Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I want to talk about the only group that mattered on September 11th. This is an important day for me because maybe more so than people who never even were around for September 11th, not only was I obviously around and cognizant of what was going on, on September 11th, but because I went to high school… And this happened during high school. September 11th happened for me when I was in high school. Because I went to high school in Virginia, Northern Virginia in particular, I went to high school where a lot of my friends and in fact, very close friends of mine lost family members, husbands, fathers, wives in September 11th because they worked in the Pentagon. And so, to me, September 11th hit home more so than potentially a lot of other people, but what I remember from that one event which it seems to have been lost in the constant stream of just every day stuff that we just see going on in the world right now, it seems to be lost, this idea that on that day, it didn't matter who you were or where you were from or what color your skin was or what religion you really were or what nationality you were. On that day, everyone was part of one group and that was to be an American, to be American citizen.

And so, to me, I hope that someday, we get back to this mentality, this idea that regardless of all of our differences, we're all basically humans at that point. I mean, even if we're not even just Americans, we're all just part of the human race and we all should be collectively helping each other and not necessarily having these massive different disagreements that really don't mean a lot in the grand scheme of things. I don't know. I just thought it was important. One, I never want this day to be forgotten. It seems like it just keeps getting pushed a little bit more gradually every single year, keeps getting… It's recognized. It's talked about. I know there's going to be stuff out there today about September 11th. There will always be new stories about it, but it never really is going to be remembered like it was those first couple of years or even just those first couple of months afterwards and I don't want people to forget about it because for me, it was very much a real thing. I remember seeing friends of mine getting calls at school, running down the hallway, screaming and crying because their parents worked in the Pentagon or whatever the case was. I had a very close friend of mine who lost family members who worked in the Pentagon that day. That to me, I will never forget. I hope people don't forget the gravity of the situation and the ultimate end result for that time and hopefully for the time for moving forward that we're all just part of one group, either Americans, humans, whatever you think of it as. I think of it as Americans and then humans. We're all part of this collective society of humans and people around the world and I hope we never lose that. Anyways, hopefully you guys enjoyed this. 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 answer the question, "Should you continue to invest in a bear market?" I guess the simple answer to this is it depends on what you're investing in. If you find yourself in the middle of a bear market or it seems like the risk to reward ratio doesn't really favor a particular security or a particular category or asset class that you're investing in, then you probably shouldn't invest a lot of money into it. Now, I say a lot of money because I don't think it's a binary thing. I don't think it's a yes or no answer. "Do I invest in stocks? Yes or no?" I think it's a scaled approach or a tilted approach. If you find yourself in the scenario where stocks become overpriced relative to historical norms or cape ratios or P/E ratios, then you might find yourself tilting out of stocks. Not necessarily getting out of them completely, but maybe tilting your portfolio more towards bonds.

In the world of options trading, we love bear markets because generally, it gives us more implied volatility, it gives us higher option premiums, so we like to scale into those types of markets. Does that mean that we go 100% in? No. It's not a binary, all in or all out type of event. It means that we scale in as the market unfolds. I don't think that you should stop trading. I don't think that you should stop investing in bear markets or bull markets or any market for that matter. I think it's just where you tilt and move your funds. Your money has to go someplace. It can't always just go to cash if you're scared. You need to invest in things that give you the highest expected payout for whatever environment that you currently find yourself in. As always, hopefully this helps out. If you guys have any other follow up questions around this topic, 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, "What is a low put to call ratio?" A put to call ratio basically tells you exactly what it sounds like it's going to tell you. It tells you how much put volume there is relative to how much call option volume there is. And so, when you generally see a low put to call ratio, that means that there are fewer put options being purchased for every call option that's purchased. Now, this is generally a gauge that market sentiment is seemed to be relatively bullish. People are almost excessively bullish in some cases because they're not buying enough protection or they don't feel like there's a need to go out and buy put protection, so therefore, they decide that they don't want to do it and they buy more call options and they have lower put option volume relative to call options.

The inverse would be true when you see a put to call ratio that is really, really high. That means that people are potentially becoming excessively bearish or basically that we're reaching an extreme and bearish sentiment. People are buying put options at an increasing or ever-increasing rate relative to call options. They believe that the market's going to go down, so they buy more put options, they forego buying call options and this causes the ratio to go higher. Again, the low put to call ratio basically means that people are potentially in a mode where they could be a little bit too optimistic or too bullish on the sentiment of the market. The actual ratio itself and kind of the rank of ratios or the moving average of the ratio could vary depending on the security, what's normal and what's not, so you just have to look at a relative range. One stock might trade on average, a 1.2 put to call ratio. Another stock on average might trade a 1.6 put to call ratio. I would look at relative ranges to judge what really is low or not. It's not just one figure. It's probably just a relative range for that particular security.

As always, hopefully this helps out. If you guys have any other questions, please let us know and as always, never forget, your life should have options because options give you freedom. 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, "What does implied volatility tell you?" Implied volatility basically tells us what the market expects the stock is going to do over the next year, month, 60 days, 30 days, whatever it is. Implied volatility is the market's way via market participants actively buying and selling options aggressively or not aggressively, how far people expect the stock to move based on expectations or how willing they are to bid up the price of a call option or a put option or vice versa, bid down or not aggressively trade calls and puts. Implied volatility is exactly what it sounds like, the implied or expected volatility in the underlying security moving forward in time.

And what this tells us is how much people expect the stock to move, but the problem with it is that most of the time, in the long run, this implied expectation is overstated, meaning that people expect a stock to move more than it actually does long-term. This doesn't mean that it happens all the time. It's not 100%. There are times where the stock moves more than people expect. People expect the stock to move 20%, it moves 25%, but the long-term numbers suggest that when people expect the stock to move say 20%, it only moves 19% or 18% or something lower than 20% up or down and that is where our edge resides for options traders, that difference. That implied volatility premium that is embedded in option pricing gives us an edge if we're patient enough and if we're diligent enough to go after it in the long run. Hopefully this helps out. As always, if you guys have any questions, let us know and never forget, your life should have options because again, options give you freedom. Until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to be talking about why opportunities are closer than you think. Look. The reality is that you're running out of time right now because you think that the opportunity that you need might be in some far distant time in the future, but in many cases, it's the preparation, it's the setup that will allow you to find that opportunity which actually might be closer than you think. It might be just around the corner. People all the time talk about luck and they talk about just good fortune and being in the right place at the right time, but it's all the right opportunities and all the preparation that led to that one moment of being lucky or being in the right place at the right time. Right now, I think it's a great opportunity for options traders because what we've seen over the last decade plus is we've seen very much, most of the market go towards this very laze fair passive lazy portfolio approach which we know does not work long-term and especially doesn't work in such a consistent stream of time.

We are going to be entering a time in the next five to 10 years where we're going to see returns for broad market indexes, for broad market portfolios start to average in the low single digits and that means lots more volatility, that means a lot more flash crash type situations that might potentially pop up, that means a lot more black swans. Whatever the catalyst ends up being, there's going to be a lot of choppiness and so, the opportunity to learn how to transition your portfolio if you were so lucky and beneficial as to have been in a stock only, long stock index passive fund towards more of an option selling premium aggregation type model is right now. This is the time period where you have to start actually making that transition, start turning the ship if you will. You think that you have time, but you may not because the flash crash of major market event could happen at any moment and we've started to see kind of the cracks in the hall of more volatility starting last year at the end of 2018 and we're starting to see it even more so this year in 2019. Take this opportunity. Heed this warning to start transitioning your portfolio to something that's a little bit more stable, that at least you have a little bit more control over than not. Hopefully this helps out. As always, if you guys have any other questions, let us know and never forget, your life should have options because options give you freedom. 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, "What does realized volatility mean?" Realized volatility is basically the volatility that actually occurs when you look at historical performance of a stock or an ETF or a security. Now, I relate this very much to paper profits and realized profits. If you have let's say a position and an underlying security and you're holding paper profits, but you don't close it out until tomorrow and after tomorrow, we see a huge move down in the security, well, your realized profit might be lower than what you expected to get. And so, this same thing happens in options trading where we have implied volatility, the expectation that a stock is going to move and then we have realized volatility. You can actually track and see how much the stock actually moved historically relative to its expectation.

This difference is really important because this is where our edge lies as an option seller, this idea that there is an edge or a spread that's been well-documented between the expected volatility of a security, how much people think it's going to move and the realized volatility, how much it actually moves. And it's hard in many cases to see this expectation unless you overlay the charts and the timeframes at the right period. I know in many cases, most broker platforms give you the ability to see historical and implied at the same time, but they're not overlapping the same time period because implied volatility is always today moving forward which is into the unknown future, into the unknowable space of time beyond today, right? We need to make sure that when we're looking at realized volatility relative to implied that we overlay the same time periods which is I think a common mistake when many people analyze this. Hopefully this helps out. 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 be going through a simple trailing stop loss example. Trailing stop losses work well for regular long equity, whether it's stocks or ETFs or futures contracts. They don't really work so well for options trading because generally, stop losses actually create more losing trades when you're trading options. In this case, a trailing stop loss order might look something like this. Say a stock is trading at $100 and you have a $1 trailing stop loss order. What that basically means is that you give yourself a $1 cushion that the stock can go down in price before your stop loss is executed and this $1 margin stays in place until the stock starts to go up. And so, if the stock goes up, then that margin readjust higher, so that you continuously keep a $1 spread between you and the market. Again, if a stock is trading at $100, you might have a $1 stop loss order which means that if the stock starts to go down in price, below $100, it will execute and get you out of the position at $99.

But let's say that the stock actually starts to go up. Now, the stock starts to go up and goes up to $105. Well, your trailing stop loss order is going to move up with the stock at each little increment, each little penny increment as it goes higher and now, your trailing stop loss order is going to be set at $104 which is $1 below where the stock is trading at the time. The stock goes up to 105, now, your stop loss order has moved itself up automatically to $104, so that if the stock turns over from that point, it would execute and sell out at $104. That's basically how a trailing stop loss order works. It works in the complete opposite and inverse. If you're using it for a short stock, you can use it that way as well. But hopefully this helps out. As always, if you guys have any questions, please let us know. If you enjoyed this, let us know as well and never forget, your life should have options because options give you freedom. 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, "Why are calls more expensive than puts?" Now, we actually generally don't see that call options all the time are more expensive than put options. In fact, many times, you'll see that most of the skew in pricing or the differential in pricing happens on the put side where put options are more expensive than the same or relative call options at an equal distance from the market and that's because most times, people are more concerned with downside risk and they're willing to use put options to protect against that downside risk. As volatility starts to increase, that typically is followed by market moves lower. Not all the time, but typically, it's followed by a market move lower. Where you do see situations where the whole skew starts to flip and you see call options become more expensive than put options, usually follows with a lot of speculation.

Right now is a great example of this because in the current environment, we're starting to see both bonds and gold start to have some really massive parabolic moves and as a result, in particular, in the gold market, we're starting to see call options priced at some points, $100, $150 higher than the exact same strike put option on the other side. And so, this has massive skew as people are buying into and bidding up the price of call options assuming that the stock or gold in this case or an ETF is going to continue to move higher. That's why this difference comes in because of expectations, volatility, the demand for options. You start to get these differences in pricing. Does it always mean a contrarian signal or a confirming trend signal? Not necessarily. Don't read into it too much. Just understand that it could be there, it could be a function of demand in volatility and where people expect things to move. Hopefully this helps out. As always, if you guys have any questions, let us know and again, never forget, your life should have options because options give you freedom. 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, "Do you want high or low volatility when trading options?" The simple answer to this is you want both. Both environments, high and low volatility, have a positive expected outcome for the implied volatility risk premium, this idea that people are bad at predicting where things are going to go and they over-exaggerate in both directions and as a result, long-term, option pricing is always overstated by some margin. Now, we do find that generally, in higher periods of implied volatility, that overstatement or that exaggeration might be a little bit more, but it's still prevalent and it's still there in low volatility.

My answer to this question is it doesn't matter really where volatility is. Volatility can be used as a gauge for position sizing. It could be used for a gauge of potential volatility in your account and your positions as you win and lose on positions working towards a positive expected outcome, but ultimately, we still want to be trading in all volatility environments. This is again, very different than what we have thought about volatility say five or six years ago when we only traded in high implied volatility environments. We've done a lot more research since then and we made a major shift a couple of years ago in how we trade and that we traded even during low implied volatility environments because we found that the edge is still present.

This is a really good question because I think people think it's either or, but it's not. It's all. You should be continuously trading and shorting premium in all implied volatility environments. Hopefully this helps out. As always, if you guys have any questions, let us know and again, never forget, your life should have options because options give you freedom. Until next time, happy trading.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to be talking about why those who sprint ahead early rarely finish or win the race. I love this analogy because it's so true in so many disciplines. It's not even funny. You can look at it in personal finance, in careers, in investing and definitely in trading. You get people who get really, really excited which I love the excitement, but then end up having this overexertion of energy and sprint ahead early by doing way too many trades, over-allocating everything and they rarely end up winning in the long run and it's because they just frankly burn out or they're doing the wrong activities in the long run that are going to lead to success. It might seem like those short-term activities and their short-term wins are getting them ahead because they're moving faster, they have more kinetic energy, they're actually doing something and it feels like they're making progress, but really, they're just spinning their wheels and I think that and I know on my end, I believe that I have more emotional intelligence than a lot of other traders and I'm willing to put that up and bet that against other people in the market because I know I can sustain the long run. And so, if I lose a couple here and there or if I go through drawdown periods here and there, I'm totally good with that because in the long run, everyone else will burn out and I feel like those people who are sprinting ahead and making 52 trades and all these different things and over-allocating, their day of reckoning is coming. You break a lot of these cardinal sin rules of trading, you're going to go through Murphy's Law. Whatever is bound to happen is going to happen. You've just been on bought time. You haven't actually been there yet.

The same thing can be true about finance. Personal finance, the classic example of this is somebody who invest a little bit of money early and they just keep adding to it versus somebody who's investing massive chunks of money later in life. They never catch up to the person who's just very slow, consistent, methodical about how they invest. And so, use that concept to your advantage in trading. Know that when you get into the markets that it's not about what happens today. It's about the decisions that you make today and the actions that you take today, not necessarily the outcome of today, right? Use the analogy of a gym where you go to the gym and you work out because you want to be physically fit and healthy. You're not going to lose 50 pounds today running on the treadmill, but it's the activity that you need to focus on, the process, the actions, the mechanics of it. Forget the outcome today because the outcome will reveal itself in the future. You're going to get to that destination, but don't burn out too fast. Don't run on the treadmill for 36 hours straight assuming you're going to lose a bunch of weight and then just basically fall over and die because you've been running for 36 hours. You've never done that before in your life. To use that analogy for trading, don't jump into the markets and make all of these trades without understanding what's going on, over-allocating position size, making too many trades too quickly, not being patient enough to let trades go all the way to expiration or as close to expiration as possible because what you're going to do is you're going to burn out and then you're going to be just another statistic that gets thrown on the wall of people who failed at trading. Don't be that. Realize right now that you have the best opportunity possible to win the race if you just take small steps today. Hopefully this helps out. As always, if you guys have any questions, let us know and never forget, your life should have options because options give you freedom. Until next time, happy trading.