The "Daily Call" From Option Alpha

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#470 - Options Trading Golden Rule #2: High Trade Count Jan 05, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're getting into options trading golden rule number two which is high trade count. Today's rule builds on top of yesterday's rule which is small positions. Now, we know that small positions are critically important to our success and once we understand that small positions are important, what we also have to understand is that a high trade count or high-frequency of trading is also critical to our success.

Again, let's use a very simple example and use it on the broad ends of the spectrum, really high trade count possibility and a really low trade count possibility and walk through these different scenarios. Let's assume that we have small position sizes and we're trading under 5% risk per ticker symbol, but on one end of the spectrum, we only make two trades per year. Let's say we just for whatever reason, don't have an opportunity, don't feel like we make the time to increase the trade frequency of our strategy and we only make two trades per year. It could be at any time period. It could be at the beginning of the year, the middle of the year or the end of the year, but these two trades still have a 70% chance of success or let's say you're targeting a 70% chance of success for these trades. Well, if you only make two trades during the year, frankly, anything can happen. In fact, I don't even know what the probability of either of those events actually happening are. It statistically would be 70% win rate, but if you're only making two trades, you could have one really nice winner and one really big loser and you end up losing on the year. You could have two small winners, in which case, you probably did okay, but you didn't trade enough to actually generate significant profit, so you still maybe underperformed the market or underperformed your expectations or in the worst-case scenario, you have two really big losing trades and then you realize that options trading doesn't work and it's a scam and it's totally bogus and you stop trading altogether. But the reality is that with two trades, you become very dependent on those two independent events working out in your favor and that means you have to do things like market timing, you have to be very predictive, you have to basically be insanely lucky to win when you do a low trade count type strategy, when you do not increase the trade count of your strategy and this makes people more dependent on the market, more dependent on predictions and getting the right direction. And we see this all the time just in regular stock-picking and regular investing with people who invest at different points during the year and this passive type investor who generally gets burned a lot because they invest one time during the year and that one time that they invest becomes insanely important to their long-term success. Did they invest at the top of the market or did they invest at the bottom? If they're only choosing one or two dates during the year by which to invest their money, then those one or two dates become very important to their success long-term.

Now, let's now shift to the opposite end of the spectrum which is a very high trade count and this is something that I subscribe to, that I know works because we've tested this in our research. We can look at the profit matrix research where we tested different types of option strategies and different types of entry frequencies, whether it was sequential which is one by one, so you trade one time, then you trade only after that trade is closed. We also tested in our massive options trading research report that we released, the idea of trading weekly, so at least entering a trade every week and also daily, so entering a trade every single day. Generally, what we saw in the research is that daily entries ended up beating out weekly which ended up beating out sequential trading. And so, what we now can confirm through research and we've done this a couple of years ago now, we now can confirm that when we have a high trade count in an active frequency of trading, it makes market direction become more or less irrelevant over time. What do I mean by this? Well, let's say that you trade every single day. Now, for you, it could be every other day, every third day, but let's just assume that you trade every day or at least more frequently than two times a year. And when you do that and you also have small positions, you're averaging around the market every single time you trade. If the market is let's say middle-of-the-road and we make a neutral trade, we're making a small neutral trade today. And let's say the market tomorrow rallies up 2%. Well, we make another small neutral trade tomorrow, but now, because the markets rallied up 2%, our new trade is now adjusted higher to re-center the market in between our new strategy. We're averaging our position a little bit higher to kind of follow the market. And now, let's say the market again, rallies another 2%. Great. Well, our third position the following day is again, adjusted a little bit higher to re-center the position over where the new market price is. As we start to extrapolate this out over time, what we notice is that when you increase your trade count, you give yourself an opportunity to average and follow the market without having to be overly-predictive or lucky. And this high trade count really plays into the law of large numbers with most high probability systems in that anything can really happen in the first 100 or so trading opportunities, any sequence of returns. But once you start getting into really high trade counts over the course of the next one or two or three years as you start trading options, what you start to see is that your number start to solidify. You start to really hone in on that 70% probability of success. You start to really hone in on maximizing your expected outcome of your trading strategy.

And so, again, the key lesson today is you have to have a high trade count over time if you want to see success. Now, I don't want people to misconstrue what we're talking about in that you have to be very, very active in the same day. You don't. I think you have to be active over time and so, that could be different for everybody. If you have a lot of money to start with, it could be a lot easier to allocate that money and to reach higher trade counts over the course of the next couple of years. If you're starting out with a lower account balance, maybe a couple of thousand dollars, it's going to be a little bit harder to get that high trade count and that high frequency because your account balance is a little bit lower, but does that mean that you should stop trading, that you should just throw your money into the market and cross your fingers behind your back and hope everything ends up well? No. I think you should still do options trading just with the understanding that it might take you a little bit longer to reach those high trade counts because you don't have as much to allocate right now. And so, that's okay. That's okay if you can only get into a couple of trades a month and you just continuously start working on a couple of trades a month and then snowballing that into a couple of more trades the next month, then a couple of more trades the next month. But wherever you are, you have to start and you have to start increasing your trade count and your trade numbers over time because this is a critical element to your ability to become successful. The longer that you stay alive in this business, the higher your probability of success and the higher your probability of profit. And so, how do you stay alive? You make small trades which is what we talked about in rule number one and you make a lot of those small trades, so that the expected or probable outcome works out in your favor. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#469 - Options Trading Golden Rule #1: Small Positions Jan 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 be starting the first of our little mini-series here at Option Alpha, getting back to basics and talking about some options trading golden rules and we're starting off today with options trading golden rule number one which is small positions.

Now, honestly, I've been harping on small positions for over 10 years. Before many people out there and many companies out there were talking about the importance of small positions, I knew that this was something that was critical to everyone's success as an options trader when I first started and I've got blog posts and archives that show that we've been talking about this for over 10 years now. But the idea behind small positions is nothing groundbreaking. It's actually a very simple concept and the concept is that we don't know when our distribution of profits and losses are going to come. And so, when we don't know what the sequence of returns we're going to experience are, the only way that we can combat and protect ourselves is to make each and every individual or independent trading event as small as possible. And so, what we say here at Option Alpha is that you should never have any one ticker symbol represent more than 5% of risk in your account. Now, that could be made up of one trade and one ticker symbol. It could be made up of 52 trades in that underlying ticker symbol. But no one ticker symbol like Apple or Google, SPY, IWM or TLT can represent more than 5% of risk in your account. And the reason this is so important is because if we get into a situation where we have just a bad sequence of trades, a sequence of trades that leads to say five or six consecutive losses in a row, we don't want to put ourselves in a position that we could blow up our account just on a fluke event and that's really all it comes down to.

If you think about it on its largest, most extreme spectrum, let's say that we're trading and we're only trading two different stocks or two ticker symbols and we allocate 50% of our account to each ticker symbol. Now, again, as options traders, we're trading highly-leveraged products which means that we have the ability to not only make money quickly, but also lose money quickly and as option sellers, we typically have an opportunity to lose more than we potentially make because we have a high probability of success. If we're trading two ticker symbols with a 50% allocation in each, then there is the possibility and I would argue the strong possibility that you blow up your account in the next month or two months during that trading time period. Now, that doesn't mean that that's always going to happen, but you just need literally two stocks to go the wrong direction at the same time and you're done. And this is what we saw actually with optionsellers.com. For those of you who remember that they blew up at the end of last year, they were trading basically two underlying securities. They were trading natural gas and crude oil and both natural gas and crude oil made large moves in the wrong direction for them and it blew up their entire firm and caused massive losses. Now, it's just a simple error in position-sizing for them. They were too allocated, over-allocated into a very select group of ticker symbols.

Now, you take the other opposite end of this spectrum which is where I believe most people should live and let's say you are trading anywhere between 15 and 20 underlying positions, maybe 1% to 2% for each of those positions, still keeping cash on hand. If you get yourself into a situation where even five or six of your underlying positions move really strong against you and you have a bad sequence of returns, it still is not going to knock you out. It's not going to take you completely out of commission and out of business. Is it going to hurt? Potentially. No doubt about it. There's going to be some drawdown type scenarios, but it's not going to knock you out and it's going to leave you alive enough and with enough capital to keep playing the game and to keep working the numbers and working the system until you hit that probability or expected outcome. And so, again, today's most important rule and definitely the rule that everyone breaks when I do coaching and when I see people's accounts and they send them over, the most important rule here is small position size. Keep your position size small. It doesn't matter if you have a large account, if you have a small account, if you're trading with $3,000 or $3 million. You have to keep your position size small, under 5% risk per ticker symbol. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#468 - Developing Unwavering Confidence With Your Options Trading Strategy Jan 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 be talking about developing unwavering confidence with your options trading strategy. What do I mean by this? Well, unwavering confidence to me is confidence that no matter what market situation you get dealt, no matter what stock move you're currently experiencing, you've got enough confidence to stick with it, to stick with the program and to see it out to the end because you know that the numbers are going to work out in your favor. This is something that I've learned over the last 10 plus years of trading, but I think over the last four or five months as the markets have become much more volatile especially towards the end of 2018, a lot of people's confidence has been shaken and they don't know if the strategies that they're using are going to work anymore. They haven't seen market moves that take the Dow or the S&P up 5% and down 5% in the same day. And so, that can be difficult. That can be tough if you haven't traded through those scenarios.

What I wanted to do at the beginning of the year is start off with getting back to some of the basics and talking about kind of the broad strokes of our plan and we're going to be starting that tomorrow as we start this new mini-series here on the podcast which I encourage you to listen to. Now, when I talk about unwavering confidence though, there's a couple of key things that you should remember as you start off the New Year and start thinking about your options trading strategy and the first thing is just flat-out to know your numbers. And I talk about this a lot in coaching and through our courses at Option Alpha, but the idea here is that you should know without a shadow of a doubt what the probability or expected outcome of a trade that you're making is. And there's a lot of subjectivity that still is in there with adjustments and making rolls and pricing, etcetera, but the broad strokes of whether an option strategy is going to work or not is something that you can figure out. Now, we built options back-testing software for this. We have a research on this. Other people have research on this as well. There's option strategies out there that have a positive expected return which means that over time, all of the small profits add up and beat all of the potential small losers or small frequency of losers that end up being large drawdowns in your account. But you should know this. You should know what your positive expected outcome on a trading strategy is and that to me is the biggest help when going through markets like the ones that we just went through and this idea that if we have a bad trade or a bad string of trades that it's still going to be okay, that the numbers will work out in our favor over time.

Another thing that can help out with developing your confidence and increasing your confidence is to write out the broad strokes of your plan. Now, you don't have to get really granular here, but we're talking about the most important big rock type philosophies that you should have in place for your options trading strategy, things like 5% position size that you won't change, that you won't break these rules. That one is a hard rule for me. I will not go over 5% position size for any one ticker. I won't roll unless I get a credit on a trade. Now, some people might roll for a small debit, but again, one of my kind of broad stroke plans and rules is that I won't roll unless I get a credit. I believe that I should get paid for extending the timeline of the trade. Determine some of these rules. Put them in paper. Put them on paper and write them out, so that you know what the guidelines are, what the rails are for your road, your barriers, if you will that you have to travel down as you work through the next couple of years. And then finally, you just have to work the plan. And this is again, a very simple concept. It's not mind-blowing by any stretch. But you have to do exactly what you're supposed to do. Oftentimes, we get into these volatile markets, in these crazy situations and people just break every single rule. They over-allocate, they completely forget about balance, they don't diversify, they start trading things they'd never traded before because they're exotic and volatility-based and they break all the rules, but you just need to flat-out work your plan. You need to write out a set of guidelines that you're going to work with, you're going to trade this strategy, you're going to trade this many tickers every month, this allocation, 5% position size. If you get challenged, you're going to do this. If you don't get challenged, you're going to generally close at this price point. Lay out those foundational elements and then from there, just do what you said you're going to do and as long as you know your positive expected outcome of your trading strategy, everything should work in place and it should work out over time. It may take you three months, it may take you 12 months to see profits kind of come in, but you know that they'll be there as long as you keep working the numbers. Hopefully this helps out. Again, if you have any questions, as always, please let me know and until next time, happy trading.

#467 - Stock Market "Predictions" For 2019 Resemble 1929 Crash Jan 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 be talking about stock market predictions for 2019 and why it might resemble the 1929 crash. I want to go through a chart here on today's podcast as we start off the New Year and just potentially lay the groundwork for a possible scenario of where the markets could be going in 2019. Now, as many of you guys know and if you've traded through the end of 2018, the markets had quite a wild ride to the end of 2018 and we saw a lot of volatility in both directions as we closed out the last year. As we start to look towards 2019, the question becomes – Where does the market go from here? And this is just my opinion on it. Obviously, we have no idea where the market goes. But my opinion on it is that I think that we are at the top of a cyclical bear market and this is interesting because we don't have one major catalyst yet that is turning over the markets. In fact, it seems to be a lot of different things. There's news from Apple and news from Tesla and the oil markets are depressed and emerging markets are depressed. And so, there's a lot of things that are kind of happening and revealing themselves in the middle of what I think is the next cyclical bear market down. And so, this is important because as investors and traders, we have to understand when these cyclical bear markets come, these massive bear market moves, how might they develop, how might they unfold over time. And I don't think that this particular move that we're in right now was going to be a major crash straight down and then straight back up like we saw in 2008, 2009. 2008, 2009 I think was a little bit different in the sense that we crashed pretty hard and then we rebounded just as hard and I don't think we're going to be going through that. I think what we're going to see this time around is something that might resemble the 1929 crash and the ensuing decline in the markets that happened over the next two and a half years.

What most people don't know and I'll go through this kind of chart here. You can search this chart online and just kind of look at the Dow Jones industrial average during the depression in the crash of 29 and basically 32. But what most people don't know is that the crash in 1929 was just really the tip of the iceberg. In fact, when the Dow went from about 375-ish points down to around 200 points which is by no means a small move by any chance, that was just the tip and in fact, the most of the move that the Dow had over the next two and a half years actually led it to decline the rest of the percentage down to about a 90% decline from peak to trough basically. And what's interesting is if you go back and you look at the percentage moves during this big 90% massive bear market, you have a lot of very strong, very aggressive bull markets in between or kind of bullish moves in between. The initial drop in the Dow that happened in 1929 was followed by a 48% rally in stocks in just about four and a half months and that's a pretty big move. And again, what I think is interesting about the 1929 crash and why I'm just kind of keeping this in the back of my mind as we go through the next couple of years is that there's a lot of opportunities and a lot of news coming out that could've led investors to be uber-bullish on the markets. And so, you follow a big market decline and then you have a 48% rally off the bottom, that probably sucked in a lot of people that had a false sense of security and became very much a classic bullish trap because after that, then the Dow declined and took on its lows and then as we started to get into the early to middle part of 1930, we saw another rally of 16% followed by another massive decline that took out the lows, another rally at the end of 1930 of 21%, again, followed by another massive decline that took out the lows, another rally in the middle part of 1931 of 27% and then again, another rally after taking out the lows of 35% in the middle of 1931. And then as we get to the end of 1931, this train still doesn't stop. We still see massive rallies followed by pretty significant selloffs that take out the lows. And so, as we get to the end of 1931, we saw again, another rally of 35% followed by more selling that took out the lows, another rally at the end of 1931 of 20%, again, followed by the final blow, the final down move in the markets that took out the lows and it wasn't until the middle of 1932. Basically about three and a half years that we finally saw a significant rally enough to make a bottom in the markets during this time period.

Again, the reason I go through this and I talk about all these different numbers and percentages is just to let you know that within one massive bear market, we can find many bull markets and this is interesting for two reasons. One, so that we know that there's generally going to be a two-sided market and we don't know to what extent markets are going to move, but we know that markets are going to be two-sided even in the face of a massive cyclical bear market and two, to understand that maybe we shouldn't get sucked into either direction, that we should play things pretty close to our chest, that we should reduce our duration, meaning trade shorter term securities generally. We don't want to go out 90 days. We want to stay around the 30 to 45-day window, so that we have time to quickly adjust and move with the market as the market moves whatever direction it goes. And so, again, I thought this was interesting as we started off the year. Again, I have no idea where the market's going to go. I'm not making this major bold prediction, but if we are in the middle of a cyclical bear market which is what I believe, then I think that we could find many bullish market moves here and I think we just have to be careful and cautious not to get sucked into any one direction and still maintain our overall neutral bias. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#466 - New Year, New Goals For Option Alpha Jan 01, 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 be talking about the New Year and our new goals for Option Alpha. As I look forward to 2019, we've got a couple of pretty big goals that we want to try to hit this year and a lot of it surrounds our new auto-trading platform that we're going to be rolling out in stages here in the next coming months. But that being said, we have these six categories really of goals that we've kind of put together and I think that it works best when we talk about them in kind of broad categories because I think about our goals as these categories and kind of touching on each of these and a lot of this is what you're going to see in everything that we do here at Option Alpha in 2019. The first category of goals that we have is all around experience and basically just improving the overall experience that you have interacting with Option Alpha and this is on all fronts. This is through support, through social media, through the website itself, through the trading application, through the courses and the research reports that we do. Everything about Option Alpha is going to have a much better experience. Now, I think we've done a pretty good job at least up to this point in putting together what we needed to put together, but now that we're going to be going to a completely new level, we want to really polish up everything and this is little things like improving the speed of the website for better user experience. This is everything from making the website more navigable, so that you can find the resources quickly and you can get to the right sections quickly without having to go through a lot of steps or pages or processing. Everything about experience is going to be improved this year. Number two in this kind of broad category is content. We've done a really good job over the last 10 years or so of putting up a lot of content and now, the goal is going to be to summarize a lot of that stuff, pull it together into more complete guides and again, organize the content, so it's much easier for you to find. We have a lot of content on pretty much every single topic and discipline and little trick or hack that you can think of in options trading, but a lot of it is kind of scattered between different sections and areas. And so, again, our goal is to bring a lot of this stuff together through the website, through the trading application, through the learning, LMS system that we put together and make it a lot easier for you guys to consume the right content for where you need to be right now or based on your experience level, your account size, what strategy you're trading, have everything kind of pulled together in one place. Number three is obviously technology. Everything that we've even talked about now with just the experience and content is all going to be built on this bedrock foundation of great technology. What we've been doing over the last couple of months and really, what's been kind of causing a little bit of the delay in how much we've wanted to launch the new auto-trading platform is just making sure that we have all the right technology pieces in place, so that everything is not only very secure, but is also insanely scalable, very fast, very efficient and so, we're taking the time to do it right and really, there's no other way to say this than – We want to make sure that this is something that can last for decades, that we're building a business and we're building a platform here that not only is great today, but also can be built on top of and can scale and expand for many, many years to come. Number four is community. We know that the current forum is not the best forum in the world, so we're aware of that and so, a big thing in launching the new platform is going to be completely rebuilding the forum community and basically putting a lot more emphasis on the community for pro and elite members than we have before and this is taking a lot of the feedback that we've gotten from members and feature enhancements and improvements and making things again, a lot more easy to use, a lot more navigable, making sure that you have the ability to use the forum on your mobile or your tablet, not just on the desktop. A lot of these little things that we know that we should be improving on, we're going to be rolling out in 2019. And in the community side of things too, we also want to start doing some sort of live event or some sort of live workshops, mini workshops, whatever we end up calling them probably later in the half of 2019. We want to start getting people together and that's really where I think it's going to be a totally different shift than many other platforms or communities that you've been part of before. Just having the ability to have some face-to-face interaction I think is really going to be critical for us moving forward. Number five is just the overall platform. What we want to do in this new overall platform as we've kind of alluded to before is basically focus on three broad categories and the broad categories of the new platform or kind of main tabs, if you will in the new site when it rolls out are going to be "learn, trade and follow" and that's really what we're going to be all about as we keep moving forward and it's really building a platform on these three disciplines, if you will, helping you learn everything you need to learn, helping you to actually make the trades using our technology and our automation or just making regular trades through Option Alpha and then eventually, having a community where you can follow other traders, copy trades, clone portfolios, copy entire trading systems if you want to in the future. And so, that's again, what we're going to be building this entire platform on. And number six is reach and I leave this one for the last one because although we want to expand our reach, I think it comes last compared to all of the other things that are kind of forefront on our goals. Now, many of you guys know that we don't spend practically any money on advertising for Option Alpha. We don't buy Google ads right now. We don't buy Facebook ads right now. We don't buy Pinterest or Twitter or any of these other things. We don't spend money on affiliates or sponsorships. We don't do any of that stuff and that's a testament to you guys in helping us grow this and your word-of-mouth, your referrals help grow Option Alpha, but it's only going to be at the end of the year that we're really going to start kind of maybe investing in a little bit more reach and a little bit more of the paid advertising and kind of trying to really expand things once we've gotten everything in place. And so, I want you guys to know again, what we are doing here and try to be as open and transparent as we can because a lot of these things, number one through five for us for goals this year are all about improving what we have before we start going out and actively trying to grow the business. What's great about Option Alpha and what I'm very blessed to say has been a very cool part of running this is that it's been growing at a very fast pace and that's all been very much organic, through word-of-mouth, people finding us because we're solving problems and we're helping everyone out, but at some point, we're going to have to really kick that into high gear if we want to become the options trading platform for everybody which I know we can be in the next five to 10 years. And so, again, one of our big goals this year is going to be to increase our reach and expand the number of people and the communities that we start to reach into, but that will only come after we've accomplished some of our other goals first. Hopefully this helps out. Again, if you don't do goals, you really should. This is a great time of year to step back and take a look at what you've done the previous year, maybe what you didn't accomplish, goals you did or didn't hit and start to make new goals moving forward and maybe you can even use this kind of category of framework that we use at Option Alpha and talk about different categories. They don't have to be uber-specific at this point, but if you want to start talking about goals for family or work or net worth or pay or all these other different disciplines, I think it really helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

#465 - Option Alpha's Core Values Dec 31, 2018

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to be discussing Option Alpha's core values. I think this is really important as we wrap up 2018 and start moving forward into 2019 and beyond because Option Alpha in one shape or form has been around now for almost 10 years and that's pretty crazy to believe. And so, what I wanted to do is kind of revisit some of the core values that we've had and that we continue to have moving forward as a team and as a community for you guys and give you guys a little bit of transparency and insight into who we are and who we want to stay or become in the future.

There's a couple of these core key values that I think will really help out and again, give you guys a little bit of clarity for our side. Number one is pure motives. This is one that's been really big for me, is that I've always wanted to have pure motives and pure transparency in what we're trying to do. We've often talked about how Option Alpha makes money and how we generate revenue, but everything should be above board. We should have no underlying motives, no sneaking suspicions or sneaking pricing strategies to get people to give us money and to be part of our community. I want people to love being here at Option Alpha. They get value out of it much more so than anything we could ever charge you. And so, for us, everything that we do is driven around pure motives, about helping out people that are just like us because we're all traders together and so, our community is built up with traders. The people that are now on our team are all options traders as well or people who like to trade or have experience trading and so, we want to help each other out in doing this.

The second core value that we really have is help first and this is basically done through everything that we do on the education side which was groundbreaking initially when we started doing this almost a decade ago and giving out membership for free and education for free, courses for free, all of the insight that we give out for free and training and downloads and PDFs and all this stuff that we kind of give you guys for free because we want to help first. I think helping first is the easiest way to get paid back tenfold in the future for the value that you give. If you help people out and you give enough value, the universe will pay you back and that's kind of our thought process. As we start to look towards 2019 and the rollout of our auto-trading platform, one of the things that we're going to be doing in the auto-trading platform is giving everyone the ability to trade some bots for free. And so, that's going to be a really cool way to give value again and to kind of fulfill this core value of helping first.

Number three of our core values is take ownership and take ownership is on all fronts and this is for our community members and our traders and people who are part of our programs to take ownership, to do the training, to go through the courses, to take ownership in their own trades and what they're doing. Everything that we do is of course, never a suggestion to buy or sell any security. And so, people have to take ownership for the trades that they actually made and if they make a trade that's bad, then you got to take ownership in making a trade that's bad and you got to take ownership for your education and your trajectory and where you want to be in life and how you want to use Option Alpha to help you get there. And it also means for us that we got to take ownership. If we make a mistake or if we do something wrong, we'll let you know or correct it or make the appropriate change to your account. We want to take ownership on our end. We want to be the ones that are in control of our own destiny, if you will.

And the fourth core value that we really have is growth mindset and this is again, across all spectrums. We want to grow as people, as people who are running this. I want to grow as a trader, but also as a business owner. I want to grow as somebody who is teaching and educating in this space. I want to become better and I want to become better at being a manager and a team leader and a fellow employee for everyone who's here and also just a fellow community member for everyone at Option Alpha. And I think if we adapt that mindset which we already have and I think it's pretty evident through everything that we do here at Option Alpha, then other people will have that same mindset of wanting to grow, wanting to expand their knowledge, to grow on every capacity, in every front that they have not only as a trader and as an investor, but also as just a person and a human being.

Hopefully this helps out, again, just to kind of give you guys a little bit of clarity into what we think about here. I think about these all the time. They're right on the top of my list. It's right inside my MacBook and inside my desktop where I can see these core values all the time because it's really something that I truly hold dear and I want to be part of what we have at Option Alpha that is kind of projected through the education and the training and the software and the technology that we deliver to you guys. As always, if you guys have any questions, let me know and until next time, happy trading.

#464 - Why Great Parents Don't Give Up On Children Who Struggle To Read Dec 30, 2018

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to be discussing why great parents don't give up on children who struggle to read. Now, I know you're probably wondering to yourself what in the world does this have to do with options trading and investing, but I will link up the two topics for you guys here together in one second. In our family, my oldest child is still learning how to read and still struggling a little bit with understanding and kind of like following along with words and sight words. And so, we've been practicing with sight word cards and trying to have her read very simple words and try to string them together, but she's really struggling in the sense that she's giving up on it too quickly. And she tries to read a word or a couple of words and she just throws up her hands and gives up very quickly and in my opinion, I think it's our responsibility as the parent to continue to teach her how to learn to fail and how to be good about repetition and the mechanics. As much as she is pushing us off and not wanting to read, on the outside, though subconsciously, she of course wants to learn how to read and have this own kind of defined power of reading in her piggybank, she is having a hard time learning how to be repetition and mechanical driven when it comes to reading. And so, she's just got to practice more and more and it doesn't mean that she's always going to get it and it definitely means that she's going to slip up and she's going to mispronounce a word or not know what a word means or not know how to pronounce a certain string of words or letters, but it's going to come with practice and repetition. It's really a byproduct of hard work. And so, the more that she works at it… And this is what I've been trying to tell her, is that the more works at it and the more I push her to work at it as a parent, the better off she's going to become because she has to understand that it's just a byproduct of her hard work. If she keeps at it, it will come. She will learn to read. It's not a matter of if, but when.

And so, the same thing can be applied then to trading and investing. If you're trading and investing and if you're learning how to trade options, there's going to be a point at which you fail. There's going to be a point at which you enter an order incorrectly or that you use the wrong strategy or you didn't calculate your position size and that's okay. It's about repetition and mechanics and if you keep increasing the repetition and keep honing in on your mechanics of trading and investing, results will come. You will become a profitable trader. It's a byproduct of hard work. The more and more you focus on it, the better and better you're going to become. And so, as a trader, as an investor, this is what you should take away from it today. It's just this idea that trading and becoming successful is just a byproduct of consistency and persistence, being consistent in doing the right things over and over again even if you slip up here and there, just continuing to hone your skill and your craft and being persistent enough to keep going with it even when it feels like you shouldn't.

Now, in our own opinion or in my own opinion, I guess, we went through during the middle of summer, I guess this year, 2018, so this podcast going up the end of 2018. But during the middle of 2018, kind of in like the summer-ish months, we went through a drawdown of about 7%-ish. It depends on what day you actually picked the drawdown and paper drawdown versus real drawdown. But we went through a pretty decent drawdown right before the market started to top and roll over and so, for me, I knew that at that point and in that period when we were going through a little bit of a drawdown that nothing was wrong in what we were doing. It's just we had a bad string of trades. We had actually a lot of bad strings of trades and just this sequencing risk that we know was present in the market kind of hit us at the wrong time and right in the middle of the year. But I kept on trading and kept on trading a lot of the products that we have been losing on previously and had two months of losses and a couple of different products like TLT or XOP or USO, etcetera, but just knew I should keep trading and keep the mechanics going and eventually, what we ended up doing is ended up turning that back around and ended up generating enough profit on the year which is great. And so, for me, it's again, another reconfirmation of what I know to be true and that's – I just have to stick with the mechanics, that the profits, the results, the byproduct of all of the hard work, of all the mechanics and repetition will come if I just stick with it and keep my head down and kind of keep my nose to the grindstone, if you will. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#463 - The Turn Around In Our EWZ Short Straddles Dec 29, 2018

Show notes

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 turnaround in our EWZ short straddles. And actually, what I want to do is I want to try to point you to new podcast that we have coming out very shortly which is show 151 on the weekly podcast. If you're already subscribed to the weekly podcast, you'll get the show. If not, go ahead and subscribe to the weekly podcast from Option Alpha because we walk through in basically 45 minutes to an hour, the entire case study in EWZ.

But the quick highlights here are really interesting. We started trading EWZ many, many months ago back in I think early September or even early August when we start first selling premium and short straddles in EWZ mainly around the 33 and 35 strike prices. Then we saw EWZ have a massive move up to around $42 at its peak and at that point, we just continued to use some of the basic risk adjustment and rolling techniques that we teach here at Option Alpha, rolling for credits, rolling for duration. Ultimately, we ended up holding the position for about three and a half months and the position came back around and ended up being profitable by the time we closed out the position. Again, it's a really cool case study about how we took a position which was a multi-hundred dollar loser and just with some very simple risk adjustment techniques, keeping our position size in check, not letting things get too crazy and out of hand with multiple entries and huge position sizes, we were able to take these straddles, these "undefined risk trades" and turn it into a profitable position after making some simple, simple adjustments.

Hopefully that helps out. Again, I encourage you to go over and listen to show 151 on the weekly podcast. We walk through the entire case study of how we turned this thing around and not only turned it into a profitable trade, but also a $540 profit after it was a multi-hundred dollar paper loss. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#462 - Should You Trade Options While In College? Dec 28, 2018

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today's call, we're going to answer the question, "Should you trade options while in college?" And I know this can be a little bit of a hot topic, but here's my honest opinion on it. I think you should absolutely start trading options in college. I think there's no reason to wait to trade options later on. In fact, I think you can deploy some very simple, very controlled risk strategies and you can start trading in college because ultimately, what is on your side or what's in your favor when you start trading earlier is just frankly, time, time to make more positions, time to let the probabilities work themselves out, time to go through many different market scenarios and increase your trade count over long periods of time, decades even.

When you start trading later on, even five or 10 years later, you really kind of start cutting down your timeline and you start potentially doing things that might be a little bit more risky because you don't have enough time and we see this all the time with people who are getting close to retirement or starting to think about retirement and they start doing things that are maybe a little bit risky and it pays off initially and then they do it again and it pays off again and then they get hit or slammed with a black swan event or a huge drawdown and they basically reset themselves another 20 years. But when you start trading earlier, I think you have the opportunity to do it right from the beginning, knowing that you have so much time on your side and so much time in front of you to let the probabilities work out, increase your trade count, all of that stuff that we talk about here at Option Alpha. Should you start trading in college? Sure, but you have to do it the right way. I think you've got to control your risk. I think you've got to do risk defined strategies. You should not be looking to make $1 million overnight. I mean, all the stuff that we generally talk about as good financial practice should definitely apply to those who start trading in college.

And if I was in your shoes right now or if you're listening to this and you're in college or if you have a kid that's in college, please get them on this podcast, going through our training. Help them understand how they can use options to generate income and generate income in a more stable fashion because what I hate seeing is I hate seeing people who come to us after say 10 years or 20 years of investing in the market and they just don't know anything else besides buy and hold or buy and pray and that's really, really not what we're here for. We're here to help educate people, help show people how to do it a little bit differently and I think you can help out too if you've got kids in college or if you're listening and you're in college right now. Take the time to invest in this. It's worth it in the long run. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#461 - Dividends Fulfill This Core Human Need Dec 27, 2018

Show notes

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 dividends fulfill this core human need. I think this is actually kind of interesting because I generally talk a lot with people about what their needs are and what they think about finance. As many of you guys know, I'm insanely interested and I geek out on just the psychology behind finance and what people want to do with wealth generation and what I consistently find is that the need for income fulfills a core human need which is why dividends and dividend paying stocks are really, really popular. In fact, just recently as we were celebrating the holidays and we were sitting around with family, we got on this discussion about dividends and somebody brought up – "Oh, this dividend stock pays this." And "Oh, well, my dividend stock pays this and my dividend stock pays this." And what I ultimately ended up learning from just watching and just kind of overseeing this conversation and not participating in it because I don't want to participate in dividend stock conversations at all, but just watching and overseeing this was the need to have certainty and that's a core human need. A core human need that we all have is this need for certainty. That's why we always look for things that are guaranteed. That's why we always look for things that are certain. They're predictable. They're understandable because it fulfills this need for certainty and dividend paying stocks fulfill a core fundamental human need for certainty. Now, you can look at a high dividend paying stock and make so many arguments for why that stock is a bad investment. In fact, some high dividend paying stocks right now that pay 12% or 15% are probably terrible investments because the risk is adjusted for the fact that the stock is not great or the company's fundamentals are not great. And so, it's just a function of math that they end up paying a high dividend related to the stock price, but the company maybe is going to cut the dividend or is going to eliminate the dividend altogether. But it's so fascinating to me that people are so drawn to dividend paying stocks or dividend paying companies because of the need for certainty.

Now, I don't know who it was, so you can please let me know if you do find this, but I did try to look online. I couldn't find out where this research was originated or I would've pointed you, but I know there's research out there that actually shows that over long periods of time, dividend paying companies actually perform less or actually underperform companies that don't pay dividends over time. And that's why you see even some of the biggest companies like Berkshire Hathaway still does not pay dividends because of the need to reinvest and recycle capital as opposed to paying it out to shareholders. Now, that doesn't mean that dividends are a bad thing and companies shouldn't pay out investment to their shareholders, but there's probably other ways to do that, maybe stock buybacks, etcetera. But it's really interesting. I think there was a really good research report that I read a long time ago and I couldn't find it that definitely show that dividend paying stocks actually underperformed non-dividend paying stocks. It's pretty fascinating again, just trying to open up the dialogue here. I think it's interesting that dividends again, fulfill this core human need for certainty, but don't necessarily turn out to be the best investment vehicle long-term in some cases. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

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