The Option Alpha Podcast

Show notes: http://optionalpha.com/show87

Losing trades are part of the game - they are going to happen and it’s a reality we must all face. And I believe what sets really great traders apart from those who are average at best is the ability to cut a loss by making smart adjustments. Adjustments that reduce risk and extend the trading timeline.

In today’s show, I’ll cover the 3 option adjustment principles you should follow if you’re considering adjusting a short premium, option selling strategy like an iron condor, iron butterfly, strangle, straddle, etc. These guidelines will help make sure you’re always focusing on the most important aspect of trades adjustments which isn’t to make money, it’s to cut the size and magnitude of the loss down as much as possible.

Show notes: http://optionalpha.com/show86

Trading inverse ETFs and leveraged ETFs are becoming more and more popular with retail traders. Maybe it’s the appeal of quick profits with 2X and 3X leveraged securities like FAZ (Ultra Bear 3X Financials) but the should we adjust our options strategy for these unique products? I think we should for good reason.

In today’s newest podcast I’ll cover the three different ways you should adjust your options strategy when trading these products to take advantage of their mostly negative pricing structure and hedging potential. While we don’t trade these often by any stretch here as part of our income strategy, there are instances where they become useful and we’ll cover that specific setups in the show. Enjoy!

Show notes: http://optionalpha.com/show85

Legging into spread trades and complex option strategies is a popular way for traders to get quicker fills. However, is this legging technique really the best approach or should we be doing things a little different when entering or exiting trades? In today’s show I’ll discuss my thoughts on approaching legging into and out of spreads and the benefits and risks of doing it or not as part of your trading system.

Show notes: http://optionalpha.com/show84

For years we’ve talked about the need for increasing your trading frequency. In today’s podcast, we want to re-introduce the concept of stacking or laddering option trades over time and price. More importantly, we’ll talk about why our extensive backtesting (and current experience) proves that when you break down your trade entry into smaller and smaller chunks, the overall performance of the trading system increases dramatically.

Show notes: http://optionalpha.com/show83

A casino's edge ranges from 0.5% for blackjack to as high as 17% for some slot machine games. Now, of course, this edge may or may not play out on the first, second, or tenth roll of the dice. But they are not in it for the short-term game. You see, the casino doesn't have to beat every player every time. They just know that they'll win their mathematical edge so long as enough bets are placed each year.

It's precisely why casinos offer huge incentives to get you to come back with free show tickets, free meals or even free hotel rooms. It's why the force table limits on how much you can bet on each hand and why they give you free drinks for playing. While you might think it's just them being nice, it's not. It's an investment they know pays huge dividends. In fact, on average casinos spend up to $45 each hour to keep you sitting in your seat and betting money.

Now, I frankly don't care if you like or hate casinos because the reality is that it's an insanely profitable business model based on simple math and expected outcomes. As options traders, we can learn a lot about how we should run our own trading business from casinos. In today's show, I want to walk through some of the most important takeaways that you can apply right now to your trading system and invite you to open your mind and try to see the big picture strategy.

Show notes: http://optionalpha.com/show82

We can't control the stock market - yet many of you try to will or hope stocks to move up or down as needed for your position to make money. Eventually, you'll come to realize that it's an impossible dream and the harsh reality of transiting from novice to professional investor requires a more consistent and systematic approach. The question then becomes, "What can I control?" and "How can I adjust or hedge a position that moves against me?"

In today's show, we'll look at one of our recent bear call credit spread trades in which we still lost money, but was able to cut the loss by 37% making some simple trade adjustments. Yes, you heard me right, we're going to do yet another case study on the lessons learned from an options trade that overall, net-net lost money. Unlike many other traders who are afraid to show you losing trades, I'm completely open to them because I know it offers an excellent opportunity to learn and grow from my experience.

Show notes: http://optionalpha.com/show81

Fundamental investors are like the wooly mammoth; big, strong, powerful, yet destined to become extinct in the future. And while there is absolutely nothing wrong with the core beliefs and activities of fundamental investors, I just personally believe that the same passion and hard work could be applied to the options market with much better results and less risk. Besides, even Warren Buffett, the biggest advocate for fundamental investing and long-term investment strategy is by many standards the single largest options seller in the market today.

Nobody asks him about his $5 billion dollar short option trades, do they? Not yet anyway since we'd love to have him on the podcast.

In today's latest show, I want to present the case as to why I believe that more "old school" fundamental investors should become professional options traders instead. In fact, you'll see that there are many similarities between options trading and a long-term, buy and hold stock investor. Plus, I'll quickly rant about the "Netflix Effect" and how technology and social media is rapidly changing the landscape for all businesses in the future.

Show notes: http://optionalpha.com/show80

Your option strategy payoff diagram is an ever evolving and changing animal. Unlike stocks which have one-dimensional payoff graphs, either upward or downward sloping, and theoretically unlimited holding periods, option strategies are impacted by cubic pricing events. Namely, time decay (Theta), implied volatility (Vega) and interest rates (Rho) which can cause your payoff diagram to shift, mold, and bend as these additional pricing elements change with the market.

In today's podcast, I want to help you understand how these three Option Greeks could have a significant impact on the way your payoff diagram looks now vs. at options expiration. In the end, I think it'll help give you more confidence and patience if you understand how option pricing works when holding positions that initially move against you but ultimately will turn out to be profitable.

Show notes: http://optionalpha.com/show79

Today's podcast is all about learning how to trade calendar spreads. And while newbie traders might find them a little difficult to understand conceptually at first, I think you'll find our talk today to be incredibly helpful as we break down these time spreads from start to finish. During the show, I'll walk through setting up and building calendar spreads, the impact of implied volatility and time decay, how to adjust and exit as well as the best market setups for these low IV option strategies.

Show notes: http://optionalpha.com/show78

I know one of the key elements to successful options trading long-term is maintaining an investment portfolio that is consistently balanced. And when I talk about balance, I'm not talking about 80% stocks and 20% bonds - that's portfolio diversification. Unlike traditional investment strategies that favor 99% of the portfolio invested in long equities and bonds with minimal short exposure, what I'm specifically referring to here is the concept of trading a mix of bullish, bearish and neutral positions all the time which gives us a much smoother and solid equity curve.

One of the best ways to measure overall portfolio balance is to beta-weight the portfolio to a benchmark index like the S&P 500 (SPX or SPY). This metric gives us an apples to apples look at how the portfolio as a whole would perform when the market moves higher or lower. And once you start monitoring the beta-weighted portfolio you'll notice that sometimes your positions can become unbalanced and lopsided. 

In today's podcast, we'll give you four option strategies or techniques we use to help re-balance a portfolio that's gone out of wack. Of course, having a completely delta neutral portfolio is always the goal, but never the destination, and our talk about maintaining balance and neutrality should help as you continue adding and adjusting your option trades this year.