Hey everyone, Kirk here again and welcome back to the daily call. On today's daily call, we're going to talk about probably the three reasons why I think people are attracted to the stock market for the wrong reasons. I've scripted out here three particular, I guess paradigms or things that we want to compare and contrast. When I boil this down, I was thinking about this before I started recording the show. I think there's a difference between what people actually are going after and what is potentially required of them to be successful and therein lies the difference between why people are invested or attracted to the stock market for the wrong reasons.

The first one here is I think people are naturally attracted. There's no overstating this or overshadowing the reason why people get into the market and that's because they're on a get-rich-quick. And while I don't condone on any level, get-rich-quick, what I do think people are attracted to is the allure of potentially making a lot of money in a very short time period. Look. We're all pretty much greedy animals when it comes to our money and wealth building and there's no doubt that that's why most people are actually poor because they do the wrong things for potentially the right reasons or the right setup, but they just have no patience and they're trying to get rich quick and they end up making really bad decisions. But I think people are attracted to any market. It doesn't necessarily have to be the stock market. If you look at the cryptocurrency market over the last couple of months, they have this huge euphoria in cryptocurrency, everyone was attracted to it, people were taking out loans on their houses to buy cryptocurrency. It was crazy because people were attracted to the get-rich-quick. Now, contrast this to what actually happens and it's a true wealth building vehicle and for a wealth building vehicle like the stock market or the options market, it takes time to work out. It takes compound interest and patience and many, many years for systems and investment strategies to work out and that creates a little bit of a disconnect.

The second thing is I think people are attracted to the market for the lifestyle that they think trading in the market or investing in the market is going to give them. And while that can be definitely true that trading can give you a decent lifestyle… I'm not saying that it can't. It gives you a lot of freedom. There is a lot of work that's involved. And I think what people see on the outside is they see people driving Lamborghinis and trading from the beach and that's not really how it happens. In fact, that's probably the antithesis of how it happens. There is a lot of work that's involved. There's probably a lot of frontend work on your part to find a strategy, find a system that works for you, that fits well within your lifestyle and then to consistently monitor that and monitor your portfolio. And so, I think there is a disconnect between what people are actually looking for and maybe what actually has to happen. Now, again, I don't think that it's totally your head down in the computer, in the sand all day every day. I think you can build a great lifestyle around trading and investing, but it's not independent of having to put in some work. You have to put in some work to get there.

The third thing that I want to talk about is the idea of emotions versus systems. Many people get started in the stock market because they like a company or they think they have an edge up by buying some hot tech company or hot biotech company that they know or understand. And I'm all using air finger quotes for all of these. You just can't see me doing it. But the reality is that investing in the market is not an emotion game. In fact, it's far from it. The best investors out there and the best traders use systems and strategies and work the numbers. And so, although people are attracted to the market because they like Coca-Cola or they like Apple stock initially, that's not what is going to get them eventually to being able to build a sustainable income producing system or wealth producing system investing in the markets. You have to have those systems, those concrete strategies in place and realize that it's probably more of a systems game than it is an emotional game. 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 at optionalpha.com and welcome back to the daily call. Today, we are going to be answering the question, "What are LEAP options?" Yes, L-E-A-P options. Very quickly, leap options are commonly referred to as long-term equity anticipation securities. I know that's a mouthful, I know that's a lot, but that's basically what they are. They are option contract with expiration dates that are usually longer than one year. And so, their allure for many investors and the reason why a lot of people start trading LEAPs is probably a couple of things. One is the ability to get long-term exposure into an underlying with very minimal capital actually outlaid from your account. For example, if you wanted to buy the S&P 500 or the ticker symbol SPY which is the ETF that basically trades that, you could buy the SPY. But right now, it's trading about 260 ish based on the time I'm recording this podcast, so you have to outlay that much capital times 100 contracts and so, it cost a lot of money to buy the S&P and then hold it for two years or hold it for a year. What you could do instead is you could use an option contract to facilitate the same basic exposure to long S&P by using a LEAP option. And so, you could use a contract that's dated a year or two years out from today's date and get exposure to the S&P 500 and the broad market with only a fraction of the actual investment that would be required to purchase 100 shares of SPY.

It's probably one of the biggest reasons why people like LEAP options and undoubtedly, if you are going to take a long-term position in an underlying, I think a LEAP option is a great way to go about it. I think it's a very efficient way to use capital and not tie up a lot of your money. In fact, using LEAP options and then selling closer in covered calls against that and doing basically a synthetic covered call I think is a great alternative to just outright buying stock. Another reason why people like to use LEAP options is because the longer maturity and the longer timeframe leads to generally a little bit less fluctuation in the price. Now, you're going to pay a little bit more for this. You can't get any free lunch in the market. You pay a little bit more for these LEAP option contracts because they're so far out in time and have the potential to make a lot of money, but the fluctuation in price is very, very minimal. You're not going to get basically any time decay on those contracts until you get much closer into expiration. You're going to have some impact on volatility obviously on those contracts and the movement of the underlying will impact the LEAP contracts as well, but as far as the volatility decay factor, it's going to be very, very, very small on these LEAP options because they're so far out in time.

Now, the key thing to remember is of course, they do expire. There is a point at which you start to have to make decisions about holding those contracts or getting rid of those contracts and taking profits or realizing losses, however the underlying security moved because as you get closer and closer to expiration, those contracts are going to start to decay and lose some of their extrinsic value that have been really kind of baked into the meat of the contract from day one. You do have to really pick and choose your entry points and your timelines with LEAP options a little bit more than you would with more of a traditional closer in contract. Something that we often say is maybe a good starting point at least for analysis when you do LEAP options if you're going to buy a long call option, long call leap is maybe start looking around a Delta of say 80. Now, in this case, a Delta of 80 means that if the stock rises by $1, you're going to participate in about 80% of that rise or $.80 of that rise. It replicates about 80 shares of stock. That's the ideal number. Now, that Delta can move and change as the stock goes further in the money or out of the money, but at least it's a good starting point where you're buying options in the money, you're trying to replicate as much as possible a synthetic stock position without again, all the underlying cost that's associated with it.

As far as LEAP options contracts go, it's actually pretty interesting if you look at some ticker symbols, index funds, ETFs, also underlying regular securities like Microsoft or Apple or Adobe, any of these things. Most of the big products have LEAP options that just go out further in time. Now, they're not actually designated on many broker platforms as LEAPs. They just are LEAPs by the sheer fact that they go out more than traditionally about a year in time. You won't see on your broker platform these are LEAP options. The expiration date will just be out in the future a year or two years out. When I look at the S&P right now, the LEAP options actually go all the way out to December 2020, so almost 1000 days out from where we are right now which is actually kind of crazy. If you want basically 1000 days of exposure to the S&P 500, there is a market for that. There are contracts that go out that far. Now, as we go out further in time and as you trade less liquid products, then the liquidity of these contracts becomes obviously questionable. In the S&P 500, the liquidity is pretty good on LEAP options that are two and even three years out in some cases because there's a big market for hedging, there's a big institutional market for trading the S&P 500. If you look at for example like Microsoft, (and I'm just typing this and looking at it in the background as well) you can go all the way out to January of 2020, so 650 days out in Microsoft, but the liquidity is less than the liquidity in the S&P.

Now, there's not totally no liquidity in Microsoft. There's definitely liquidity and you can trade it, but the bid ask spreads are pretty wide. The further you go out and the more people don't want to trade that far out, you're going to effectively pay in having much wider spreads and a little bit less liquidity. But again, it's all relative to your goals and your underlying assumptions about where things are going and I think there's a need for it in the market. I think they serve a good purpose and they're definitely something that I don't see changing. In fact, I think they're going to continue to get longer and longer durations. I foresee eventually that people are going to start trading five and 10-year LEAP options in some cases in the future. Once that happens, we'll see how the volatility plays out on those and maybe there'll be a point at which we start selling leaps as underlyings and start taking in some implied volatility edge on those. I'm not sure what the research would suggest at that point, but it would probably require a longer time period for us to be able to analyze those than we have available right now. In either case, hopefully this helped out. If you guys have any questions on LEAPs or any questions you'd like to hear on the podcast, as always, let us know. Shoot us an email, send us a Tweet, post on Facebook or head on over to optionalpha.com/ask and leave me a private voicemail there. Again, 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 answering the question, "Is 5% per month trading options even possible?" Once and for all, I think that the answer to this question is unequivocally, "No. It is not possible to do that on a consistent basis." I'm actually floored that there are still sites out there… I won't even name the names, but it's probably some part of the title of this podcast that promote and suggest that 5% returns per month on a whole portfolio basis is consistently possible. If you really think about this rationally, you would be looking at 60% annualized returns every single year and that would put you in not only the top category for every single hedge fund, every single mutual fund, but very quickly, you would own the entire world. You would have at that point, compounded growth at 60% per year which you would own the entire world of investable assets. Therefore, it is not possible to do 5% per month trading options.

Now, is it possible to have a 5% month? Of course! Could you have one single month or maybe even two months in some cases where you have just insane returns and really good returns for those two months? Of course it's possible. It's statistically possible. It's probably happened to people before. But on an ongoing basis, it is completely ridiculous to think that you can generate 5% per month trading options without taking on massive, massive risk and leverage. And of course, the more leverage, the more risk you take on, the higher chance you increase and probability of completely blowing up your account is. Hopefully this ends that entire conversation. There is no way you can get to that level. Now, we've talked about what you could get to and we've got training and guides on expected returns, portfolio returns that you can target. It's got to be reasonable and I think a lot of people are being unreasonable in this space. 5% a month, no way, no how, nobody's ever done it. Show me somebody who's ever done consistently 5% per month or anywhere close to that 60% annualized returns. It's not possible and it's not out there. Hopefully this helps out. Until next time, happy trading!

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, I wanted to offer maybe some options trading advice for teenagers. Now, where this came from is actually from my nephew who came to me and started asking questions about what I did and why I always looked at these funky charts and all this stuff. And so, it was kind of an interesting conversation, nothing that I actually thought would actually happen, but it did. He came to me and said, "What do you do? What are all these charts?" I tried to explain it to him a little bit, but I thought to myself, "Okay. There's probably a need for a little bit of advice maybe from the parenting side to teenagers or to their kids or friends or mentors (whatever you do) that would help out." And so, I wanted to offer some of that now.

In all fairness, my nephew is a self-described preteen, he says because he is not yet 13, he is 12, so he describes himself as a preteen. But this advice is more for people who are kids, who are teenagers who are starting to get interested in the markets. Now, I actually had a little bit of an interest in the markets initially during like the later part of my high school experience. Thankfully, my mom and I… I think I've said this before, but my mom actually took me to a seminar on stock trading and options trading like way back. I mean, this is old-school back in the day and that's where I got one of my first introduction to this entire thing and I just very much gravitated towards it very naturally. I think there's a lot of value to be set in getting kids involved in options trading and just managing their finances and basically, financial literacy as early as possible.

One of the things that I want to do in a later stage of life is start doing more with financial literacy for teenagers and kids. I think that we've done a good job and we're going to continue to focus on adults and people who have investable assets. But one of the things I want to do in the future is start to really focus on again, kids and teenagers and financial literacy. I think there's a huge gap in financial literacy in this country and I'm just baffled by it, like I don't understand why in most cases, school systems and universities teach everyone all this information to get a great job and make all this money, but nothing about how to manage their money or how to navigate the markets. It's like – Okay. You made this money and then just give it away blindly to somebody else. Who knows better? I don't believe in that. I think everyone can make better decisions by themselves and can manage their portfolio just as well or if not, better than somebody else without the fees.

In all of this, some of the advice I would give to teenagers… If you are a teenager and you're thinking about trading or started trading or if you're a parent and you're starting to coach your teenager or coach your son or daughter on trading and finances, I think there's a couple of key things to learn. One is you have to learn expected outcome. I think that's probably one of the biggest things that I would say is relevant for this day and age and even going forward in the future, is looking at the expected outcome of a system, a strategy, a financial model because there's going to be gyrations and what I think people fail to understand now is that when they look at a financial model, everyone's always looking at the initial ups and downs. "How much did I make this month?" versus "How much did I lose last month?" Those numbers could be the same or drastically different. But what's more important than the initial gyrations up or down or even during the entire period is the expected outcome at the end. If I know that my expected outcome is a 10% return, then really, I shouldn't care about the in between.

That's why I think I relate this a lot when I think about kids who are starting and people who are starting early as that whole old concept that we all know about starting to save earlier and basically valuing compound interest. If we start saving earlier, then we have all this money at the end because we started earlier. It's the same thing with expected outcome. If the expected outcome is X, then the earlier you start, the quicker you're going to get to that level because you're going to have more time to increase trade frequency to hit your probabilities, more time for market gyrations to basically trade through. All of that stuff is way more important than starting later on. That's the first thing, expected outcome.

Two is risk management or position size. I still am baffled by why people trade too big, too large. I think the earlier we are able to teach people the importance of trading small positions in whatever they do… I'm not even saying just trading. I'm saying whatever they do as far as investing should be in small positions in multiple different areas or different sectors, investments, so that no one single investment blows up in their face and cripples them. A lot of people still throw all of their money into the stock market and while that's not a bad thing, I think they should have more than just their money in the stock market. Many of you guys know that I'm a real estate investor. I obviously run Option Alpha, so that's another investment that I consider to be an investment. You should have your money in different places. I still am baffled by the fact that a lot of people don't understand this concept. The earlier we can describe it to teenagers and present that information to them, the better off they're going to be. That's one of the other things.

The third thing I would say is consistency and persistence. I think those two things are some of the most important mental concepts that we can teach young people and teenagers in this space, is having the mental fortitude to consistently work at a system, to be persistent in trading or investing or saving, whatever you want to use as your guinea pig for your conversation, but to have the persistence to keep doing that when it feels like you don't want to do it. One of the things that I would definitely say me and my wife did and I'm super proud that we did this is when we got married and even still to this day, I've never had a car payment. I've never bought a new car. I've never even bought a used car and had a car payment. I know that's not possible for people, but for us, we made it possible. A lot of people, a lot of our friends at the time when we got married and we're living in a small condo, everyone bought new cars. They bought new houses, they bought new cars. We knew that that's not what we wanted to do. We knew that we wanted to save, we wanted to invest and that was our focus. We had the persistence and the mental fortitude to not do the things that everyone else was doing because we had the long-term endgame in mind.

That's something I think is lacking in this day and age, is that everyone sees… And in most cases, it is done by the parents and by family members. Everyone's trying to keep up with the Joneses. If somebody else gets a new thing, widget, then everyone else has to get the new thing, widget. We need to teach our young people and our teenagers that you don't have to do that to be successful, that you can have the persistence to keep saving your money and forego those shiny objects that you don't really need right now and will serve you no purpose in the future for something else greater in the future, some higher expected value in the future. One of the things that I learned early on and I think about it now is that if you take anything that you buy right now, it's basically worth five times more in the future, meaning if I buy something for $100 now, what I'm effectively doing by buying something for $100 is giving up $500 of potential value at some point in the future, 10, 20 years from now.

I would relate that back for teenagers. I would say that $20 thing right there could be worth $200 in a couple of years if you just saved your money and invested it or did whatever. So, tying those two things together and making it more of a value proposition to save money or to invest money, do whatever they need to do I think is a better way to go about it. Hopefully this helps out. I don't know. I thought about this today and I was like, "You know what? This is probably something that we could start a whole discussion and thread on." If you have comments on this or if you've started to go through this with your own teenager… My daughters are not teenagers yet, so we are not at that point yet where we have to start having these finance conversations, but eventually they will. Let me know if you have any comments or ideas, suggestions. We'll start a huge thread about this in the forums and on the community. 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 why the implied volatility edge pays dividends through delayed gratification. I will continue to talk about this concept at nausea until I basically can't speak anymore. I feel that people still are missing the concept here and I'm trying as many times and as many ways as I can to explain why the implied volatility edge plays out over time. And so, I will take the onus and say if it's my fault that I haven't explained this well enough, I'm going to try a million different ways because I think it's a really key, really critical aspect to options trading and to trading in the market that you have to understand. I still get people who miss this concept, miss this point.

Here's the deal. Markets are efficiently priced at the time of execution. That's the thing that people always (I don't know) miss, but they don't really understand. Markets are efficient at the time of execution, meaning at the time that you make a trade, if you're trading in a liquid underlying like the S&P or one of the other major ETFs or stocks, markets are efficiently pricing in what the probability of that particular strike price or that option contract going in the money or out of money is at expiration because it's all based on implied volatility at that exact moment. How far is the stock going to move? Is the stock going to move 10%? Is the stock going to move 20%? But whatever that number is, that number is known. We know that implied volatility is X at trade entry or 10% at trade entry, 20% at trade entry.

That's where it always hangs people up because they see that and they start running numbers on zero-sum games and expected returns and they see, "Okay. Well, this doesn't make sense because if I win this percentage of the time and win this amount, but lose this percentage of the time and lose that amount, I'm down on the trade and it doesn't work out." The problem is that on trade entry, it's completely different than what actually happens in reality when you get to expiration. The disconnect and the missing piece here is that you have to wait from trade entry to trade exit or expiration, whatever comes first basically. You have to wait that timeline, that delayed gratification period for pricing to mature and implied volatility to show or reveal itself that it's overpriced.

If you think about a trade that you get into, so say you're just selling regular options, no spreads and implied volatility is saying right now at trade entry that the stock is going to move 5% the next month, well, all the option pricing is going to be based off of that 5%. It's going to be pretty efficient. There's going to be no free lunch, meaning you can't just get into or out of contracts quickly and make money. There's no arbitrage opportunity there. But if you hold the contract through the expiration period or until you reach your profit point, what you'll find is that the pricing matures and the market starts to realize or the stock starts to trade and now, the option pricing model catches up with the fact that the stock has not moved 5%, not even close. Maybe it only moved 2%. And so, as you go closer and closer to expiration, now pricing matures and now, that implied volatility edge starts to reveal itself more and more. But again, what you have to do is you have to have delayed gratification to wait for that maturity to happen, to wait for that pricing inefficiency to take place.

I think about it, actually, it's a really easy concept. You place the trade today, but you make money at expiration once it decays and the volatility edge reveals itself or presents itself. The difference between today and that day just requires a lot of patience, a lot of delayed gratification, a lot of confidence in the system. You have to have that. But everyone is focused so much on the entry pricing that they fail to recognize at trade expiration the implied volatility edge that's present and that you're going to win more often than a trade entry suggested. If you get into an initial trade and it says you have a 70% chance of being a winner on this particular contract, well, when the pricing actually plays out, what we've seen in some cases is you might have won 78% of the time or 80% of the time and then you start rolling in things like profit-taking which reduces drawdowns, increases win rates, increases trade frequency, now maybe you're winning 82% of the time and cutting down on huge drawdowns that you could've had if you just let the contract go all the way to expiration.

There's these kinds of secondary or tertiary factors that are in play here that people don't really account for and it's all through delayed gratification. You have to wait for those pricing events to happen later in the expiration cycle. Hopefully this helps out. If it did, let me know. Shoot us an email, send us a Tweet, add it on Facebook, share this with other people or give us a rating and a review on iTunes or wherever you listen to it. This for me is probably one of those podcast which hopefully I will send out to people in the future if they still have questions on it and will be one of those podcast that helps clear up a lot of the discrepancies that people often have as they get started. As always, if you guys have any questions or comments, let me know. Until next time, happy trading!

Hey everyone. This is Kirk here again and welcome back to the daily call. Today, on Show #200 which is actually kind of crazy that we're already at Show #200. I don't feel like we've done 200 episodes, but clearly we have. But today, on Show #200, we are going to be talking about probably one of the coolest things that's going to come out of our auto-trading software, a new platform that we're going to be rolling out here soon and that is the crowd-sourcing of options trading ideas through these automated opportunities. That's a lot, right? You're probably thinking to yourself like, "Okay, Kirk." Well, let's break this down and see what this means.

One of the things that I wanted to do for a really, really long time with Option Alpha is tap into the knowledgebase and pool of trading ideas that are present in our community. We've got thousands and thousands of members and we've got almost 100,000 now free members or registered members on our website which is insane. Once we launch the auto-trading software, everybody is going to be able to at least connect to it and start running bots. Now, it will be bots at different levels and portfolio bots for more upgraded levels and the number of bots obviously will be limited based on the membership level you have, etcetera. But the idea with rolling out this auto-trading platform to basically everybody in our community is that we want to start to build this crowd-sourced intelligence around options trading ideas and strategies. And so, one of the things that we'll have in the new auto-trading platform is a tab or a section called opportunities. And so, what this will do is this will aggregate some of the best bots that are being traded from other members in the community. If you build out a bot and you want to share that bot with the rest of the community, you'll be able to share the bot in a strategy that you're working on, that you're trading with everyone else and everyone else will be able to see in a list, in an opportunities list, things that are coming out or trade ideas that are coming across the screen that meet certain criteria or certain filters.

And so, very much like we've done before in the past with our watch list which helps you filter and hone in on specific trading ideas, this type of automated opportunities is going to be a very simple click to confirm type action. You'll see trades and strategies come across. Maybe somebody, John Doe has created a great volatility bot and it's really killing it and it's doing well and that's something that maybe we wouldn't have thought about or we wouldn't have created, but he's been doing it for the last three months or four months and it's been doing really well, you'll be able to one-click confirm or clone that bot that he's trading and trade it in your own account or one-click confirm, make a trade that somebody else has made and you like that opportunity too, one-click, clone and confirm and make that traded as well. We're trying to reduce as much of the friction as humanly possible and I think we pretty much reduced it to a single click of your thumb or click of your mouse. But reduce that friction that's required to not only find ideas and validate them, but also to quickly execute them in your account, so that you have no lag time. That's probably one of the coolest things about this platform.

In addition to that, obviously, we love the idea of crowd-sourcing all of these different strategies. I knew it will take some time to start building out the data of strategies that people create, but as soon as people start building their own option strategies, their own execution strategies or way of going about it, once that data starts to mature and we start to get lots and lots of trades, it's going to become evident what strategies are working better than others. This is something that I've always wanted too, is I want to know what are other people trading that I maybe not trading and how can I replicate that style of trading or that framework. This is something that we'll have. Again, if you build out a bot, you can put that bot publicly into the community for other pro and elite members and when other people see it, they can go in and they can dig through your bot and they can see how many times you won and how many times you lost, what the return has been. They're not going to see any account information. We'll keep all that stuff private. We're not going to share that information with everybody. But as far as like the statistics on the strategy or the bot that you created, everyone will be able to see that and if they like it, then they can clone it and if I like it, I'm going to go in there and start cloning other people's ideas and strategies and frameworks and start executing it in my account.

This is something that we've really, really lacked in this entire options trading space for many years. In fact, I don't think it's ever been present before. We always have people who post ideas on blogs. We have people who share ideas on videos. That's how Option Alpha started. Option Alpha started by just me posting my trades and running this little blog on the side and people started asking questions. But now, the idea of having a central hub where people not only are actually executing trades, not just ideas, but actually executing trades and there's a way to track their performance and their stats and then a way for users to come in, like me or you and actually clone or replicate that strategy in our own accounts with very little friction, meaning literally one-click and then move the bot over to your account. That is something that has never been done before in this industry and it's probably one of the coolest opportunities in this space and something that will I think revolutionize the entire options trading space because this crowd-sourcing of intelligence is a huge advantage. And so, once we have more people in and we have more people trading, it's just going to get better and better. It's a self-fulfilling cycle that feeds on itself because the more people that trade, the more strategies that people come up with, the better ideas come out of the community. It's something we wanted to do for a long time and now, I think we're very much at the point where we're going to be rolling it out and it's going to be again, something that revolutionizes the industry. As always, hopefully you guys enjoyed this. If you 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. One of the things I'm very excited about with this new auto-trading platform that we're rolling out soon is that we have basically been able to remove human error from the options market. Now, I won't go as far as to say that there's totally error removed because there's error in building out a bot or strategy. If you build out the wrong bot or the wrong strategy, then that error is on the frontend. But what I'm talking about is the errors on the backend in the execution of a strategy and breaking of rules that so commonly happen when we're trading as humans, as people, when we're manually clicking and entering trades.

What has happened for basically all of history in the options trading space, the entire time that options trading has been around for retail investors is that we've had to manually choose, pick and choose our entry points, manually pick and choose our exits in most cases and then manage our portfolio. What we've done now with the ability to do this all through a bot is you can now build out a strategy that has no human error involved in it, meaning that if the bot is designated and designed to execute a closing trade at a specific price, it' going to execute that closing trade when it gets to that price. If it's designed to manage the allocations and not get over a certain number of trades in a particular ticker, it's not going to do it no matter how great the opportunity looks.

When human error starts to become involved in most trading, you start to see people start to bend their own rules. They start to look at a chart and say, "Oh. Well, this is a different scenario. I've already had five trades in here, I'm over my 5% allocation, but this is a different situation. This is why I need to go to 10%. This is what I read online and why I need to go to 10% allocation." That bending of the rules creates a break in the portfolio eventually and eventually, it's going to break. Eventually, it's going to break down and it's going to start to collapse down. And so, what we're trying to do is we're trying to basically remove ourselves, remove the human element of trading in the sense of making decisions and manually clicking and introduce a more systematic and more mechanical approach to options trading with this auto-trading software.

I think it's really cool and I just wanted share that tidbit today because I think that in and of itself is why this thing is so valuable and why many people at least should start trying it out when it rolls out. We'll have bots that you guys can try and trade and all that stuff when it rolls out, so you guys will be able to test this out and see if it works for you. But the concept of it and using this to improve efficiency and streamline a lot of trading mechanics that we have to do manually now as retail traders is something that's really, really cool and something I'm very excited about. Anyways, if you guys have any questions or comments, just let me know. Until next time, happy trading!

Hey everyone. This is Kirk here again at optionalpha.com and in today's daily call, we are going to be talking about the difference between valuing the idea of options trading versus the actual execution. What I've definitely learned in life, not only in my own experience, but also in doing a lot of research in the space of success and mental fortitude, all these things which I geek out on, on the side besides options trading is I've definitely learned that people value the idea of something, like whatever it is, options trading, becoming wealthy, being a good parent, having kids, running a business. Everyone values the idea. It's all about the idea, the dream, the big picture, pie-in-the-sky type thing. But what everyone fails to recognize is that there's execution that's required to make it happen. Now, we know this subconsciously. We know that if we want to build a business, we actually have to build a business. If we want to be good parents, we actually have to be good parents. We have to work at that every single day. It's not something that comes naturally.

But what I think is interesting is that actually, Harvard did a huge study on this, not only with companies, but also with executives to find out what are the things that actually make people start to value the execution or maybe what are the things that they overestimate or underestimate when it comes to the second part of valuing ideas which is the actual underlying execution. They actually found four different things. I think these things were pretty interesting and so, I want to share it today on the daily call. The first thing that they found is they found a discrepancy in duration, meaning that when people start to come up with these ideas… Let's continue on the theme of options trading because that's what we do. But when people want to trade options, they love the idea of trading options. They want to work from home. They want to generate all this income and they want to do all this thing on their own terms with no boss and just their computer. It's a great idea, but what they lack is they lack the ability to see the execution that's behind it. When it comes to duration, the problem is that they assume that it's going to take much longer than it actually does to get started.

Now, this is specifically to get started and to get the ball rolling. Most people assume that it takes much longer to get started than it actually does. In fact, I see this a lot on our end because I see people who are going through our courses and our training and they just watch video after video after video, but they'd never do anything with it. There's no point to doing any of that unless you actually start to execute. You've got to make a trade at some point. Make a small trade, make a small spread trade and start getting your feet wet a little bit in the system because again, the disconnect here is that people assume it takes way longer to get started than it actually does. You can get up and running pretty quickly. Now, you shouldn't just go and blow all your money on random ideas. I want you to do training. That's why we have free courses and training in Option Alpha. But after that, you got to start executing because it's a numbers and high frequency game anyway.

The second thing that they found in that Harvard study was perfectionism, this idea that everything had to be in place before you got started. We know that that's not true. We know that there's no way we could have all the information, know every single detail, every possible scenario that could potentially happen before we get started. But that holds people back. They keep researching. They keep learning. They keep trying to put together checklists and guides and mind maps, so that they have everything on paper when we know that that's not how it works. Again, this whole idea of perfectionism really holds you back from actually starting to execute. What I talk about and I think I've even done a podcast on this is this idea of failing, but failing fast. I've always liked the idea of trying something new, failing, learning from that experience and then trying to do it again. By no means am I perfect at doing this, but I like to try new things and see what works. Option Alpha, if you even just look at the website and where it's been 10 years ago and where it is today and where it's going to be tomorrow, it's a constantly evolving website and different courses and themes and colors. It was never intended to be what it is today 10 years ago. It's constantly evolving. Don't let perfectionism get in your way.

The third thing is commitment. People underestimate the commitment that's required by other parties around them to execute on that vision or that dream. What I'm saying here is that you have to get other people involved. A lot of people assume that when they start going after this or value this idea of options trading or trading from home, they do it in a box. They do it closed off, nobody else around them. Well, what you have to do is you have to loop in other people. You have to tell your spouse, your significant other, your friends, your family, your coworkers. You don't have to tell them everything, but you've got to get other people that you need to become accountable to, so that you basically increase your chance of success in actually doing something because now, you've told it to somebody, now, people know it, now, the onus is on you to start actually executing.

The fourth thing is effort. Now, I think this was interesting. In the study that they did, they actually found two different things when it came to effort. First, people overestimate the long-term effort that's required. I 100% see this in my case with options trading because people burn out in this business. They don't have the fortitude to continue trading for many, many, many years. In fact, that's one of the reasons I've said many times why I continue to run Option Alpha and why I will for many years because it keeps me accountable, because I have to come back here every day and I have to be accountable to you guys and to the rest of the community. That has helped me become a successful trader. And so, people overestimate the long-term effort that's required. They think that there's this big ball of effort that's required and once you use it up, it's done and the business is built or you're a great trader, you've done everything you need to do, but you have to keep at it. It's like going to the gym and eating right and being healthy. You've got to keep eating right. You can't just eat right for three months and then totally quit for the rest of your life.

The other thing is they underestimate short-term effort. This gets back down to a different study and research that I've read before. They didn't reference it in Harvard, but I know this is tied in. But people underestimate the short-term effort that's required because you have to break through your current habits because again, your mind has subconsciously created these habit loops. It does things naturally to reduce energy and strain. You have to break through those habits which require a lot of cognitive effort initially on your part to create a new routine, to think about things differently, to start trading or seeing the world a little bit differently. That's a little bit tough. It can be tough for a couple of weeks for sure. But once you break through and create new habits, then it starts making things a lot easier. Hopefully all this stuff helps out. If you guys have any questions on this, let me know. But I thought this was a good little research paper to reference. You can just look it up online. I think it's Harvard business review and just search valuing the idea versus execution I think is what I finally came up with. Let me know if you guys have any questions as always. Until next time, happy trading!

Hey everyone. This is Kirk here again at optionalpha.com. Welcome back to the daily call. Today, we are going to be talking about quadruple witching, what it is and should you pay attention to it. Quadruple witching which is honestly the craziest term that options traders could've come up with, but I guess it makes sense for what it basically means and that is it refers to the third Friday of every March, June, September and December, basically the ends of quarters every year. And so, on these days, what ends up happening is you get four different styles of contracts that basically expire on the same Friday. That's why they call it the quadruple witching and more often, they refer to it as quadruple witching hour which is the last hour of these trading days, 3:00 to 4:00 Eastern Standard Time that generally sees that increase in volatility.

But on these four days during the year, these four end of the quarter expiration days, you get market index futures, market index options, stock options and stock futures that all expire on the same day. This naturally creates increased volatility in the markets, naturally creates increased volume. In some cases, I've seen research where they say the volume increases in some cases 50% higher than the general days on average. And so, what happens is that we get to the end of these quarters and all of these different products are expiring at the same time, so institutions and regular traders have to make decisions. That's why it becomes such a volatile time period, especially towards the end of the day, this quadruple witching hour because people have to make decisions. "Do we keep these hedges on? Do we speculate on new products? Do we roll contracts? Do we close out of contracts? How aggressively do we do this?" But it's all got to happen before the end of the day. That's why we see this increased volatility and this increased volume in the market.

Now, that's basically what it is. The question I always ask is "Should we care?" I think we should at least know that it's coming, at least be present and have the awareness to know that quadruple witching is happening because we might see more volatility in our options positions, we might see more volatility in the underlying market and that doesn't necessarily mean anything. Volume and volatility just mean that there's more gyrations. It may or may not distinguish a big trend. There's no discernible research that has been out there that we found that says that quadruple witching always is an up-day or always is a down-day or always means that a turn of a trend. If we're going up, now we're going to go down or if we're going down, now we're going to go up. None of that stuff actually happens. There's no discernible research that says it leads to one thing or another.

All we can then determine is that there's just a lot more fluctuation in the market and a lot more volume. And so, if I'm trading options around this day, I know that it happens, I know that it's coming and I just know to be aware that there is going to be some more gyrations in my positions. If you know that that happens, you should be okay. It doesn't dramatically change in any way, shape or form how we trade options, how we think about strategies, how we execute new positions. In most cases, we've actually seen a lot of profit taking on the days. When we get into quadruple witching, we'll start, again, putting on a lot of our contingent closing orders into the market, so that if there are gyrations that end up going past one of our profit-taking points, we take profits while there's profits to be taken. I would say use the increased volume and the increased liquidity to your advantage to take advantageous and opportunistic profits when they present themselves.

Hopefully this helps out. Hopefully it was a pretty simple explanation. It's not really much else besides what we described here, so don't read too much into it. It's something that you should be aware of. It's something that obviously causes a lot of volatility and volume in the market, but it doesn't dramatically change the outcome and it doesn't dramatically shift how we should be trading or how we should be using option strategies. As always, hopefully you guys enjoyed this. 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 why recency bias is killing your potential to be successful. This one is a popular one for me and one that I am truly fascinated with. I continue to be fascinated the longer and longer I run Option Alpha with just the psychology of most investors and the psychology of trading, in particular, how it affects options trading and how people become successful or not trading. Recency bias I think is one of the true, true silent killers of options traders.

The whole idea of recency bias is that recent events or past events are going to affect our new decisions that we make. The reality is that we all know and we've talked about before that we are creatures of habit. Our brains are hardwired to do things that require less cognitive strain on our brains. We get up in the morning and we tie our shoes the same way. We go to work the same way. We brush our teeth the same way. We are creating habit loops in our brains, so that we don't have to think about doing things. When is the last time you thought about driving? That you really cognitively thought about what you were doing and how you were steering the car? You don't. You have a lot of habits that your brain has created. One of those habits that is basically in there is the idea that recent events or past events are going to affect new decisions. If you burn your hand, you're going to think to yourself, "Well, I probably shouldn't put my hand on the stove because I'm going to burn my hand."

This then trickles over or spills over into investor psychology a lot. What happens is that if investors get into the stock market and they do really, really well, then they have this recency bias that all of their positions will do well. They might over-allocate. They might get into positions that they shouldn't have because the past position that just happened a month or two or a week ago did really well. They have this false expectation, this false positive that things are going to go well. The same thing can be said during down moves or drawdowns in your account. If you have let's say a bad string of trades like two trades in a row or five trades in a row even that do really, really bad, those recent events, those recent trades are going to more heavily weigh on your decision to keep trading or to keep trading that strategy.

The reality is though, is that none of that really matters, especially when it comes to options trading and high probability expected outcome systems like this because any one given event does not have a dramatic impact on the future expected outcome. If I lose on my first trade of the week or my second trade or even third or fourth or fifth trade of the week, that really has no bearing on that strategy until we are making hundreds and hundreds of trades. The expected outcome doesn't change because we had a string of bad trades or a string of good trades in either case. But what people often do is that they often relate that this expected outcome only works if the first few trades do well. If the first few trades don't do well, then everything that I've said about expected outcome, high probability of success is basically garbage. It doesn't work. But that's the recency bias kicking in, your expectation that recent events are going to dictate future events when that's not true.

Each individual trade is an independent event of the previous trade. No matter how many times people try to disprove this, the reality is that when you are trading in a highly efficient, highly liquid market like this, we don't know what the sequence of returns you're going to have. The focus should always be on the endgame. It should be on the expected outcome. That's why we built our back-testing software which you can get to at optionalpha.com/toolbox, so that you can back-test a strategy and optimize a strategy before you get into the trade, before you start even making that first dollar investment, so you have a pretty good idea of what it could look like in the future, if that setup that you're doing now does see drawdowns or what the win rate is or when you should be taking profits. That's why we built that, so you have this future endpoint to be looking at and to be monitoring. It's also why we built our auto-trading platform because for me, I want to totally remove myself from the equation.

There's still a lot of emotional and perception I guess on my side from a human standpoint that we can still remove with auto-trading. And so, auto-trading is going to be amazing because now, we can take recency bias that we have to feel and have to visually go through and have to click through. We have to close out of trades that are losers. We have to wait for trades to come back around and become winners before we close them. That's all out the window now. With auto-trading, all that happens automatically, so we don't have any impact or any influence on what should be a very systematic, very rigid process that can be done by a robot. A robot can make these trades trading against or towards the expected outcome, so that we have trades, we have setups that should meet our requirements for income, for returns, for drawdowns, for everything in the future and we just let it go and we sit back and we just have to be monitors in patience of that system.

Hopefully this helps out. Hopefully it again, got your mind thinking a little bit differently today because recency bias is really one of the things that I see often with traders, especially new traders that they get themselves caught in. It's a trap that you fall into and it can lead you into not trading or trading the wrong way in some cases because of just the past couple of trades or the past couple of months. But again, it has no impact or no real bearing on future expected returns when you are in a high probability system like the one we teach. Hopefully this helps out. Until next time, happy trading!