Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What is a broken wing butterfly in options?” When you’re options trading and you’re starting to create an option trade called a butterfly, sometimes what people will do is they will create a butterfly strategy whereby you break one of the wings. Now, this doesn’t necessarily mean that you just knock the wing off or you snap it. It’s basically that you just create this unbalanced position where you have an uneven distribution between the different wings of the butterfly position. For example, if you were going to create a butterfly position and you were going to sell with call options, the at the money strikes say around 300 and you were going to create a butterfly with calls, you would then maybe buy the 298 call option to create the lower wing, but on the upper side, instead of going $2 higher on the top side of the butterfly, you might go $3 higher or $4 higher or $5 higher. You would do the 298, 300 and 305. The bottom half, if you will, of the butterfly position or the left half, depending on how you think about it is only $2 wide. The right half or the top half of the butterfly is $5 wider and that’s what creates the broken wing side because it’s not even or balanced.

Typically, when you see the butterfly strategy written out in options trading books or on websites, in articles, you’ll see that the wings are even and balanced, so $2 lower, $2 higher. That’s how it usually is started. And then if you wanted to skew the position, you would break one of the wings and you would start to go wider on one end or more narrow on the other, however you think about it. That’s what creates the broken wing butterfly. This is really used if you have a preference in direction or if you want to reduce risk in one particular direction versus the other. If you wanted to reduce risk on the lower side, you might break the butterfly, so that it could have less risk on the lower side or if the stock goes down and you would be willing to accept more risk on the top side in exchange. There’s no free lunch here. You do have to kind of trade and seesaw the risk between one side or the other or choose to keep them the same. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Is volatility good for day trading?” I think the answer to this question is absolutely yes only because if you are going to be day trading securities and I’m talking day trading stocks or day trading options, if you choose to go down that path which we do not choose to go down that path, but if you do, then you need a lot of volatility to give you a chance to make some potentially big money during that time period. The problem with day trading anything, whether it’s stocks or options, is that generally, things are range bound and so, as a result, that means that there’s a lot of churning, but not a lot of net-net movement in your account. And so, what you need is you actually need a lot of volatility and in the right direction in order to be profitable. I think a part of the answer is yes, volatility is good for day trading because if you are going to be a day trader especially with options, you need lots of volatility, but the second part of that is it’s got to be in the right direction. You got to pick not only the magnitude of volatility that you expect, but also, you got to get the direction right and to me, that’s two things that are incredibly hard to get right in the market consistently. As always, hopefully this helps out. If you guys have any other questions, let me know and 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 the question, “How do you trade index options?” Well, obviously, this is a loaded question, but I think the gist of trading index options is pretty simple. Index options work and function very similar to equity or regular stock options with one real caveat and the one real caveat is that they are European-styled settlement which means that you cannot convert an index option into physical shares of the index because the index does not exist. It’s not out there. It’s just a figurative number that is trackable. And so, when you go through and trade index options, you really don’t have this worry of early assignment or assignment risk. What happens is that at expiration, the index options convert into a cash-settled value. And so, because they convert to a cash-settled value, basically at expiration, you go through the expiration process, if you have money and the value of the contract is valuable, then it would convert and just deposit the cash or you get to keep the cash value. If it’s the alternative and you’re losing, then you get the cash taken out of your account. Again, it’s just like a drawdown in cash.

There’s no real assignment risk and I think that kind of trips some people up. It also ends up tending to be bigger contract sizes. When you start trading index options, you start gravitating towards RUT and SPX and NDX, etcetera and so, those end up being larger ticker underlying notional value contracts as opposed to IWM, QQQ or SPY which are the smaller ETF kind of cousins if you will. That’s a little bit different as well. Again, most of the same underlying fundamentals work. You still want to use the same strategy methodology, the same techniques, the same position sizing. All of that still applies regardless of what you’re trading. It’s just a little bit of a nuance there with expiration and cash settlement that has to deal specifically with index options. As always, if you guys want to get more info on index options, head on over to Option Alpha, just type in index options. We’ve got a ton of stuff on them that you can check out for free and until next time happy, trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Is it better to sell options before expiration?” And I think this is really kind of a two-part answer and I think the intention of the person asking this question was something a little bit different than how they phrased it. But like I’ve said always, there are no stupid or dumb questions here and so, I want people asking questions. This is a legitimate question, word-for-word, that we got in the membership area just a couple of weeks ago, so I want to make sure that we address this topic because it is a question that somebody asked.

And so, the simple answer to this is – Well, of course, we have to sell options before expiration. Once the expiration date comes for an option contract, you can’t do anything. You can’t buy or sell the contract. I think what they were more targeting though, if I don’t use it so literally as literally asking the question, what they were more after is – Should I get rid of an option position that I have? Should I sell out of an option position that I have before expiration? And the answer to that is it depends. It depends on what the ultimate goal of the position is. If you’re just here to trade the option contracts and you don’t want anything to do with the underlying stock, then yes, we do suggest closing the underlying option contract position by selling it back to the market or buying it back from the market, whatever you need to do before you actually reach the expiration date because once you reach the expiration date, then that option contract, if it’s in the money, starts to convert into underlying shares or stock. If you don’t want to deal with that, then you have to sell out of that option contract or buy it back before expiration.

I think that’s really the key or the gist of what this person was asking in the question, so hopefully we addressed it properly. As always, if you guys do have any other follow up questions, just shoot us an email, Tweet at us, send a Facebook message, whatever you need to do to get in touch with us and let us know that you want that question added to the daily call podcast. We’ll definitely get it in queue, so that we can answer these for you guys moving forward. As always, if you guys have any questions, let us know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Does it cost money to sell stock?” The simple answer to this question again, is that yes, it cost money to sell stock nowadays at most brokers. I think this will change in the future. Already, we’re starting to see a change where a lot more brokers are coming out and offering this commission free trading platform. It’s very easy for them to start commission free on equity trades. There’s actually a number of brokers out there that offer commission free equity or stock trades, so that would allow you to then sell your stock for free though most people still do use a traditional brokerage platform which charges a commission or fee to get rid of stock or sell out of your stock position. The answer is yes, most people, it’s going to cost you money to sell stock unless you have already transitioned to a brokerage platform that does not charge you or you could go back to one of our previous podcast on the daily call and learn how to negotiate your commissions lower, so that you don’t pay anything when you sell stock. As always, if you guys have any questions, let us know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today’s question we’re going to answer is, “Can I transfer my shares to someone else?” Again, the simple answer to this question is yes, you can choose if you want to do a direct share transfer. I think in many cases, the share transfer has to be or it’s at least a lot easier to do when the two different accounts that you’re transferring it between are at the same exact brokerage. If you have your shares at TD Ameritrade or you have your shares at ETrade or Schwab or Fidelity, it’d be a lot easier to do that share transfer between the two different accounts. Usually, it just takes a little bit more paperwork on the broker’s end. You want to understand who you’re transferring your shares to, what the price is, what the effective cost is and all of that stuff before you actually go ahead and submit the paperwork and transfer the shares. Personally, I don’t think… I don’t know why anybody would want to do this unless they want to again, try to relieve some of the cost basis in it or try to avoid capital gains tax somehow if you can do that. But really, I don’t think that there’s a real good way to do this unless you have some overarching reason that compels you to go through the process to do it. It seems like if you want to give somebody shares, just maybe transfer direct cash and do it that way and let them purchase shares in the open market. In either case, hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Can you negotiate a broker’s fee?” The answer to this question is a 100% yes. You can and you should try to negotiate your broker fee. Do not take the broker fee at face value. In fact, many people for many different brokers have the ability to negotiate their fees lower and a lot of people actually do negotiate their fees, sometimes drastically lower than what the broker might typically say that they charge as a commission on their public-facing website. I think the idea here is that we don’t think that we have the power as regular traders, regular people I guess to go to a big brokerage or to a big investment company and say, “Hey, look. I’m willing to move some money over here and to use your platform in exchange for a reduced fee.” or in some cases, waving fees for some types of trades or products completely. Again, there are so many different things you can do here if you just ask.

We do have a standing policy with my broker right now that we ask them every year at the same time to reduce our fees and we have gotten reductions in fees pretty much every single year that we’ve done this. Now, we’ve done a podcast on this on the regular weekly show, so you can check out Option Alpha’s podcast and just search commissions and it goes through the whole process and how I set up the person on the support end. I tell them about my history and I use a very specific terminology and phrasing to get that reduction. But the idea here is you can and you should reduce your broker fee. Now, in some cases, you don’t need to reduce your broker fee because you may not be paying anything. Like if you’re at Robinhood and you’re trading stocks and options there, fine, you may not be paying anything. But again, what I always tell people is “What are you paying for somewhere somehow?” If you use a free platform, it’s probably free for a reason, meaning it has limiting technology someplace else or it doesn’t give you the ability to do stuff that you otherwise could’ve done, so just make sure you understand again, the whole spectrum of what you need for your trading account. As always, if you have any questions, let us know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Can I buy stocks online without a broker?” The simple answer to this is yes, you can, but I don’t necessarily think it’s the best thing to do. You can use programs, what are called DSPPs which are direct stock purchase plans. A lot of companies actually give you the ability to sign up to purchase stock directly from the company or through your employer. You can sign up and purchase stock directly from your employer, but I don’t think that they’re necessarily the best way to go. One, because it really is very limiting. You go through all this hassle to sign up and purchase stock directly, but then if you need to sell or you need to go through the process of selling, who’s to say that they’re going to be liquid enough to sell back those shares immediately or at effective prices as the regular market?

And then two, many places that do have a direct stock purchase plan or give you the ability to reinvest dividends through a [Inaudible] program, stuff like that probably has some sort of service fee or convenience fee that they might charge you and it could be just as little as $5 or $2, but that is really just the commission to end up using the program and using the system. I think you’re better off these days using a free broker. There’s a couple of them out there now. Robinhood is obviously this biggest one. It gives you the ability to truly start free and to buy stock in whatever company you want for free. Do you have to use a broken in that case? Yeah. You’d use Robinhood as a broker, but it gives you the ability to do everything for free. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about the cognitive dissonance bias. And this is another favorite one of mine and just kind of dovetailing off of yesterday’s talk about the self-attribution bias, but cognitive dissonance is basically this idea that investors will potentially ignore a lot of newly acquired information or even pertinent and relevant information that they just come into contact with because it conflicts with how they previously thought the world worked or how portfolios worked or how investing or trading worked and it’s really detrimental because the problem is that sometimes you could be staring something right in your face. It’s right there in front of you. It’s researched. It’s backed. There’s data behind it. There’s a rationale and there’s a value to it and you just push it aside. You just cognitively take your hand and just move that to the side because you don’t agree with how that is now conflicting with how the world works in your mind or how you thought the world worked. I would encourage you especially today in the world of fast-moving markets and new information flying in from every direction, not necessarily to push everything aside. I would encourage you to take in information that you get and then process it and figure out if it’s actually relevant for you, not just immediately dismiss it.

Usually, when I talk to people and this even happened today where I was writing a couple of emails back and forth with people and I talk about options trading and the implied volatility edge and IVR and all these things and immediately, it’s just dismissed. It’s just put to the side like it doesn’t even exist, like it’s not been researched and it hasn’t been back-tested. There’s not a thousand different white papers on why it exists and how it’s going to exist in the future, but they just immediately push it to the side and that is a really bad mentality to have in trading. Look. To be honest with you, we made a cognitive change in how we traded our portfolio just a couple of weeks ago and we did that because new information came up that allowed us to make a new decision with how we were going to manage our portfolio moving forward. And many people who are members know that this decision was a brand-new thing that we did. We have never previously done this before, but now, we are making the conscious choice to now do it moving forward. Now, this to some degree kind of conflicted with how we thought the world would work with options trading and portfolios before and so, we had to fight back that resistance because the data and the information was so overwhelming that it caused us to make a change. It basically require that we did something a little bit different than what we were used to.

Again, don’t fall into this trap that all this new information because it conflicts with what you thought was real or what you thought the world or how the world worked, that that allows you to push this to the side. That might be just the information you need to make a dramatic shift in your portfolio. As always, hopefully this helps out. If you guys have any other questions, let me know and until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to talk about self-attribution bias. This is probably one of my most favorite biases that I see people have and I think that it’s a hard one initially for people to struggle to get over because we live in a society where everyone is posting on Instagram and posting on Facebook and your best foot is always facing forward and you have the decision to choose that. And you’ve heard the saying before, “Never confuse brains for a bull market.” or potentially, you’ve heard that saying of words. It’s a very common Wall Street saying, but it has a deep rooting and meaning in this self-attribution bias which is this idea that we have this processing capability and this cognitive information filtering where we have a tendency to credit our success to some talent or skill that we have, but then on the flipside, we blame all of our failures or any potential failure and situation, thing that really happens bad to us on something beyond our control. If we do really, really well, then we blame it on our talent or success, our pedigree, our degree, our skill, our negotiating, everything, anything that we could potentially credit to our success. And then on the flipside, when things go wrong, it’s not us. It’s the economy, it’s the president, it’s this, it’s the Tweet, it’s China, it’s Russia, it’s America, it’s Democrats, it’s Republicans, it’s whatever.

We do this self-attribution bias to an irrational degree on the success side. And so, as investors, this is really damaging because we find ourselves… And I’ve talked about this positive bias before, this negative consequence that happens from seeing trades that actually work out that you shouldn’t have done before, but that’s what happens. We get into this self-attribution mode where we make a trade that we know we shouldn’t make and we feel kind of funny about it and we feel kind of silly about it and we have this hunch that things are going to go right and then it does and it’s a negative reinforcing belief, this idea that we are doing something that is bad for us long-term, but feels right because we had one positive experience or two or three or four positive experiences. We have this self-attribution bias that we assign all of this success to some magic skill that we have as a trader, into finding a secret indicator or finding some thing that nobody else has potentially seen before or other people really don’t understand, but it couldn’t be further from the truth. We have no skill in the market. We just have mechanics and we have emotions and either one or the other is going to control or steer the ship. There’s very little skill. There’s just the emotional stability, the self-control to do the right things mechanically time and time and time again.

I don't think that people with skill are the rule. I think that there are people who have skill, but they are definitely the exception to the rule and I think that they don’t even know potentially sometimes how good their skill is, but there’s going to be people like that. I just don’t think that that’s… It’s definitely not me. I don’t have any crazy amazing skill in trading. I just try to work as much as possible at the mechanics. Try to realize today that you have control over everything that happens, that no matter what happens externally, you have control over how you manage and run your portfolio, so you can whimsically throw your hands up in the air and let somebody else take the wheel or you can grab the wheel and buckle down and try to understand these concepts, try to learn how to allocate your portfolio, how to adjust if you need to adjust, how to roll contracts if you need to roll, how to calculate position-sizing, all the things that we talk about at Option Alpha, you have the ability to control and therefore, you have the ability to control the outcome of. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.