The "Daily Call" From Option Alpha

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#560 - The Top 3 Obstacles Options Traders Encounter Apr 05, 2019

Show notes

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, I want to go through the top three obstacles I think many options traders encounter. And the reason I use the word "obstacles" to start this off is because I think they are things that everybody is going to run into, but they are things that you can get over or get around. They're not going to hurt you, they're not going to derail your potential success, but they are going to be things that you have to push through or you have to figure out a way around them through consistency, persistence, patience. One of those, you're going to have to use as a means to push through this obstacle. These come up time and time again not only in our membership community, in the forums, but also through coaching that I've done before in the past and just through my own experience of knowing how to trade and having been through many market cycles over the last 10 plus years.

The first one for sure is trade count. I think this is an easy hurdle to get over because it's just a matter of time before you have an opportunity to enter more positions. But oftentimes, the first obstacle that people run into is just simply not getting on enough trades over time. They might execute five trades or 10 trades and the numbers don't shake out the way they assume they were and so, they throw their hands up and they say, "That's it. I'm done. I'm giving up." But the reality was, is that you just didn't trade enough to let the probabilities work themselves out. Obstacle number two is 100% position size. This to me is a huge, huge deterrent to your success and it's the unwillingness of somebody to recognize that position-sizing needs to be a top priority in their account. Once you get into a rhythm of making a bunch of trades, now, you're starting to find out that some trades are not going to go the way that you thought. Even though the setup was "perfect" or the market situation was perfect, the trade just didn't go the direction you thought. And position-sizing is something that should be your safety net. You should keep your position-sizing insanely small, so that you can leave room for capital to expand and so that one or two or three contracts or trades do not blow you up if they go sideways.

Number three of our top three obstacles is sequencing risk. Once you get into a rhythm of actually making trades and now, you have your position size in check and you're making small trades and you're making them often, the number one thing that you're going to run into is now, sequencing risk. And sequencing risk is just this random sequence of bad outcomes that might start to affect your portfolio. This can happen at any point and this to me is one of the greatest risks that many people face when trading, is the risk that in a high probability system, they randomly run into a sequence of bad trades. This could be a string of 10 or 15 or 20 trades that just do not go their way. And again, it's not that the system is broken or the model is not working or it's a strategy that doesn't generate a positive expected outcome. It's just that you ran into a bad string of trades randomly in this sequencing model. And you ask any real trader, anybody who's been around for a really long time, very high level, successful professional money managers and traders and they'll tell you the same thing that one of the biggest obstacles you can face is just getting through a sequence of bad trades.

I often relate this to flipping a coin where if you're flipping a coin, you know you're going to be over a long period of time, 50% heads, 50% tails. That's the expected outcome. But you might run into a sequence where you flip the coin 20 times in a row and they all land on tails. Now, does this mean that the coin is broken, that the coin is a fraud and it's a bad coin? No. It just means that you just randomly (however the likelihood is of that happening) flipped a coin 20 times in a row and landed on tails. But if you keep flipping the coin, the probabilities and the numbers will shake out to where they should be which is about 50% heads, about 50% tails. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#559 - What Is Arbitrage Trading? Apr 04, 2019

Show notes

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 an arbitrage opportunity?" An arbitrage opportunity is nothing more than a transaction or a series of transactions in which you generate a profit without taking any risk. And so, they are far and few between because many arbitrage opportunities get found very quickly and then the trading edge or the arbitrage edge starts to disappear as more and more people start to flood the market. But to give you an example of this… And I think that there is still potentially an opportunity to do this in small cases during expiration week, in particular, during expiration day to generate a profit through an arbitrage type trade following some inverted positions. Again, this doesn't mean necessarily that you take zero risk, but probably as close to zero risk as you could potentially make with a trade.

Here's an opportunity… And I've mentioned this before on Facebook Live. I don't know how often it shows up, but I've seen it a couple times now on particular stocks. They're usually a little bit lightly traded stocks with not a lot of activity and volume and definitely something I want to explore further as our new auto-trading platform rolls out. I want to have an arbitrage trading strategy around this concept. But let's say that you're at expiration day and were literally the last 10 to 15 minutes before the market closes on the last day that contracts can be traded for a week or a month or whatever expiration date you're on. You are at the end of the day and it's about time for the option contracts to cease being traded. And during that time period, what I've seen before is let's say a stock is trading at $50 on expiration day right before the markets close and trading stops for the day. You can effectively sell a 51 strike put option, so sell a put option that's $1 higher than where the stock is going to close, around say $50 and then you can sell the 49 call options which are $1 lower than where the stock is going to close for $2.02. And so, by selling this inverted strangle for just 10 minutes or 15 minutes right before the market closes, you basically get to collect a premium that is worth more than what it will actually settle at and net out at with the exercise and assignment of the shares. In this case, it's a $2 wide inverted strangle which means that it will settle and exercise for $2 which is the width of the inversion. If you're able to collect anything more than that, say $2.02 and at expiration, everything settles and nets out as a $2 debit on the position, then what effectively happens is you get to keep a $.2 profit for your trade. Now, in my opinion, this is about as close to an arbitrage opportunity that many traders are going to come to because you have exposure for 10 minutes or 15 minutes and again, it's on a stock that probably is not moving that much, that has low volume and open interest and so, the pricing disparities are wide enough that you can maybe squeeze a couple contracts in here.

Now, the downside to this, obviously, is that any arbitrage opportunity where you have money at risk for longer than a couple seconds starts to increase the potential drawbacks to that strategy. We tried to enter this probably as close to the end of the day as possible, the last minute or two minutes or even five minutes of the trading day and then obviously, many arbitrage opportunities, you can't scale. If it's a low float, low liquidity type ETF or stock position that has this opportunity, you probably are not going to be able to get $1 million worth of trades executed. There's probably just a very few contracts that you can go after. But this is a great example of potentially something that's happening right now in the market all over the place if you can find these where these little penny profits all over the place can be scalped with very little to almost no risk in some cases if you execute them right at the end of the day and I think it's a really interesting concept. Now, again, this only works if for example, you already have factored in commissions or maybe you're trading on somebody like Robinhood which doesn't have exercise and assignment fees or any commissions for executing this, so that you can actually get that full $.2 profit off of this thing and it's not that much. I mean, it's not a lot by any stretch, but again, it's an example of an arbitrage opportunity. Hopefully this helps out. Hopefully it wasn't too complex. But again, an arbitrage opportunity is just simply any transaction or series of transactions that you can make to generate a profit with little to no risk. And so, hopefully it helps out. As always, if you have any questions, let me know and until next time, happy trading.

#558 - Does Trend Trading Really Work? Apr 03, 2019

Show notes

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 trend trading really work?" And this I think is an interesting question because I think a lot of people will often hear terms like – "You have to follow the trend." or "The trend is your friend." And in many respects, it can be easy to dismiss this as just regular market banter or squawking from talking heads. The question really is – "Does trend trading actually work? Can you follow some sort of trend system with quantifiable entry and exit points and figure out a way to create gains that are better than just randomly buy-and-hold or some other opportunity?" And so, the answer to this question is I think yes. Yes, trend trading on some level does work. There's been great research that have been done from a number of different institutions. Vanguard has done research on this. Meb Faber has got some great research on this if you search Cambria Investments where they actually go through and they actually figure out what trend indicators ultimately end up working and how you can use these to improve long-term performance of buy-and-hold strategies. Again, this is more for the person who's interested in potentially buying and holding some sort of stock portfolio or if you're forced to hold stock, as I've often heard people say, they can't trade options, so if they can't do it, what else can they do with their stock portfolio. You could probably entertain some sort of long-term trend buying strategy as well.

My suggestion with this would be that you would also want to couple this with some of the research that we did on technical signals. A lot of the technical signals that we looked at actually had better performance on a much longer timeframe and what's interesting is that some of the technical signals like simple moving average and exponential moving average did not show to be highly reliable. For us, we don't really use those as major indicators for trend trading, though some other people have done other research and suggest that it might improve performance slightly over buying the S&P. We just found there was no real statistical big improvement in doing it. Can it work? For sure. I think it can definitely help improve performance to potentially get out at the right time or potentially enter at a better opportunity. I don't think you're going to see massive improvement over versus trading an option strategy or using options trading strategies and a more effective use of capital, but ultimately, it is a strategy you can use to potentially enhance performance. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#557 - What Is Proprietary Trading? Apr 02, 2019

Show notes

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 proprietary trading?" If you've been looking online or if you've been searching for questions surrounding proprietary trading or prop trader, proprietary trader, etcetera, then this hopefully will help answer the question for you. Proprietary trading is actually very simple to understand because in many cases, if you are a regular retail investor and you're making your own decisions about where you allocate your money and how you allocate your portfolio, you're effectively already performing proprietary trading. All proprietary trading is, is somebody or some firm trading their own capital for gains. Again, like I said, as a retail trader myself and probably you if you're listening to this, you already are a proprietary trader. You're trading your own money for your own personal capital gain benefit.

This is different from somebody else trading client money for commissions. If you think about a bank or an institution, the institution probably has two arms to it to simplify things a little bit. One arm is making transactions on behalf of clients for a commission. They take in orders, they distribute cash, they buy shares, they sell shares, but it's all done at the direction of the client or the fund or the index or whatever they are doing and it's done for commission. They don't gain any monetary benefit beyond just the commission for acting as the intermediary. Now, the other side of it or the other arm is the firm may use some of the accumulated commissions and profits that they've had to then take those profits and actively trade their own money for capital gains. They might buy a stake in a certain company or they might execute futures or Forex contracts or any of these other financial instruments as a means to increase their own capital gain. But again, it's the firm's own money. You might hear oftentimes in news or in media stories online that so-and-so firm had proprietary trading losses or gains of X amount. That's the firm's own money that they're trading, not the client money that they're trading. They're still doing whatever the clients want and gaining a commission from that, but they're not taking client money and just making these random trades all over the place for capital gain purposes.

Hopefully this helps answer the distinction between these two different arms of many firms and answers the question – "What is proprietary trading?" As always, if you have any questions, let me know and until next time, happy trading.

#556 - The "Snowball" Strategy For Increasing Your Wealth Apr 01, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I want to go through the snowball strategy for increasing your wealth. Today's question actually comes from one of our community members inside Facebook. They asked the following questions, so I'll read it first and then we'll talk through it together. They said, "How to generate the snowball effect?" They said, "If you have a $5,000 to $10,000 account size, what steps are required to increase the account on a consistent basis? Example: Do we reduce or kill debt? Do we reduce or kill monthly allocation of capital? Do we trade as much of the account as possible? Do we pick proper strategies, we don't withdraw money, try to collect extra money, etcetera? I'd like to trade every day, but the account size won't let me do it, specifically if I follow any of your recommendations to have between 40% and 50% in cash." They said, "If you could help me with this topic, it would be great. Thanks."

First of all, I think the concept of snowballing your wealth is an important one. And when you think about a snowball which is the perfect analogy for this, you start with this very small snowball and you just continue to roll it and it starts to gain momentum and speed and size as it goes down the hill, hopefully. And so, what I think most people have to understand is that you can't remove pieces from that snowball. If I was to start over all over again and continue to snowball my wealth, I would try even harder than I did initially to not remove or draw from that initial pot of capital. When you start even with a small amount of money, say $5,000 or $10,000, you want to use that capital to grow additional capital. And money cannot magically appear once it's removed from the account. If you start withdrawing on that money or you start taking distributions on that money too early, you basically are crippling it from the ability to grow and increase in size.

The second thing you have to understand about snowballing your wealth, in my opinion, is that it's all tied to a positive expected outcome scenario. And so, even though in the way that I trade options, I keep a lot of cash on hand, we're using the leverage that's embodied in an options contract to gain an outsized return on a smaller portion of our account and that cash is there as a cushion, so that we don't blow ourselves up or run out of capital to increase our trading capacity. And so, when you deal with a system like options trading in which you're using leverage, you need to make sure that you have a positive expected outcome in whatever trading strategy you're using because if you have a positive expected outcome, you know that that positive expected outcome is going to work eventually, you just don't know what the sequence of returns are going to be on the road to getting there.

It's very similar, just in the opposite way to running a casino. If I ran a casino and if I was the casino manager and everyone came in to place their trades and their bets and I was the one basically selling bets as a casino, then I know I have an edge built into every single game that's in my casino. I know that there's a positive expected outcome for all of these games. Now, I don't know what sequence of returns I'm going to have as the casino manager. Somebody could come in and they can literally hit jackpot the first coin that gets dropped into a machine. And does that mean that the system is broken and that the machine is broken and the whole casino is going to fall over and fall under? No. But it does mean that I might have to wait a little bit longer for more people to play and for more bets to be placed before I see my edge start to materialize.

The best advice I could give somebody that wants to increase their wealth, snowball their capital account is just to give it time and don't draw from it. Work the system. Find a positive expected outcome strategy. You can do this through our back-tester. You can read research. There's other people who've put out research about it as well. Find a strategy that has a positive expected outcome and then give it enough time to actually work. Making 10 trades is not going to give it enough time to potentially see success. Making 20 trades may not be enough. 100 trades may not be enough. But if you have a positive expected outcome, you know your strategy is going to work, it's just a matter of time and patience. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#555 - The Ultimate "Quick" Guide To Credit Spread Option Trading Mar 31, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I'm going to go through our ultimate quick guide to credit spread option trading. Credit spreads are what I believe to be one of not only the key building blocks of many of the great options trading strategies, but also can serve as a wonderful vehicle for those of you who are trading with a small account or even just getting started with a small account. The beautiful thing about credit spread trading is that it gives you exposure to the high probability, high positive expected outcome of option selling with the defined risk characteristics that many people are initially attracted to when they look at long options like long puts and long calls.

With a credit spread trade, all you're simply doing is selling one option contract and buying another option contract typically further out of the money than the initial contract you sold and in exchange, you're taking in a net credit between the sale and the purchase of those two option contracts. For example, if you have a stock that's trading at $100, you could create a put credit spread or a bull put spread by selling the 95 strike put option and buying the 90 strike put option below it. The difference between your buy and sell would ultimately create a net credit which means you're an option seller in total with the contracts that you traded and you collect a premium on order entry. Now, the beautiful thing again, about credit spread trading is that it gives us again, defined risk and defined profit potential, but allows us to move our credit spread further out of the money or closer to where the stock is, depending on what probability of success we want to target and this gives us a little bit of a buffer or a cushion in our directional assumption. If we think a stock is going to go higher and we trade this 95, 90 put credit spread when the stock is trading at $100, we've got about a $5 cushion and have the potential to make money even if the stock goes down by $5. And so, that margin of error is really where this starts to become a strategy that is more efficient in performance and capital use than just regular purchasing of stock or shorting of stock.

To use a credit spread example on the other side where you would sell a call credit spread or a bear call spread, you would essentially be selling the 105 call option and purchasing for example, the 110 call option, again, assuming that the stock is trading at $100. You'd still take in a net credit on the sale and purchase of these two contracts and that would be the premium that you receive on order entry. You're hoping that the stock stays at its $100 level or goes lower, but even if it goes higher up to $105, you still have an opportunity to potentially make some money. Again, the reason I like credit spreads so much is because of the defined risk characteristics. Because you can target whatever probability of success you want, you can create credit spreads across ETFs, major stock indexes, top stocks that you want to trade and get exposure very quickly for a small account without having to outlay such a huge amount of capital in an inefficient manner by purchasing stock. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#554 - The 11 Different Stock Sectors Mar 30, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to go through the 11 different stock sectors and basically how you can use these to help diversify some of the trading that you do. As many people know, there's a lot of different sectors and industries that you can generally invest in. We know the big broad ones like energy and healthcare and technology, but there's actually just 11 that are the global industry classification standard or GICS and so, this is what most brokerage platforms, most institutions, mutual funds, hedge funds, ETFs use as the main classifications of different industries or stock sectors. Now, when you're trading options, it's my opinion that you should absolutely be invested across a broad variety of different sectors and industries. I think this helps reduce not only the asymmetric risk from one or two sectors blowing up or making these big moves, but also helps smooth out returns and we've seen in back-testing, helps enhance portfolio performance. Again, not to say that you have to be invested in all of these at the same time, but I think generally, having an awareness of these different stock sectors can definitely help.

The 11 different stock sectors are energy, materials, industrials, consumer discretionary, consumer staples, healthcare, financials, information technology, telecommunication services, utilities and real estate. And so, again, in my opinion, I think you should probably be invested in these across an ongoing basis. That means that every single month, you don't have to have all 11, but maybe one month, you trade 8 out of 11, the next month, you're 7 out of 11, the next month, you're 9 out of 11 and these can rotate and change and shift and ebb and flow. I think what this industry sector classification is missing though is exposure to things that would not be traditional stock sectors, but that you can gain exposure to through the use of ETFs in options trading. Things like emerging markets and currency I think are some of the big ones. Also bonds could be thrown in here as well and broad-based US indexes. I don't think that you necessarily have to do just these and stick to this list. I think you should throw some of these other ones in here. Like I said, currency, emerging market, bonds could definitely be added to this list and I know that we trade that on our end here at Option Alpha. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#553 - Why You Should "Slow Down" So You Can "Speed Up" Mar 29, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to talk about why you should slow down, so that you can speed up. This is probably one of my most favorite topics to talk about recently and it's something I've been really harping on in coaching and with our members here at Option Alpha for the last two or three years now and it's the concept of just taking time to understand something fully before you just breeze by it because what I see people do all the time, especially in trading, is they get presented with a certain market scenario or maybe it's a trigger from an email from their brokerage and whatever the case is, they end up just blowing right past this wonderful opportunity to learn something about the markets or trading or investing and they think that they'll just come back and do it later on next time. But inevitably, what ends up happening is that when you breeze by these great opportunities to learn, you end up slowing yourself down in the future because every time you get presented with the same potential environment or the same setup or the same email from your broker, you have to try to understand it and make sense of it and it just ends up slowing you down in the long run.

This I think is an interesting concept because I actually relate it to what my coach used to do in football when I played football in college. We used to walk through plays probably 100 times. I mean, no joke. It felt like we walk through plays for weeks on end and it was deliberate in nature now looking back on it because we would walk through an entire football play over and over and over again, trying to understand where we would go with the ball and who we would block or not block, what route the wide receivers would run or not based on how the defense was setup and how they were moving. But the idea behind walking through the play is that we would understand the play so intimately after walking through it, what seemed like 100 times in a row, that when we started to now jog through the play which was our next progression and framework, we started to jog through play scenarios, we became smarter about how we would react or change or adapt in the moment. If somebody blitz from the left side and we made an adjustment, we knew that that intuitively was going to cause us to throw the ball to the right or whatever the case is. And so, we'd walk through plays, then we jog through plays and then when it got time to gain speed and you were sprinting through all of your scenarios, you'd already been through every possible environment hundreds of times before in the past. And so, it's this concept of slowing down and really understanding exactly what's happening in the moment even it takes some extra time, some extra effort on your end, 30 minutes of extra research, so that when you're presented with that same scenario 100 times in the future, you know exactly what to do and it becomes more or less, instinctive.

The best example for this for sure is short call dividend assignment risk. Now, undoubtedly, I know every single time, whenever we get presented with an opportunity in which we have to analyze if our short call options are at risk of being assigned or not and I know that this happens because on the days at which the broker send out all of their emails to all of their traders, I get all of those emails forwarded to me by everybody it seems like at Option Alpha. And so, everyone emails me and they say, "Kirk, I got this email. What do I do?" And what they're doing in that moment, whether they know it or not, is they're instinctively trying to blow past that scenario. They're just basically punting the ball to someone else and saying, "Kirk, you tell me what to do." instead of learning from that moment, that environment to understand – "Am I really at risk of dividend assignment or is this just a standard email that brokers have to send out to anybody who has a short call option?" And in many cases, the vast majority of times, it's just a standard notification that brokers have to send out. It doesn't mean that you will be assigned or you won't be assigned or that you did get assigned or not. It's just a standard procedure. But many people just try to breeze past this and don't understand, don't take the time to understand really what the implications are if they are at risk of assignment or not and it doesn't take that much effort and understanding. You can look at a stock chain and in two seconds, figure out if you're at risk of assignment, but it's that moment that people should slow down the first time that it comes and take a step back and say, "Okay. What just happened? Am I at risk of assignment? What does this really mean? Does this really mean it's happening? How can I figure it out? Do I know? Can I look any place?" so that in the future, whenever it happens again and again and again because it will if you're going to trade for a long time, you're going to get those emails every single month for years on end and wouldn't it be great just to know once and for all, if you are at risk of assignment or not? But that's the whole concept, is take your time now to slow down and understand conceptually why we do what we do or why we use a strategy in a certain environment or how we adjust something to reduce risk because then, you can speed up and play a game speed later on when you have a lot more moving pieces and when you have a lot more capital at risk. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#552 - Never Rush Order Entry When Trading Mar 28, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to talk about why you should never rush order entry when trading. I often find that both new and experienced traders rush order entry. And what do I mean by this? I mean, when you're trying to place a trade in the market, there seems to be this frantic paranoia about getting the order filled and what that often does is leads people into making either bad decisions or rush decisions or forcing a trade by reducing or increasing their price just to fill the trade, assuming that they're going to miss some unique opportunity in the market, but this just isn't the case. In fact, order entry is the absolute most important thing that you should focus on when it comes to trading because it's all of the things that you control, your position size, the strategy you're using, the ticker that you're trading, the pricing that you get and so, this should never be rushed in the trading process. We often use the same analogy as in real estate and you've often potentially heard people say in real estate that you make money when you buy in real estate and the same concept is true on options trading where you make money on order entry. It just takes the entire expiration month or the two expiration months for the actual pricing and probabilities to play out in your favor.

But money is made when you place a great trade and what a lot of people do is they try to throw stuff against the wall and they try to go back retroactively and fix all of these problem trades that they got into. They force a bunch of trades in the market and then they go back afterwards and try to fix them. Well, it's like buying a piece of real estate at a really high price and then trying to fix it, so that you can turn it around and sell it, but the problem is not the real estate, nor is it the fact that you are trying to fix it and you're making all these improvements. It's just that you got into the piece of real estate at a really high price to begin with and that's the root cause of the issue. Same thing happens in trading where you get into a trade, you force it, you force the position because you think you're going to miss an opportunity and you try to adjust or hedge your way out of it when the problem is not your adjustment technique or how you hedge or the way you go about it, but it's just the fact that it was a bad trade to begin with. My honest opinion on this is – Please do not rush with order entry. Take your time. And if you miss a trade for a day or two days or even three days trying to get into a position that you feel comfortable with, it's totally worth it because there's always another trade, there's always another market move you can catch, there's always another opportunity that'll come up in a couple days or a week or so and so, if you're just patient enough, I think you'll end up seeing a lot more success with your trading. Hopefully this helps out. As always, if you have any questions, let me know until next time, happy trading.

#551 - What Was TARP? Mar 27, 2019

Show notes

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 was TARP?" And so, we're specifically talking about the Troubled Asset Relief Program, what is commonly referred to as TARP. And if you traded through the 2008, 2009 market meltdown, you probably heard TARP all over the place because it was meant to be the saving grace of the market, this new government program that would come in and swoop in and stabilize these financial institutions and major banks. I want to try to break it down here for you guys pretty quickly, so you understand what it was because I probably expect that we'll see this at some point in the future because it was I think in many cases, renowned as a big success and potentially on the books, maybe it was a success for the government to do this. It definitely averted a crisis, but I don't know if it [Unintelligible] further down the road, we're eventually going to have a bigger one out of that. But neither here, nor there, the TARP program was basically put into place around September, October of 2008. This was really at the height of the meltdown in what was the subprime mess in the beginning of the financial collapse. And so, what Paulson which was the Treasury Secretary at the time, Henry Paulson said is – "We're going to go in and the government's going to come in and they're going to buy these subprime mortgages that are illiquid." The banks have all of these subprime mortgages that they had purchased and they're trying to sell and nobody wants to buy any of these things, so what they're going to do is they're going to come in and they're going to buy these illiquid assets that nobody else wants to buy, so the government's going to buy them and take them off the books to these banks and as a result, now, the banks will have none of these illiquid assets showing and they won't have to mark them down to their market price which was effectively zero at the time, so it's a way for them to basically take all of the bad pieces of the bank and throw them into the government which in my opinion, was crazy on one hand because why should the government be involved in this anyway? But again, this, neither here, nor there, it just ended up what's happening.

The government basically came in and they said, "We can do about $700 billion of troubled asset relief purchases." And at the time, that was a lot of money and I think at the end of the day, it only ended up being in $200, $300 billion, somewhere in that neighborhood, but what's $1 billion between friends, right? And so, they ended up buying up a lot of equity percentages in companies, specifically things like AIG, NGM and Chrysler. They also came in and bought up a bunch of bonds and assets that were totally illiquid that nobody wanted from Goldman Sachs and from Wells Fargo, Bank of America, I mean, you name it, they swooped in and bought everything. And later on, all the banks ended up having to pay all this stuff back with interest which they did and many of them paid it back with interest pretty quickly because as the market recovered and as things came back to normal, they were able to buy back stock or to issue new stock and basically pay back the government. The basic premise here is that the TARP program was meant to be this swooping in of the government to save basically the capitalist system that had basically gone imploded on itself. And so, there's a lot of discussion to say – Could the markets have handled a write down of all of this stuff? Could it have collapsed the banking system? I don't know. I mean, we didn't see that play out, but I mean, there's a lot of back and forth on each side and I'm sure a lot of people listening to this, you probably have an opinion on one side or the other. The end result is for me as a trader, what I know to be true is that the government saw this as an $11 billion profit for taxpayers. In fact, that's actually what they publish in 2013 when they wrapped up their TARP program. They said that the government made basically $11 billion on the TARP program, so it was actually a good investment for the taxpayers and for the country to come in and swoop up and buy these illiquid assets and basically wait for a payoff in the future. I would fully expect that in the future, we see another TARP 2 program roll up whenever we start to see some financial distress. Whether if that's a year from now, two years from now, I would fully expect the FED and the treasury to come in and basically recreate this whole thing all over again. It was an easy pitch before and it'll be an even easier pitch in the future. Hopefully this helps out. Again, be prepared for it and as always, if you have any questions, let me know. Until next time, happy trading.

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