3.

And so, if you think about the width of an iron condor and the risk in an iron condor, the risk in an iron condor is the width of the strikes. Well, the width of the strikes in this case is $1 on either side, so that's our max risk and then we subtract out the credit that we received which is $1.3. In either case, no matter what happened with this iron condor, once we adjusted into it, we were going to make $3 no matter where the market went. In fact, we ended up making more than that because the market stayed between our strikes. But this is a great example of how you can actually convert trades into a risk-free alternative. Now, we gave up, obviously some profit potential. Our potential profit originally in the trade was $133. Now, we've reduced that down to $103, but we've actually taken out all of the risk in this trade. Now, again, that doesn't always happen and you have to have the right setup for that to happen. You have to get into a risky trade to begin with, meaning a trade that actually carries some risk, some margin potential before you can convert it into a risk-free trade. Again, the reason I wanted to go through this today on the daily call is because I've been seeing this a lot lately and I see people with all these sales pages about how you can do risk-free options trading. Yes, it's possible, but not without first getting into a risky trade and then converting it over. And so, can you convert it over? Sure. We've done it a number of times. It doesn't always happen that way that the pricing works out, but if it does happen, then you can get into a risk-free trade. Hopefully it helps out. As always, if you guys have questions, let us know. Until next time, happy trading.