Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to try to walk through a very simple guide to understanding the foreign exchange or Forex markets. The purpose of doing this is just to give you guys a little bit of an overview of what the Forex markets are and generally, why they're around and how you could potentially use them if you wanted to trade or hedge in the foreign exchange markets. Again, the Forex market or FX market as it's commonly referred to is really just a huge over-the-counter or decentralized market for currencies all over the world. And so, the point of having a foreign exchange market and having all of these large institutional banks and international banks and financial brokers and interbank markets is basically to set a bunch of foreign exchange rates. And so, the idea is that the market is not necessarily setting a price of any particular denomination of currency, but it's setting it by pairs, so what is $1 if you were to pay $1 in Canadian dollars or if you were going to pay for a dollar in Japanese yen or Swiss francs. That's what it's trying to do, is trying to setup all these relationships between currency pairs that then people can use to operate either businesses, invest in different overseas operations for companies, to move money back and forth or hedge their risk. It's really just this huge marketing pool to control or speculate on currencies, on sovereign governments, on credits, on financial interest rates, etcetera.

I can't understate the importance of having such a huge foreign exchange market as a means for global trade and global economies. For the purposes of trading, the way that we like to trade at Option Alpha when we trade options, it's not something that we typically participate in because it doesn't have a lot of optionable securities and lots of strike prices, etcetera. The liquidity in the Forex market is insanely big, it's definitely the biggest market in the world by volume and trade size, but it's not something that we want to necessarily participate in because I don't think there's really too much of an edge that can be gained in Forex. Forex is really just like stocks as far as directional trading. You're going to make a bet that the euro, US dollar pair is going to go up or down or the great British pound versus the Swiss franc is going to go up or down. That's really how people start trading the Forex market. Hopefully it helps. Again, it's just a very simple overview, so you understand what it is and how it kind of generally works. The biggest benefit to Forex markets is that in many cases, they trade 24-hours a day except on the weekends or through holidays, so there's a lot of liquidity, things can move very quickly and you can even see in some cases, if the currency markets are moving before the regular equity markets are open, it might give you a little bit of a hint as to where things are going with equity or oil prices, etcetera which is all denominated by currency. Hopefully it 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 optionalpha.com and welcome back to the daily call. Today, we're going to be talking about why you have to stop discounting the importance of variance in your portfolio. The reality is that when a lot of people get started in trading, what they often do is they often over-allocate. This is nothing new. This is something we've talked about at nausea before. And the trouble with over-allocating is that when things go right, it gives you a false sense of false positive that you're doing the right things. You allocate let's say 50% of your account to a trade and the trade goes really, really well and for that reason, you think, "Okay, great. Now, I have to allocate 50% or whatever the threshold is to all of the trades that I do moving forward." The truth is that when you do this and you get those false sense of positives, you eventually run into a string of losers. Murphy's law implies that when something bad could happen, it probably will go happen and many of you guys have been in that situation where it seem like everything's going well and then you have a string of losing trades, maybe five or six in a row and that could really, really crush your account. Using our 50% example again, if you're trading 50% of your account and trying to hit a bunch of homeruns, you could easily find yourself into a scenario where one or two trades or a string of trades totally wipes you out and from that point forward, now you don't have to go and make a 50% gain to get back to zero, you got to make 100% or 200% return from that point to get back to zero just from where you started.

I don't think people really accurately estimate the risk in losing money. The reality is that we want to try to lose as little money as possible. We want to try to allocate our positions as light as possible for our account size because we don't want to get into a situation where sequencing risk and variance risk ends up being something that hurts our portfolio. I would much rather have a portfolio that is steady and slow and growing than a portfolio that has all types of zigs and zags and basically looks like an EKG monitor with huge spikes and huge drops. And so, I think not a lot of people give credit to the fact that when you build a portfolio that's stable and smooth and consistent that that is actually more representational of a high sharp ratio type risk-adjusted return atmosphere or setup than anything else. I think that's the note for today, is just really don't discount how important variance is. If somebody tells you that you can make 50% trading, but the variance is 50%, meaning on your way to making a 50% return, you could lose 50% or make 50%, that to me is not the type of trade that you want to be in. It's important that you know exactly what return you're targeting, but also what the drawdowns could be, what the variance could be in that portfolio because it's just not enough to shoot for a total return. You have to understand the path to getting there. That's one of the reasons why in our back-testing and trade optimization software, we list and show you what the drawdowns are, how often they happen, how often you win, how long the typical drawdown last, how long the longest drawdown last, so you have a really good understanding of saying, "Hey, if I'm going to make let's say 18%, 20% on a particular strategy over the long-term, I might have to hold through a 30% drawdown at some point or I might have to hold through a 20% drawdown." It's just having a good understanding of the road ahead of you, I think makes you a better trader. Hopefully that 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 at optionalpha.com where we show you how to make smarter trades and welcome back to the daily call. Today, we are going to be talking about the cheapest options trading brokers. And when we say the cheapest, we are naturally talking about the option trading brokers that have the cheapest commission rates. Now, before we get into what I think are the top three as far as cheapness goes and commissions go, I just want to make one disclaimer and that is that in most cases, you get exactly what you pay for when it comes to an options trading broker. Although it might seem a little bit tempting to go with the absolute cheapest broker and in many cases, that might fit your needs very well, you have to understand that the reality is in this business, commissions are a cost of doing business and if you go with a broker that charges commissions, you will likely find yourself in a trading platform and in an environment that might end up making more money because of the broker charging commissions. I'll explain this thought process here in just a second.

The three I think cheapest options brokers out there and I'll start in order of cheapness, so the ones that costs the least, all the way up to the ones that cost a little bit more. I'll start with obviously, Robinhood. Robinhood is the cheapest broker because they actually charge no commissions at all. And yes, that seems too good to be true, but it actually is, the fact that they do charge no commissions. There are no commissions to enter, no commissions to exit and no commissions to assign or exercise contracts. Robinhood has grown tremendously in popularity and we had the chance to interview their cofounder and one of their CEOs, Baiju Bhatt on our regular weekly podcast. You can just search Robinhood on our platform and you can check out that podcast and my interview with Baiju. But I think the thing with Robinhood that I do realize is their growth pain point. It's that although they offer a very cheap platform as far as commissions go with no commission cost, the reality is that the technology and the indicators that you get are virtually nonexistent. They have really streamlined themselves into being the lowest cost provider, zero cost to the end user, to the retail trader which means that they cut out all the frills and everything else that you could you with other brokers. In fact, at the time of this recording, they don't even yet have the ability to do advanced order functionality like spreads, iron condors, iron butterflies, etcetera. Rolling seems a little bit costly and it seems like it's not as intuitive as it should be. There's no charting, there's no indicators, there's no IV rank, none of that stuff is included, so you really get like the barebones of what you want to do.

The next layer up from that, so the second I guess cheapest broker would probably be a tie almost, depending on where you're at in the world and what type of account you have. It would probably be a tie between either Tastyworks or Interactive Brokers. I'll start with Interactive Brokers because I think Interactive Brokers has probably the cheapest commission rates and in many cases, the stock commission rate is pennies, the options commission rate is also under $1 in many cases per contract. Again, with Interactive Brokers, you get a huge ability to cut some cost out of your platform and out of your portfolio by going with a very cheap broker. But very much like Robinhood, the limitation to Interactive Brokers is the technology and I would dare to say that unfortunately, the Interactive Brokers' technology and platform for anybody who's even tried to use it is so old and so archaic that it really becomes cumbersome and hard to use. I know a lot of people like it, a lot of people are used to trading on it, I for one have tried many, many times to trade on Interactive Brokers and use their demo software, but it is really, really old. It's like going back to 1997 and using like a Windows 97 version. It seems so old and so outdated, but it is what it is. It's their structure and again, you get what you pay for. Very cheap commissions, lots of ability to trade internationally, so that's why it's good for people who are trying to trade internationally in options, but unfortunately, it's a really, really bad platform, terrible to use, the mobile platform is nonexistent, basically, so it's really, really hard.

The last one then is then Tastyworks which I think is a happy medium in many cases for a lot of reasons. I think the technology is good. I think that they're obviously improving it and trying to make it better. We are trying to partner up with them once they release their public API to integrate into our auto-trading and bot software, but it's not something that they actually allow people to do yet, so nobody's able to integrate to their platforms which is why we're just waiting for that to happen. But their commissions basically started $1 per contract with no closing trade fees and then have a maximum of $10 per leg. There's kind of this dynamic pricing model that they run which I think ends up being very, very cheap and when they actually came out with their pricing model, they were the lowest before Robinhood officially launched into options trading. But with Tastyworks as opposed to Robinhood, you actually do get a full-fledged trading platform with indicators and the ability to manage positions, etcetera, so I think it's a happy medium and again, you get what you pay for. Yes, it cost a little bit in commissions, but I think the commission cost that covers the platform and the technology more than pays for itself.

My rub with a lot of these low-cost providers is that (and especially with the likes of people like Robinhood and other low-cost providers are starting to come out) because of the inefficiency of the technology, the commissions that you save are more than overshadowed by in many cases, the slippage or the inability to get into or out of contracts quickly that you find in these platforms with bad technology. To use an example not necessarily to pick on Robinhood totally, but if you have to get into or out of a contract and let's say you want to do a spread trade, because you can't do a spread trade right now in Robinhood in one single order, that creates a real problem because if you let's say buy one leg for $10 and you're hoping to sell the other leg for $15, between the time that it allows you to buy one leg for $10 and sell another for $15, the price may have moved up to $16. Now, you have some sort of pricing inefficiency where you thought you were going to get let's say a $5 spread, now you might get more, you might get less, but that slippage can be really dangerous. And if you don't have the ability to actually do spread trades or do dynamic pricing and to do stop losses or trailing stop losses or market orders or non-market orders, that creates a real inefficiency and that slippage and that inefficiency from technology is not directly felt by the user. You don't feel that necessarily because you don't see it on your statement that you maybe could've priced that strategy for $1 better or $2 better per contract, but that's exactly what happens. And so, in so many cases, even though cheap commissions are a really big draw for a lot of people, it ends up creating an environment where people maybe take on more risk than they necessarily think they're doing. It could be a little bit dangerous. Again, just take your time with it, as always. I always tell people like – Use whatever broker platform fits and suits you. Many have really good rates to start off with, so you can trade commission free or get used to their platform. They have lots of demos. We obviously have lots of training on all kinds of different option platforms on our website already, so you can check out some of the training that we have for free and pick and choose which one you feel most comfortable with.

As a side note and a reminder, we do use Thinkorswim because it integrates with our options trading software. Like I said, I want to expand that out to other brokers like Tastyworks and like Robinhood in the future, although they don't offer and neither of them offer public APIs to be able to connect into. Although we'd love to expand our options trading technology, auto-trading technology to other brokers, we also need them to allow you guys and us as the users, the ability to access their platform with our technology. Anything you guys can do to help out, just sending them emails and requests and saying, "Hey. We want to connect our Tastyworks or connect our Robinhood account with Option Alpha." the more that they hear from people like you in the community, the more willing they are to open up those channels to us in the future. That all being said, even though we trade with Thinkorswim and their public rates are a little bit high, you do have the ability to negotiate them lower. We have negotiated much of our options trading and stock trading rates to the same ranges that you find at the Tastyworks and the Robinhood's of the world, so you do have the ability to negotiate commissions lower. I always suggest that you do that and we obviously work with our members to get them low commissions as they get started with our auto-trading technology. 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 and welcome back to the daily call from Option Alpha. Today, we're going to answer the question, "How do you make money buying non-dividend paying stocks?" This is a question I think a lot of people have. In fact, this recently came up at a family barbecue because somebody asked in our extended family. He said, "You know, I was talking to somebody…" They were talking to their financial advisor, whoever and they just didn't really understand why people would buy non-dividend paying stocks and I think this is actually a very old mentality, meaning that people in the old days, I guess maybe 30 or 40 years ago, the big thing was you had to buy stocks that paid a dividend because you wanted that income, you wanted that cash flow. Nowadays, not all stocks pay dividends. We know this intuitively. I think some people are starting to learn this which is actually kind of interesting that this is not something that everybody knows and everybody understands the market. But there's companies who choose not to pay a dividend and they choose to then reinvest the cash flow and the capital from the business back into growing the business.

Again, the question becomes, "How do you make money buying some of these stocks or investing long-term in these stocks?" And it's really just about forward expectation of growth. With a dividend paying stock, the company is taking money and cash flow that it receives through its business activities and paying out a percentage of that to its investors. Now, if you think about it logically, if the company is choosing to then pay out that money, then that means that in some respect, they are choosing then not to reinvest that capital that they're paying out to investors in the form of a dividend and they're choosing to not invest that money into growing the business or to investing in plant and capital and equipment. There's an interesting dynamic there where you could actually make the argument that in some cases, if there's a low dividend paying stock out there or say they're paying a yield of 2% a year, why isn't that company using that money to then generate even more money and capital for the business and grow the business even further? Interesting dynamic maybe for a different topic.

But when you look at a company that's not paying a dividend and they choose not to pay a dividend deliberately, it's because they think that investing that extra money can grow the business at a much faster rate. You see this a lot in tech companies where tech companies obviously choose not to pay out any dividends because capital is so important and so, one quarter, they might grow it 10%. And so, people buy up their stock and let's say they buy the stock up to $100, so now, the value before the next quarter is $100, but the company announces earnings and now, the expectation is that they've grown more than 10% and yes, they announced earnings and now, they've grown 20% quarter over quarter over the last year. Now, the stock goes up in value because hey, look, the company is growing at 20% now instead of 10%. And that's how you increase the value of the underlying security and basically, get a return on your investment as an investor in non-dividend paying stocks, is because the company is growing its forward expectation at a much faster pace.

The caveat to that is that once it starts not growing at the expectation that everybody has, then the stock starts to retreat. If everyone is expecting the stock to grow 20% quarter over quarter and now, the stock announces earnings and they only grew at 18%, well, they're going to start trading lower because now, growth is slowing and so, the expectation is it's not going to be worth this much in the future as maybe we thought initially. We thought it was going to be growing at 20%. Now, it's growing at 10%. I think in either case, it's really interesting just to hear people's comments on this. I really kind of geek out and ask people a lot of questions curiously all over the place when I meet people. When this topic comes up, I like to hear their thoughts on why they are choosing a dividend paying stocks versus a non-dividend paying stock and I think it's really interesting. I just wanted to add that today because it was a question that came up and I thought that it would be helpful to talk about it a little bit more on the daily call. As always, if you guys have any questions, let us know, optionalpha.com/ask and until next time, happy trading.

Hey everyone, Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to be talking about what I believe to be the single biggest impact on your wealth and that is budgeting. Budgeting is one of those scary words I think for a lot of people. Some people don't feel like they need to budget. They feel like they're constrained by their budget, like if they have a budget, they can't do the things they want to do or can't take the trips they want to do. But the reality is that if you're focused on building wealth not only for your family, but multigenerational wealth, wealth that last for decades and decades and through your grandkids and their grandkids, then I do believe that the single biggest impact is your ability to properly budget. Now, budgeting doesn't mean that you have to cut out all the things that you want to do. If you want to do something, just factor it into the budget. But it means keeping expenses low. It means always reassessing how you're spending your money each month and it means looking at things and trying to figure out if you can save $100 here or $100 there. It's something that me and my wife do just once a month. I mean, you don't have to do it more than that. But I think that we've been able to, over the past couple of years, really keep a keen eye on where we want to spend our money, how we want to use our money and doing that through just a monthly budgeting needing that we do, me and her. Just once a month for about an hour so is really, really important.

Benjamin Franklin said, "If you watch your pennies, the pounds will take care of themselves." And I don't know and I still have to look this up, but I think that he was one of the first millionaires. Even way back then, he had a little bit of clout and knew what he was talking about. But it's so true, like I can't get over it enough and I see people all the time, especially in the area that I live in just blow their money on just random stuff. And if you don't track any of it, then the money has no accountability to anybody. You just get money into your account and you spend it as you see fit and then you're left over with whatever you're left over with at the end of the month. And it's funny because it seems like money in accounts want to spend themselves and you'll find a reason to spend the money. That's what people do and that's probably why I think a lot of people are in financial hardship most of the time or living generally paycheck to paycheck because they're not figuring out a way to budget, keep their cost in control and save money and save for the future, etcetera. I would highly encourage you… One of the things that I've done definitely in my life and I will continue to do is be really, really strict about sticking to a budget. Again, it doesn't mean that you can't do things you want to do. You just factor them into the budget. If you have a beach vacation coming up or you want to take a trip, then start saving for it now. Save $50 or $100 now every month, so you can save up until that date and then actually, you have the capital to do that, you have the finances to do that. I think people who budget for sure end up generating more wealth long-term. I have no question about that. I haven't seen any definitive research on it. I know intuitively and instinctively that's what the case is.

I would love to hear your guys' thoughts on what tools you guys use for budgeting. I've pretty much tried a lot of them out there. I'm a big fan of Mint. I like using mint.com. It seems to be the easiest. Also, Personal Capital is a good one. There's also YNAB which is You Need To Budget, ynab.com as well. I've used all of them. Like I said, I generally like to use Mint. It just seems to work for me and I've used it for a really long time, so I can track all of our budgeting stuff over time. But again, you can use Excel if you want to. Most banking apps have it. But do something. Do something today to help clear out your budget and see where you can save a little bit of money. See what things you can cut, what things you can cut back on, maybe changes to service that you can do like telephone and internet, TV, etcetera, all that stuff that you can maybe cut back on or if you're not using, reduce. 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 at optionalpha.com where we show you how to make smarter trades and welcome back to the daily call. Today, we are going to be talking about the bear market definition and why I think that it's a little bit flawed. First, let's get it out of the way. Most people use bear market definitions as a drop in 20% of the underlying value of a security or a bond ETF, currency, whatever you want to use in there. A 20% drop from the 52-week high, so basically, a healthy pullback, if you will from the recent highs. And why I think that this is a little bit flawed is that in many cases, it could either lead to people being overly-panicked when they hear that something is in a bear market or it can lead to people not realizing that something is actually still in the midst of falling because they think once it reaches that magic 20% drop threshold that it actually might be a good opportunity to buy. We've seen in many cases, particularly in the bond market and the currency markets in this gold and silver markets that stocks and ETFs and all of these equities can actually be in multi-year bear markets where they just continuously drop, 20% one year, then another 10%, then maybe another 15% and they just seem to continuously drop over multi-year periods. What I think people again, get sucked into is that they hear the term, bear market and then they initially sell. Sometimes, stocks can be in a very short bear market where they have a really strong, maybe too aggressive of a pullback that's not really something that's a cause for concern, the fundamentals didn't change, the total trend did not change, but then it leads investors to basically dumping or panicking and not really looking at their strategic strategy for investing.

And the other reason that again, I think it's a little bit flawed that people just… Or not flawed, that people just rely on it too much and we hear it too much is that the true definition of a bear market is that again, it leads people into believing that things are over and well and done once it reaches a 20% pullback, like 20% is the magic number and once it hits that number, then everything is rosy and it's a better buying opportunity. We know from many examples, again, in oil and currency and precious metals that that's just not the case, that stocks and equities can have a huge multi-year decline and that doesn't necessarily mean once it hits 20% of the recent pullback that that's a good buying opportunity. In either case, as options traders, I really don't care about it. People ask me all the time, "What if there's another bear market? What if there's another bull market? How does that impact it?" There's bear and bull markets it seems like all the time in different securities and ETFs and underlyings and it just happens naturally. And so, as options traders, because our duration is so short compared to other investors, meaning we're trading just a month or two months out, we have the ability to quickly adjust to any market environment that happens and if you're keeping your portfolio generally balanced, it shouldn't matter if we're in a bear or a bull market long-term for you. As always, hopefully this helps out. If you guys have any other questions, let me 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 are going to be talking about how to setup a short straddle option strategy. A short straddle option strategy is probably one of the core and most aggressive option selling strategies that you can do and it's basically setup by selling at the money calls and at the money puts at the same strike price. For example, if a stock is trading at $100, you would go ahead and sell the 100 strike put option and the 100 strike call option. It's always setup using the at the money strikes or near at the money strikes, whatever strike prices you can get that are closest to where the stock is trading, so that you can try to build the strategy as neutral as possible. The idea with a short straddle is that even though you're selling options where one contract is conceivably going to be in the money at all times, you are taking in the most amount of option premium by selling those at the money contracts, therefore, moving your breakeven points further out from the at the money strikes. For example, using a $100 stock that's trading right now, if we were to sell the 100 strike straddle, we might collect on one side, say the call side option, $2 in premium. On the put side, we might also collect $2 in premium. We've collected now a total of $4 in premium which means that our breakeven points on our short straddle are actually $96, so $4 below where the stock is trading and $104, so $4 above where the stock is trading as well.

Again, you can see that when you trade a short straddle, the premium that you collect takes into account the fact that you need to move those breakeven points much further out which gives you a wider profit range. Setting up short straddles is generally a trade that we like to use in a couple of different market scenarios. We like to use these when we are in an earnings event. When a stock is coming up on earnings, we'll setup a short straddle if we have high implied volatility for that setup and we'll also set them up either as a regular short straddle with undefined risk or synthetically as a very wide iron butterfly trade where we would buy options further out than our short strikes and create a risk defined position. We usually set these up for our monthly position trades where we're trading one to two months out. Now, in many cases, we run all of our strategies through our trade optimization software to tell us exactly when and how to use these and when to take profits on these. We would typically suggest in many cases that you take profits at about a 25% profit target for short straddles though we have found through our trade optimization software and back-testing software that in many cases and many market environments, actually waiting just a little bit longer to take profits at say 50% or 75% of a profit target actually ends up creating higher returns overall. As always, you can check out our demo of our software at optionalpha.com/toolbox to get a little bit more details on that. As always, if you guys have any questions, let me 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 answering the question, "What is a broker dealer and more importantly, do we still need them?" To quickly answer this question, broker dealers are a very important part of any financial system. In our financial system which is extremely complex, very large and in many cases, very efficient, broker dealers do serve a very important purpose. Now, to now backtrack a little bit and say what is a broker dealer, well, we have to break it down into two things. Well, first, there's a broker. And so, a broker is just anybody who basically facilitates or helps you buy or sell securities. For example, right now, the best example maybe of this in its rawest format is maybe say Robinhood. Robinhood is a brand new brokerage and all they do is they help facilitate the actual transaction. They are basically if you want to call them, a middleman, they're a security facilitator where if you want to go buy a stock, you would do it through Robinhood and they basically connect you to the market.

Now, a dealer on the other hand is actually a company who actually invest their own money and has their own interest in buying and selling underlying securities. Some of the biggest investment banks in the world, Deutsche Bank, Goldman Sachs, JP Morgan Chase, all of these ones, they have a brokerage arm where they will actually help clients and help people buy or sell securities, but then they also have trading floors or investing floors, dealer floors which they are actually trading and actually physically maintaining positions for the bank itself, for the actual investment bank itself. And so, they're what many people would call a broker dealer and many of the largest firms and investment banks and many of the largest brokerages that you hear about now have both, so they end up being both. The question becomes, "Do we still need them?" Obviously, I think we do. I think we can go down a huge rabbit hole of the conflict of interest that comes about because banks have a brokerage arm and a dealer arm if you want to call it that or are investing firm's money, but also offering of advice to clients.

I think that on the outside though, it's generally okay as long as there's a division between these two, so what a firm does with its own money and what it needs to do to hedge its own risk or where things are the better investments for firm money. That's firm money. They can do what they want with their money in my opinion. If somebody comes in and they walk in the door and they say, "Hey, look, I'm going to buy Apple stock. I want to buy Apple stock no matter what you say, no matter what you do." then they can facilitate that transaction and serve the client just as well by doing that as they are doing if they say, "You know what? We're not going to buy Apple stock with our own firm money. But if this guy wants to walk in off the street and he wants to buy Apple stock and we've told him that we don't think it's a good decision or maybe advice him something else is better, he still wants to buy it, then they have to buy." They can make that decision and let the guy buy the stock, help him buy shares of Apple.

I think when there's that division and you understand that a firm can invest its own money for its own purposes and hedging purposes and strategic business purposes… It doesn't always necessarily have to agree with the actual client that's walking in and obviously, we know that everyone here even listening on this podcast is in totally different places in their life financially, location wise, age wise. We're all totally at different levels and so, what might be good for you may not be good for ma and vice versa. I think they still serve a valuable purpose in the market even more so and we could get into this on another podcast, but just on acting as a means for people and companies to get liquidity and access to capital through public markets, investment banks and broker dealers take on a lot of risk in sponsoring a lot of these companies and putting together some of these deals. And so, without that, companies don't have the ability to grow and increase their capital and debt and leverage themselves to be able to expand and build new companies and new plans and territories. I think they serve a really important purpose in the market. Of course, we always have to watch and monitor them. That's obviously the job or the regulators and the government. But for us as traders, I think it's important to understand at least this quick little distinction. Hopefully this helps out. If you guys have any questions, as always, let me know. Until next time, happy trading.

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we're answering the question, "How to invest in precious metals using diversified ETFs?" Look. Precious metals I think are an important part of the markets in general and they still are becoming a more important part of the global economy even as industrial nations start to continue to grow and new industrial nations start to grow things like silver and steel and precious metals. It all becomes really, really important. Do I think it's a major part of every market? Of course not. But is it tradable for us as options traders and investors? 100%. The question becomes, "How do you invest in these things if you want to do it from a nonphysical side? You do not want to physically own silver or physically own gold or any of these other metals or precious commodities. How do you do it from the ETF side?" But there's a lot of ETFs out there and so, I think the starting point for me would be if you want to trade them from a long-term perspective, I mean, the doors are wide open to whatever you want to trade. There's lots of Vanguard Funds and Spider Shares and iShares that you can check out that are all ETFs that have different trajectories and different holding patterns, whether they hold physical or not, whether they just track the precious metals and the bullion or not. I'd say read into those if you want to on the long-term side. There are a lot of different choices out there.

When it comes to actually trading from an option side, I think the first threshold to cross for me is crossing over the liquidity threshold and making sure that there's enough liquidity in the market. And so, for us, some of the major ones that we trade are things like GLD, GDX, SLV, etcetera and they end up usually having lots and lots of liquidity both on the underlying stock and in the options contract, so they become decent trading vehicles for us and we've made some pretty good money trading GLD and silver in the past before that we like having them in our basket of potential ticker symbols every single month. Now, if you wanted to trade things like GDX which are gold miners or PICK which is Pick, again, another mining and metals producers, those are going to be trades that you make not necessarily on tracking the physical underlying precious metal like silver or gold, but actually on the companies that are in that industry that are mining and actually producing the metals and actually going and extracting it from the earth. Those are what you're investing in there. There's a difference. Everyone seems to think GDX and GLD is the same thing and one is more expensive and the other one is cheaper, but it's not the case. One tracks the actual physical gold bullion and the other one is basically the metals and miners of gold, so the actual companies that extract gold from again, the earth.

It's really interesting to read a little bit more into this which I encourage you to do if you do have some time. But again, you can trade a lot of these precious metals and really diversify out your portfolio pretty quickly by trading some of these ticker symbols. Again, just look up online some of these ticker symbols if you're interested in doing it. Like I said, the ones that we mainly trade which are also part of our watch list and toolbox software (so it's already built in there) are ticker symbols like SLV, GLD and GDX. Hopefully this helps out. As always, if you have any questions, let us know. Until next time, happy trading.

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we're going to answer a question from one of our members which is basically, "Can black swan events occur in ETFs?" I think this is actually a really great question because a lot of the benefits of trading an ETF style contract, especially with options, is that you remove in many cases, the unsystematic risk that's in the market. When you're trading an ETF, it's basically a collection of underlying securities or a tracking mechanism for other sectors or areas. And so, conceivably, not one particular company getting knocked out, in a given day is going to have a huge impact on that ETF. If you even think about just the broad-based indexes like the NASDAQ and the Qs, IWM, SPY, DIA, etcetera, it's basically just an ETF that tracks the collection of underlying securities. If one stock in that particular collection, say the S&P 500 has an absolutely terrible day, it will impact the index, but not like that one stock by itself, in a vacuum by itself. I get the idea of doing that for ETFs and I like that that prospect of trading ETFs for that reason as well, so you don't have the risk of an ETF necessarily going bankrupt overnight because it's a collection of securities that it's tracking or in its portfolio.

But the question now is, "Can these ETFs still have black swan type of events, events where it has a huge move up or a huge move down, basically, this big gapping move that happens almost instantly overnight?" The un-doubtable answer to this is yes, it can happen and I'll prove to you with two examples that you can look up when you get home or when you get to your office and you can type these in on a chart. The two examples I want to go through are EWZ and RSX. EWZ is the first one that we'll go through. This had a huge black swan event back in May of 2017. A little over a year ago, it had a huge black swan event where the entire Brazil market and therefore, the Brazil ETF basically collapsed on some… I think it was like government fraud or something like that, basically, charges or allegations at the high levels of the government. Overnight, the ETF basically opened up the next day down almost 20% on the day. I think it was a little bit over 20% and implied volatility spiked up huge. Now, it since recovered from that collapse, but that is a black swan type of event that can happen in an ETF. Now, the same thing also happened to the Russian ETF which is ticker symbol, RSX. Again, the Russian ETF basically had a huge gap down, about a 15% gap down literally overnight in April of 2018. I don't remember exactly what the news headline was that caused it, but it doesn't really matter. It had a huge gap down, basically a big black swan event that occurred and again, this happened in a major ETF.

Now, the thing that you'll notice in these particular cases (and this is just worthy to notice across all different ETFs that you trade) is that if there's news or information that affects an entire industry or sector or country, then those ETFs are going to be hit the worst. In these two examples, there was news specific to Brazil that infected the entire Brazil ETF. There was news specific to Russia that affected the entire Russian ETF. If you have news that's specific to semiconductors, that's going to affect things like SMH which is an ETF that tracks semiconductors. It's industry-specific that you're going to have it. For this reason, that is why I tell people all the time that even though implied volatility can be high across the board in so many different ETFs, we still want to have a good mix of ETFs in our portfolio and keep our position size small. In fact, one of the ones that we've traded over the last two years, kind of religiously every single month is TLT which is bonds. Bonds have not generally had super high implied volatility, but because adding bonds to our portfolio gives us some diversification in our underlyings, we're not just trading emerging markets, we're not just trading oil and gold and silver ETFs, we're trying to get a good mix in our portfolio, so that if something were to happen to one of those other sectors and/or to bonds or something else, we always have a good mix that's generating income for us.

Hopefully this helps out because I think the question today is really important and something that you should just again, refresh on and remember. Look. We can see black swan events in ETFs and we don't know when they're going to happen, so even though it's an ETF and you think it's going to be a little bit more stable, it can become unstable very quickly and so, therefore, make sure you add some diversification to your portfolio and make sure you always keep your position sizes super small. Until next time, happy trading.