The "Daily Call" From Option Alpha

Latest Episodes:

#310 - The "Someday" Disease That Plagues Our Goals And Holds Us Back Jul 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 why the "someday" disease plagues our goals and holds us back. Again, I'm a huge fan of putting together goals, writing out plans, having some sort of framework around where I want to go not only in business, but in life as a father, as a husband, with me and my wife and our real estate portfolio that we do. Everything that we do here at Option Alpha, all of it has goals and plans and a framework and we don't always hit all of our goals, we don't always do everything, but it's that framework that kind of guides us and leads us forward. And I think what some people suffer from unfortunately and I truly mean suffer from is this "someday" disease that they assume that someday in the future, things will come true, the stars will be perfectly aligned. But we know as rational humans hopefully that timing is never going to be right to do what we want to do. In fact, it's probably never going to be right. I'm not even going to say it's maybe never going to be right. It's probably never going to be right. The stars will never align. All the traffic lights will never turn green at the same time. It will never ever happen. "Someday" is a disease that will take your dreams to the grave with you. And so, if you've been wanting to do something and you know that you need to make a decision, a change, a movement in that direction, you have to start now because things are never going to be perfect. I hear people all the time and I talk to people, not only families and relatives, but just people in coaching and online that I've met over the last let's say 10, 15 years and what I hear people say all the time is like, "I wish I could do this, but I have to do this first." or "Until this happens, then I can't do this." And the reality is that some of that may be true to half a degree. Maybe you do need to figure out paying down your student loans before you start doing something. That might be a thing that you have to do. You can't get around that. But it's probably not as much as you think. Maybe you can consolidate your student loans and have a lower payment and then start moving towards your goal.

But this idea of just waiting or choosing unhappiness right now over uncertainty I think is ridiculous. I'm sad that a lot of people go through this because it's something that holds people back and makes them regret decisions later on, assuming that someday in the future it's going to get a lot better. But if you choose happiness over uncertainty right now, you're making the wrong decision because you shouldn't be scared to make a change or a move. You should be willing and excited to increase your capacity to learn and to grow and to develop and that only comes through change and challenge and struggle and some people are really afraid of that. I don't know why they are or what they think the social or financial consequences of that are going to be, but generally, it's never as bad as we think. I mean, it even comes down I guess to options trading like people always assume stocks are going to move more than they do, but I guess in the real world, people always assume things are going to be worse or better than they actually are, so why not make a change, why not challenge yourself, why not try to grow and develop and learn right now versus trying to someday hopefully make the stars align and everything will happen perfectly and you'll slide into the perfect job that you want, you'll find the perfect person that you want. But we know it's never going to happen that way. We know it's never going to happen exactly as we planned it out. Start making those decisions now. Don't let it hold you back. Start using your goals and your action items and your framework to move you forward. Hopefully this helps out. As always, if you guys have any questions or want to share what you're doing, let me know and until next time, happy trading.

#309 - How To Adjust Iron Condor Option Strategies Jul 28, 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 how you can adjust iron condor option strategies. As a basis, iron condor strategies as many of you know are neutral option selling strategies whereby you are selling a call spread and a put spread around a stock's price. For example, if a stock is trading at $100, you might sell the 105/106 call spread and the 95/95 put spread, so creating a call spread above the market and a put spread below the market, taking in a net credit on the sale of those option contracts. Now, once you start getting challenged on an iron condor assuming that the stock either moving against your call side position or against your put side position, the rules of adjusting iron condor option strategies are that we first do not adjust the challenged or tested side of the strategy. This means that if the stock is moving up against your call spread side, let's say the stock is moving from $100 where it initially started up to around 105 and is now starting to challenge your call spread side, we are not going to move or adjust the call spread side of the position. The reason that we don't do this is because we don't want to dig ourselves into a deeper hole. We've already defined our risk on the position. If we've done our position sizing appropriately, we know how much money we're willing to lose on each individual trade that we make and as a result, if we move or adjust the call spread side, we start giving ourselves an opportunity to dig ourselves deeper and deeper into a hole. Now, although it might seem counterintuitive that we don't touch the challenged or tested side, we don't want to give the market an opportunity to continuously move against our position, backing up our strike prices higher and higher and paying a debit to do so and if we pay that debit to increase or backup our strike prices, then it allows the market to continuously move against us and it gives us less and less of an opportunity to turn the trade around.

Now, what we want to do besides not adjusting the call spread side is we want to move up or roll the unchallenged or untested side closer. In this example, if we are being challenged on the top side of our iron condor where the stock is moving higher, we would want to close our put spread and roll it up to a closer put spread based on where the stock is trading. In our original example, we sold the 95/94 put spread. If the stock starts trading up to around 104 from 100, then we would want to potentially roll up our put spread up to around say the 100 put and the 99 put. We'd sell the 100 put, buy the 99 put, having closed out of our 95/94 put spread. Now, the reason that we do this is because this is the opportunistic way to adjust iron condors. We're basically taking what the market is giving us in the sense that our put spread side is going to lose value as the market starts to move higher against our call spread side. We're going to take a little profit or a mini profit by closing out of the put spread side and reopening a closer put spread for a higher credit. This higher credit increases our overall credit in the position and then widens our breakeven points on both sides. It's an opportunistic way to not increase the risk in the position, but actually to favorably adjust the position based on where the market moves. And as the market continues to move against our call spread side, we can continue to roll up our put spreads until the point at which we turn the entire position into an iron butterfly. If the market continues to move up, let's say it moves up to 106, now we can roll up our put spread again if we want to up to the 105 puts and the 104 puts, basically creating the 105 iron butterfly. At that point, we probably adjusted most of the iron condors about as far as we want to. Again, this is a very simple concept to talk about. I probably explained it in four minutes, but probably a little bit harder to go through than you might be normally used to if you're new to options trading, so we do have a bunch of video tutorials, tons of live examples on the website at Option Alpha. You can just search iron condor adjustments and you'll find a ton of resources there to get you started. As always, if you guys have any questions, let me know and until next time, happy trading.

#308 - Can Option Deltas Ever Be Greater Than 1? Jul 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 answering yet another member question which is, "Can option Deltas ever be greater than 1?" If you go back and think about what option Deltas refer to when it comes to single option contracts, is it refers to the change in price of the option contract or a potential change in price of the option contract as a result of a $1 increase or decrease in the underlying security. Generally, call options have positive Deltas and put options have negative Deltas. And so, when we see a dollar increase in the underlying stock, that's positive for call options, that's negative for put options. But the question is – Can these Deltas ever go above 1? And the short answer to this is no and the reason that they can't ever go above 1 is because all that single option contract could do is trade at parity with the stock and this Delta of 1 means that for every $1 movement up in the stock, there's a $1 movement up or if it's a –1, I guess for put a option, there's a $1 movement down in the underlying put option, so it starts trading more and more like the underlying stock.

This is actually pretty interesting because what I talk about often is that when we do get assigned and the rare chances that we do and it's usually less than half a percent of the time historically have we been assigned on contracts. But when we do get assigned on contracts that are deep in the money, I tell people that the Deltas of those contracts are probably closer to one and so, therefore, the assignment starts acting like stock anyway before it even happens. By being deep in the money on say a short option, whether it's a call or a put, that short option contract is going to start acting more and more like stock, so being assigned stock is not really any dramatic difference in the underlying position and how it behaves in the market other than the fact that we have to cover the stock position now versus just the option contracts. It's a really interesting question, but again, the Deltas can never go above 1 on call options, can never go below –1 on put options because at that point, it's going to start trading at parity with the stock. As always, if you guys have any questions, let me know and until next time, happy trading.

#307 - Isn't Trading ITM Call Options Risky? Jul 26, 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 answering a member question which is, "Isn't trading in the money call options risky?" This is a question somebody sent in and they said, "Kirk, I'd love to have this on the daily call." And again, if you guys have questions, send them into me. Just email them over or go to optionalpha.com/ask and leave me a voicemail there. But this question I think really came out of the questioning around iron butterflies, so why would we trade in the money call options or at the money call options when building out iron butterflies and iron condors. The question of riskiness is very subjective because I think when you're trading an at the money or slightly in the money call option and you take in a massive premium, it's not as risky as you would maybe have been led to believe initially because that premium that you take in widens your breakeven point much further beyond where the stock is trading and again, not that all options in the money get exercised immediately. It's much more likely that that option contract is going to be okay trading in the money all the way up until the last week of expiration.

Now, when you start getting into deeper and deeper in the money call options, then yes, it probably becomes more and more risky and the reason it becomes "more risky" is because the risk of assignment becomes greater and greater as the option starts trading in parity with the stock. The deeper you sell call options in the money or the deeper you sell put options in the money, the less time and volatility have an impact on that option's value and so, therefore, the option contract starts trading more based off of its intrinsic value and less off of its extrinsic value or time and volatility value. To give you some context, let's say that we have a stock trading at $100. If I were to sell a 100 strike call or a 99 strike call, it wouldn't necessarily be that bad. I'd probably take in a pretty big premium for doing it and by selling an option contract at or slightly in the money by $1, I'm not really increasing my risk of assignment dramatically. Now, if the stock is trading at $100 and I sell an 85 strike call option, not a put option, but an 85 strike call option, then yeah, I'm $15 in the money, I probably am in a much greater risk that either I have very little liquidity or that the option contract is going to be assigned closer or much earlier in the expiration cycle because it's deep in the money now and at that point, it's $15 away and there's very low impact on the option price based on time and volatility, so it starts trading more like just regular old long stock and so, that's where the difference comes in.

Hopefully this helps out. As always, if you guys have random questions like this or one-off questions that you just want to get us get answered on the show, just let me know. Like I said, email us, send a Tweet, send us a Facebook message, head on over to optionalpha.com/ask, leave us a voicemail, whatever you want to do to get your question answered here on the show and until next time, happy trading.

#306 - Even The Smartest People In The World Don't Recognize Optimistic Denial Jul 25, 2018

Show notes

Hey everyone. This is Kirk here from Option Alpha and welcome back to the daily call. Today, we're going to be talking about why even the smartest people in the world don't recognize optimistic denial. I wanted to start off with just a very quick story and the quick story is about some, let's say friends/relatives that we know that got married. In fact, it was actually the girl who married a guy. Really, really smart girl. In fact, probably one of the smartest people that I know. I mean, really, she's a chemist and a scientist and very, very smart. And she ended up marrying a guy who was just as smart as her, very smart guy, engineer and they had troubles early in their engagement. And they thought to themselves and I remember talking to them and my wife and I were talking to them about their engagement and their upcoming wedding and they thought to themselves that once they got married that everything would be better and for some reason that the act of marriage would then solve their problems which if you're listening to this now, you probably know or it's probably very intuitive that that didn't happen. In fact, they got divorced about four months after they got married. I mean, it was really that quick that things turned sour and they ended up in a divorce which is sad.

But I think what it really shows me is that there's a lot of people out there who dress up this fear of something and they call it optimistic denial and I think that's really debilitating because most people will avoid something out of some random belief that their course or their track or their trajectory will improve over time if they increase their effort or just give it more time or if it increases their income. You even see this in say jobs. People will avoid quitting their jobs in the belief that it's going to improve with a little bit more effort or if they increase their income, then they'll feel happier about being in their job. But the reality is that if it's really likely to improve, if they're that confident that it's likely to improve them, why are they questioning things? We know right now and we were all rational adults for the most part, I guess, right? We know that more money in a job that you hate does not make you hate the job less. It just makes you tolerate it a little bit longer until you reach the next threshold in which case, you need to make even more money at that job before you tolerate it a little bit more and that's really all it is. It's just the different steps of fear and toleration that we go through.

I went through this myself when I decided to leave, I guess the corporate world and at the time, I was working in REITs and so, I had a great job. I had left investment banking. Everyone said I was stupid to do that. I went into the REIT business which was great, but then I decided I wanted to leave that. Look. I was scared to leave that because I was so young in doing so, because I knew that that was the different path that most people took and so, that was a nightmare for me because I didn't know what was going to happen. But I knew that it wasn't where I was supposed to be, so I let it play off, I guess for a little bit, a couple of months before I just realized that I was in total optimistic denial. I just had this optimistic approach that everything would improve and get better, but like in my heart, I knew that's not what I wanted to do, that's not where I wanted to be, it's not the lifestyle that I wanted. And so, for me, I had to sit down and really define kind of what my worst fears were, my fears of being let go, my fears of the industry changing, my fears of losing that position, I mean, just everything. I wrote it out on a paper and tried to figure out – Okay. If that happens, what were the steps that I could take to kind of get back on my feet? What would I do mentally, financially, physically? Where would I go? Who would I see? What could I do? And I realized I had in that process, put together a game plan that allowed me (and thanks to my wife and her support too) to come home and actually trade from home. And so, that was a really big part of that. It was just laying out this game plan and recognizing that I was in this mode called optimistic denial, that I thought my course would improve over time with more effort or more income or more relationships, but it really wasn't going to. I think this is insanely important because I feel that we get stuck in ruts and modes of learning and working and dealing with relationships and it's only when we actually try as humans which is really the biggest ability that we have as humans over every other thing on the planet, is the ability to step back and take a look at our overall picture, our overall position and really define where we're at and where we're going and then make the conscious decision to potentially change it.

I think this also happens a lot with children. As I'm learning as a parent hopefully for the better, that people are optimistically denying how good or bad their children are. People say, "Oh, he's just going through a growth spurt." You know, like a different mode or change. Or this person is just whatever the case is for that child. But parents are guilty of this all the time, believing that their children are better or worse than they actually are and it's not until we actually take a step back and look at a child in the context of everyone else or independently as a unique individual that we realize how good or bad they are or what course corrections we can make as parents. I think it happens all over the place. I think it's something you need to realize and again, take one step back because if somebody like these two people I talked about in the beginning of the podcast, insanely smart people, very successful in what they do, if they didn't recognize right away that they were on the wrong path, they were on a collision course with divorce, then it's going to be really hard for everyone else to as well. And you just have to take a step back all the time and just kind of reassess the surrounding, reassess your situation and make sure you're doing what you want to do and you're really rationally looking at everything in your life, your job, your physical fitness, your health, your religion, I mean, everything. It's got to be constantly evolving and constantly improving. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

#305 - How To Cut 15% Out Of Your Monthly Expenses Right Now Jul 24, 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 talk about how me and my wife just recently went through and cut 15% out of our monthly expenses right now. This is a big one for me. I'm a big fan of budgeting. I'm a big fan of reducing your expenses at all cost. In fact, one of the major reasons why we were able to start trading for a living from home more than 10 years ago is because me and my wife sat down and decided that we wanted to do this and we knew that part of being successful in this business would mean that we have to cut back on expenses because expenses, although it may seem like they're not that important, actually can really creep up on you. We decided to do a lot of different things early on. We moved into a small condo, we had no car payments. I mean, we did all, honestly the right financial things early on that were tough decisions because everyone else was buying houses and they had sweet cars and we had very old crappy cars at the time, but that ultimately was a good decision. And so, every now and again, me and my wife continue to revisit our budget and figure out ways that we can cut back on expenses and I think it's interesting because no matter what we do, it seems like at all times, things just creep up on you and I think that's just life. I think you go through life, you have kids and you start shopping for groceries and you have utilities and all these old things and you don't really understand how much things just slowly creep up in price. But I'm a student of this game and I track everything religiously. Me and my wife do massive spreadsheets for our budgets and everything and we recently went through and cut about 15% out of our monthly expenses, I mean with a snap of a finger and it wasn't anything major, but we just kind of went line by line and figured out what things we could change.

Here are some of the things that we changed and it might help you out and I think it's something to revisit whether you do it by yourself or whether you do it with your spouse or your partner, etcetera. One, we changed from cable to Sling, so that saved us about $150 a month in just our cable and internet bills and stuff like that. We went from regular cable with Comcast to Sling which is like an online provider, app provider, I guess. I don't know what the right terminology is, but it's like a Netflix for regular TV. And so, my wife loves her morning shows and the today's show and all that stuff, so we went with them and it saved like I said, about $150 in our cable bill which was pretty significant and it was just really switching over. Most of the cable channels, we don't watch anyway. I barely watch TV anyway, so it's really hurting my mind, but that was a quick one. We also called around and just checked in on most of our insurance and saved a couple of hundred dollars there as well. I think this is an interesting one. Most insurance companies, I just feel like their insurance premiums just continuously climb just a little bit every year. I don't know why it is, but it seems like two years ago, it was one thing and now, it's $25, $30 higher for no reason. We renegotiated those and just got those down. We're good drivers, we're safe. We haven't had any accidents, nothing major has happened, so that was an easy one. Utilities. Where we live in Pennsylvania, we have natural gas as our heat source and what most people don't know is that you can actually choose… Even though you have a natural gas company that actually sources the gas to your house, you can actually choose who the provider of natural gas is. And so, again, most people don't actually go through and check this, but that's a really small difference that we can just choose which provider provides natural gas and we chose somebody who provides that at a little bit cheaper rate and then some of the other companies that we've been just, I guess defaulted to using. And so, that saved I don't know, $50 or so maybe a month over the next year or so.

The other thing that we've done is we've started shopping at different grocery stores. We've been really, really cognizant of the cost of groceries now that we have three kids. I think that's like more creeping up and we have a boy now, so the kid is just eating like a lot, obviously. And so, now, we're more cognizant of it than maybe we were before, so we're shopping at places like ALDI which if you guys don't have an ALDI, it's amazing, it's wonderful and it definitely saves us at least $100 a month in our grocery bill. And then the final thing is just gas and auto. Again, we sold one of our vehicles that we have not been using because we got a van now that we have three kids. And so, now I'm part of the minivan club which I actually love. I love our minivan that we got. And then we also are being really, really cognizant of the different gas stations that we actually go and get gas on. We're using the rewards that we have from grocery shopping and really leveraging those rewards to then save in some cases, $.30, $.40 on a gallon of gas every time that we go and fill up. It's just being really strategic about what we're doing and I think when we added up what we could save, it's about $750 this month in our budget than what we had before and that goes a long way. I mean, that's real money that's back in our pocket. I guess hopefully this helps out just to kind of get your brain wrapped around maybe potentially revisiting some of your things and really asking yourself either A, if you need it or B, if you can cut the expense and reduce it. As always, hopefully this helps out. If you guys have any questions, let me know. Until next time, happy trading.

#304 - Is Margin Required When Trading Option Spreads? Jul 23, 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 answering the question, "Is margin required when trading option spreads?" The simple answer to this is yes and no. When it's typically thought about margin when it comes to investing, people think about borrowing on margin and then buying stock. But when it comes to options trading, you do have to have margin or put up margin to trade option spreads. Now, that doesn't necessarily mean you need a margin account. In fact, you can trade options spreads in your IRA or retirement account with your broker just as easily as you can trade option spreads in a regular margin account. Now, what brokers do is that when you're trading spreads, they put up or set aside money in your account to cover the risk in that spread position. Let's say you're trading a $1 wide spread credit spread, either call spread or put spread and you take in a $30 credit which means you have about $70 of risk in a very simple spread. That $70 of risk, they're going to set aside it. They may call it margin or they just may call it buying power production, but in either case, they're setting aside this risk money to cover the position in case it goes bad.

Now, again, even though they may call it margin, they're not necessarily borrowing that money. You're not going into the margin account of the broker and borrowing money for the sake of making this trade. You're just allocating a certain percentage of your account, that $70, whatever percent that is of your account to cover that position in case it goes bad. The broker just sets it aside in your account and you can't trade with that $70 in your account anymore. You can trade with everything else that's left, but that amount of money is set aside to cover it. That's why I say it's kind of a little bit tricky sometimes in the sense that they call it margin, but it's not really borrowing on margin. Same thing is done in your IRA accounts. It doesn't matter if you have a margin account, IRA, retirement account. They just set aside the money when trading spreads. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

#303 - The Top 5 Things I Love About Options Trading Jul 22, 2018

Show notes

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, I'm going to share my top five things I love about options trading. This was actually hard for me to whittle down into five things, but I think I can really do it in five really good, very solid categories as reasons or benefits as to why I absolutely love the options trading business.

Number one is the numbers. I've always been the type of person who thrives on understanding the numbers, the math behind something. And so, for me, options trading leaves very little subjectivity to the business. The numbers are what they are. We know what position size is. We know what the probability of success can be on a trade when you enter it. We know a lot of these numbers. And with most of the back-testing that we've done and will continue to do in the future, that gives us much more confidence in understanding how we can put together high probability income generation machines with options and it's purely based on the numbers. There's no fashion trends that we have to worry about or subjectivity. It's really easy business for me in that sense.

Number two is the freedom. Obviously as a parent of three kids now and having a beautiful wife, I want the freedom to be able to do this from anywhere in the world. I want to be able to travel to see family across the country and still have the ability and flexibility to trade. That freedom is a really big one for me. It's something I've always wanted. I just naturally gravitate towards not being chained to a desk or chained to an area. If I want to move or if I want to travel, I have the ability to do that and I don't lose my business as I go.

Number three is scalability. What's really interesting about the options market is that you can scale quickly. Scaling is just a matter of a couple of mouse clicks and increasing your number of contracts that you're trading or changing out a credit spread for a naked option strategy. It's really that quick to scale and scaling is immediate. You can easily get a bunch of contracts into the market if you need to and scale up your position or not and you can't say that about many other businesses. Try scaling a restaurant business where you have to open up another restaurant. It just takes a lot of time. If you wanted to open up 10 new restaurants tomorrow, how quickly is that going to happen? It's not. The options trading business is really unique in that it can scale very, very quickly.

Number four is agility. This is a big one for me and I took a long time to kind of figure out what the right word was for this. But the ability to move quickly from one area to another I think is huge. Options trading, again, like nothing else on earth, gives you the ability to invest in or not, different areas, sectors, markets, companies quickly. I mean, we're talking days or even hours at a time, you can reposition your entire portfolio based on new information. If there's a great trading opportunity in a bunch of oil and gas ETFs, you can quickly move capital over there and then once that opportunity is done, you're out. You can move capital someplace else. The agility that options trading gives you, the ability to quickly reposition capital and be a good steward of your capital I think is something that you can't find any place else. Again, try closing down your restaurant to open up a Laundromat or open up a retail clothing store. It just doesn't happen as quickly as you could do something in the options market.

And number five is undoubtedly the edge. The edge that we have in implied volatility's over-expectation of actual volatility is one of the coolest things that we've ever run across in the financial markets and this edge is never going away because we are always bad at predicting the future. The implied volatility edge is based on forward-looking future predictions. And so long as there will be a future and that future will be full of Black Swan events at different times in the future, I know that this edge will stick around. It will stick around through more automation, through more robotic trading, through whatever market changes we have in the future because the future is very hard to predict and until the point at which we can accurately predict the future, we will always have an edge as an option seller.

Those are it. Those are my five things, the numbers, the freedom, the scalability, the agility and the edge. Hopefully you guys enjoyed this. I'd love to hear what your top five things are. Send me a Tweet. Shoot me a Facebook message. Post somewhere on the website. Let me know and until next time, happy trading.

#302 - The Apollo 13 Lesson For Massive Wealth Generation Jul 21, 2018

Show notes

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we are going to hopefully teach you guys a lesson from the Apollo 13 movie and it's a lesson for massive wealth generation. Let me go back and tell you a little bit about that story if you haven't watched the Apollo 13 movie or you don't know the history of it. But basically, what happened is one of the missions to the moon ended up in catastrophic failure. There was the CO2 or CO ring that busted during takeoff and so, it created this huge nightmare where the astronauts were basically stuck in the capsule and the modules with a declining amount of air. They had to figure out a way to convert basically carbon monoxide into carbon dioxide or into breathable oxygen. And so, the real mission was how do we convert and basically build this machine, this thing that could filter and remove the harmful chemicals in the air and turn it into breathable oxygen. During the movie, one of my favorite scenes is when the mission control guy comes into the room with all of the scientists and all the engineers and he basically dumps out a bunch of stuff on the table and everything spreads out and he says, "Listen. This is what they have up there and this is what you guys have right now. Let's build a filter, boys." And he just basically says, "Look. Let's get to work. This is what we have to work with." Everyone's trying to come up with these grand schemes, but the reality was is that they couldn't send some more supplies back up to space. I mean, they're halfway between here and the moon and you just can't send stuff right up there, so they basically had to deal with what they had at the time.

I think this is a really critical lesson if you're really serious about building a lot of wealth over your life and that is to watch every single dollar and take advantage of everything that you have right now, watching over just what you have, not worrying about what could come in the future or what you might have down the road, but literally watching over every $100 like it's $1 million because you'll never get the chance to babysit $1 million until you've actually figured out how to watch like a hawk every $100, $1,000, $1 that you have. You'll never have a fortune if you don't first control your budget in spending. Oftentimes what I tell people in coaching is that you can't ride a motorcycle without first learning how to ride a bike. It's impossible to do. You could never tell someone who's never ridden a bike before in their life, has no idea or semblance of balance. You could never just stick them on a motorcycle because it's more expensive and it's worth more and so, they should just naturally take over. It doesn't work like that and the same thing happens in the wealth generation money business, I think. You can't just give somebody a lot of money then expect all of the right pieces to come into place. That habit, that foundation has to be built over time. And so, you have to learn to deal with what you have right now and make what you have right now work. And yes, that means that sometimes it might be a little bit difficult and yes, that means that sometimes commissions cut into your profits a little bit more because you've got to do spread trades right now. But you got to work with what you have right now and then start building up from there.

I think it's a really critical lesson. I think it's hopefully important. Again, if you just remember the analogy of the bicycle and the motorcycle, I think it makes it really, really easy. You've got to progress because it's the struggle, it's the challenge, it's really setting that foundation up that allows you then to scale up in the future. As always, hopefully this helps out. If you guys have any questions, let me know. Until next time, happy trading.

#301 - Buying Options With A 70% Chance Of Success Jul 20, 2018

Show notes

Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we're going to be talking about how you could actually buy options with a 70% chance of success. Now, everyone always talks about option selling and that's mainly what we focus on as well, is option selling with a high probability of success. But oftentimes, I get questions around option buying and can you buy options with a high probability of success. And so, the answer to that question is yes, you can definitely buy options with a high probability of success. That means that you're buying options that are deep in the money or in the money option contracts and when you do this, you're paying a really high price for those contracts because they have the inherent possibility of generating some money.

Now, the problem with buying options even when you buy them in the money is that you often give up a lot of your premium early on to volatility and time decay just like you would get a lot of that premium if you were an option seller on the other side. Even though you can setup a trade with a 70% chance of success as an option buyer, remember that implied volatility works to your disadvantage as an option buyer which means that you actually might win less than 70% of the time if you actually let the numbers play out in the future. Because of this disparity, this edge that goes to the option seller because of IVs over-expectation, you really have to make sure that the position that you're in is something that you really feel confident about, that you're really confident that the stock is going to move the direction you want or the stock is going to fall in the manner or time period that you want.

It's not something that I obviously advise. It's something that we 100% advise against, but I think it's something you could do. You could buy options with a high probability of success. Well, see if you actually end up making money after implied volatility sets in and after the expiration period is complete. But chances are, you're going to have to outlay a significant portion of capital to get that trade on and your probability of winning a lot of money is going to be dramatically lower. With option buying in deep in the money contracts like this, you start replicating more and more stock position which means you're outlaying more and more capital for a lower and lower probability of return on capital. As always, if you guys have any questions, let me know. Until next time, happy trading.

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