The "Daily Call" From Option Alpha

Latest Episodes:

#251 - The Basics Of A Head And Shoulders Pattern May 31, 2018

Show notes

Hey everyone. This is Kirk here again from optionalpha.com and welcome back to the daily call. Today, we're going to be talking about the basics of a head and shoulders chart pattern. Some of you might be wondering why, Kirk, on earth are we talking about chart patterns on a podcast that's focused on options trading. It's because I think when it comes to chart patterns, the head and shoulders pattern is probably a little bit, slightly more reliable than some of the other patterns out there and obviously, easier to spot. It's not as subjective, necessarily as some of the other patterns. My biggest rub or push with many chart patterns and using lines on charts, etcetera is that it's very much subjective, meaning that you can give a chart to say 10 different people and I could tell them, draw support and resistance, draw trend lines, draw channels and you could potentially get 10 completely different things. Head and shoulders patterns in most cases are pretty easy to find and spot once they've mainly completed or once they're about to be completed because they very much create that head and shoulders framework on the chart. I want to go through this today just to help you out a little bit if you're new to chart trading or chart reading. I don't use this often. Like I said, most of the stuff that I do is options probabilities, but when we are looking at charts, these ones usually tend to stick out a little bit more.

Head and shoulders basically create what they sound like. It creates a lower left shoulder, a high peak in the middle of the chart pattern which is the head and then a lower right shoulder. If you look at say a human, you have this lower left shoulder, higher head and then lower right shoulder. And so, when you see these starting to form, you have a run-up in the market and then the market has a retracement and that's really this left shoulder, no difference here and everything seems to be okay. That's how the pattern forms, just a regular, natural say move up in the market. This can all happen in reverse, but we'll just assume an uptrend for right now. And then the stock starts running up or the market starts running up and it goes higher than the most recent high and then runs up again and again, pulls back. But this time when it pulls back, after it's had this huge peak in the middle, it pulls back almost to where it fell the last time. It pulls back more than say normal, "than a normal pullback." And so, this is what generally forms what's called the neckline. What you would want to see in most head and shoulders patterns is a neckline that is very level and flat, meaning that the stock had a run-up, a pullback to the neckline and then a huge run-up in the middle to form the head and an even bigger pullback to a neckline. This is showing a little bit more weakness. The stock is trying to have this huge move higher, but then it's very, very weak and then it ends up pulling all the way back to the previous low. And then on the right side of the shoulder now, this third peak that starts to form should always be lower than the middle head. Now, we start to see the stock maybe make a run higher, but it never quite gets to the recent high. This is where we start to see the weakness really start to unfold. The stock is trying multiple attempts at regaining the trend or regaining the momentum, but just fails. And so, at this point now, the right shoulder gets created and again, it's best to see the right shoulder much lower than the middle head. The stock maybe on the move up in the head and the middle ran from 50 to 55. Well, on the right shoulder, you'd want to see the stock make a move from 50 to say 52. It fell short and it starts to turn all the way back over. But this pattern is only complete though and I think this is what people really mess up with this, is they start to see these unfold and then they try to jump in front of them which is again, is really subjective anyway, but it's only really complete once the stock actually breaks the recent lows.

This whole idea of higher highs and lower lows really comes into play with head and shoulders patterns and many chart patterns. This thing only really suggest that the trend is now completely turned over and reversed when we start to see the stock break through that neckline and so, basically take out the most recent lows. That to me shows complete failure, that the market has completely turned around or completely failed on the top side. The stock has tried to make multiple attempts, it gets weaker and weaker and then basically, it just breaks down. Again, for me as an options trader, this is not something that I look at all the time. I'm not out there scouring the market for head and shoulders patterns, but it's probably one of the more easier ones to notice when we get into major trend changes because it tends to be so well-defined. It tends to be this rounding top or rolling top that we see where you just can naturally see on the chart that the stock is trying to make these moves higher and just continues to fail. For me, it doesn't necessarily change things, but if I see something starting to develop, I start to see that the stock is now failing to regain the highs, that might change my dynamic a little bit. Maybe I go a little bit more bearish or maybe I check technicals at that point and see if there are any technical signals that might suggest that this is maybe a short-term top and we could go bearish or we could potentially go bullish if it's an inverse head and shoulders pattern. Hopefully this helps out. Again, I just want to get the basics out there because I feel like this is like I said, maybe a little bit better one to use if you're going to use subjective chart reading and chart patterns. I'm not a fan of many other things, but head and shoulders patterns tend to be okay because you can see them happening in the market. Hopefully this helps out. As always, if you guys have any questions, let us know. Until next time, happy trading.

#250 - How To Actively Trade US Markets From Overseas? May 30, 2018

Show notes

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we're going to be talking about how to actively trade the US markets from overseas. Now, it's actually very interesting that we have over 42 different countries represented in our membership which is crazy and last year, we actually had a guy sign-up from Antarctica. He was a military member who was stationed in Antarctica. We actually now hit every single continent on the planet which is kind of crazy. There are a lot of people who want to trade options, but are overseas for some reason or you're living in a different country and you feel like you can't trade the US markets. Now, I'll say that in some cases, that is true. It just depends on the country that you're in and obviously, we're not going to go through the list of every single country on this short daily call podcast. But you want to check and make sure that you do have the ability to trade the US markets and in many cases, the best international broker that will allow you to then trade the US markets is Interactive Brokers. Now, I think their platform is absolutely terrible, but they do have great option pricing. The contracts are pretty fair pricing, you get cheap commissions, but unfortunately, you get what you pay for because their platform is actually very bad. For many people who are overseas, if you want to trade the US markets, that ends up being one of your only sources of actually getting into the US markets, but it facilitates the transactions for you. I think you can easily do it. I know that there's a lot of struggle with many people about the time requirement that's needed and the time change, depending on where you're at in the world. I think many much of this can be overcome though by just entering contingent orders and really using those GTC or limit orders when you're trading.

Oftentimes, what we do here at Option Alpha is not day-trading and in fact, most of the trading that we do that's outside of earnings trades which aren't even day-trades in and of themselves, but very small quick trades, most of the trading that we do is position trading where we're trading 40 to 60 days out in the market. For many people, I think that you could be a little bit patient with your entries and you don't have to wake up in the middle of the night to trade the US markets. Place a contingent order or a limit order the day before the market opens and place it a little bit aggressive. If let's say an iron condor is trading at $100, place it at $105 just to try to get a little bit better pricing, see if the market moves while you're sleeping and get into that position and if it doesn't, try the next day. You only lost one day and if you're trading 60 days out, now you enter a trade 59 days versus 60. It's ultimately not that big of a difference and I think that people can easily trade from overseas. Now, of course, it does come with its challenges. I know that the market hours are not favorable all over the world and I even know when I traveled to the West Coast for work or for meetings or consulting that it's really a hindrance on me because I'm used to East Coast time, but we can still accomplish our mission of getting into position trades by trading overseas. We've also put together a couple of little guides on trading overseas if you just search the website. We have some tutorials for people who are trading internationally and how they can adjust and use contingency orders, so I encourage you to look through those if you are from overseas. Again, if you guys have any questions or need any help, just let us know. Until next time, happy trading.

#249 - Are Engulfing Candlestick Patterns Reliable For Trend Changes? May 29, 2018

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're answering the question, "Are engulfing candlestick patterns reliable for trend changes?" This is a question that was submitted by one of our members. I think it's a valid question and we don't often talk about candlestick patterns, but it's something that I think I intuitively look at because I use candlestick charts. And so, I think there's a little bit of insight the can be gained by candlesticks. Again, it just gives you a broad context of where the market has performed on a given day. I think when we talk about a trend change though, that to me is more of a long-term trend change, so going from a bull market to a bear market or say a bullish run to a bearish run which could take many months. I don't necessarily believe that one single candlestick pattern could be insanely reliable for that type of market move and I definitely haven't seen any research that confirms this. But I think in a vacuum for a couple of days or even for a week or so, a really big engulfing candlestick pattern could be a very good sign of potentially a move down in an underlying or a move up in an underlying.

Just to give you some context on what an engulfing pattern is. An engulfing pattern or a candlestick pattern is one day in which the opening and the closing of that day are completely surrounded by the prior days trading range. Let's say just for very, very simplistic nature, let's say that today, the stock opens up at $50, trades as high as $51, as low as $49 and closes at $50. It's got a $2 range, up to $51, down to $49, but it opens and closes at the same $50 strike price. An engulfing pattern would have to have opens and closes that are beyond the high and the low of the day. That's really the idea of it, is that the high and the low are totally engulfed by the prior day. Tomorrow, let's say the stock now opens at $53, so higher than yesterday's $51 high and closes at $45. It has a huge open, conceivably, this big expectation of a move up, stock opens dramatically higher, but then actually, throughout the entire day, sells off and closes completely lower than yesterday's low at $45. It's a huge engulfing. It's completely reversed yesterday's movement and was a total reversal even on the exact day that it traded.

Again, this can really be I think a good little mini sign for maybe a shorter duration trade or maybe help you out in hedging. Do you hedge right now? If you need the market to move down and you see a bearish engulfing pattern, that might mean that you don't actually need to be as aggressive because you're getting potentially the bearish move that you need in that underlying position. Again, I think it works a little bit better on shorter durations. Again, you don't necessarily need to use these and you don't need to look at candlestick patterns, but I think they could help get a little bit of insight into some of this intraday activity and again, it'll give you some insight into market dynamics a little bit more. Hopefully this helps out. As always, if you guys have questions, let us know. Submit them to us on Twitter, Facebook or at optionalpha.com/ask and we'll get them queued up for one of our future daily calls. Until next time, happy trading.

#248 - Why Trade Single Options Vs. Option Spreads? May 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 answer the question, "Why trade single options versus option spreads?" I think this question really boils down to a difference of risk and reward. When you trade single option contracts or you go naked and that's whether you buy a call or buy a put, sell a call, sell a put. In any case, whether you do a single option trade with no spread attached to it, you are sacrificing a little bit more capital potentially for the possibility of a higher return and for a shorter trade duration. For example, if we sell a call option, we are selling pure options, we don't have to buy anything, so it doesn't reduce the credit that we took in from selling that call option, but we do have to put up a little bit more capital to do that (that's the trade-off, that's the risk and reward aspect) and we potentially could be holding the trade for a shorter duration because if the stock moves down or implied volatility moves down, it's going to dramatically impact that short call option in a positive way which means that we could exit the trade a little bit faster.

Now, these are all good things obviously if you're selling naked options or single legs, but when you're using spreads, you have the ability to control risk a little bit better and potentially, that means that you have to hold trades a little bit longer. Now, it doesn't matter which way you go, necessarily. There are obviously pros and cons to each side of it. But with options spreads, because you are buying options, that means that you're taking in a differential between selling one contract and buying another. That means that when implied volatility drops, it has a positive impact on one and a negative impact on the other. Now, net-net, it should still help out as an option seller, but that means that positions are going to move a little bit slower, so you potentially have to hold them a little bit longer than you might if you were just trading single options and it also though, allows you to control risk a little bit better and that means that you have potentially a lower reward. It's all kind of fair and balance.

When you trade an option spread, you have defined risk, you know exactly how much you're going to lose or how much you're going to make on that position. But because you have defined risk, the benefit of having defined risk means you have to give up something else. And so, in that case, because you had to buy an option contract as a part of a trade, sell one and buy another, by giving up the risk component and defining your risk, you're also giving up the potential to make a lot of money. Option spreads have generally lower net credits naturally because you have to buy the other side and also lower P&Ls on average compared to single option strategies. Again, it depends on the type of account that you're in and how you see risk. We trade a lot of spreads, but we also have a handful of single naked positions in our accounts every single month. We try to do a little bit of both in kind of a good mix depending on where implied volatility is. But hopefully this helps out understanding the differences between each of these types as a general category. As always, if you guys have any questions, let us know and until next time, happy trading.

#247 - Options Trading FAQs & The Option Alpha "Answer Vault" May 27, 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 be talking about options trading FAQs and the Option Alpha Answer Vault. Look. This is nothing more than a shameless push to get you guys into our Option Alpha Answer Vault which you can get to on the website or just by searching online, Answer Vault by Option Alpha.

Now, the reason that I'm pushing this is because one, it's totally free and two, because we are constantly adding new questions to the Answer Vault. The reason that I actually built the Answer Vault I think almost 9 years ago now is because I started getting the same questions over and over and it was around the same types of topics. I'd get very much the same series of questions around options expiration or around options basics or exiting positions and portfolio management, so I built out this entire Option Alpha Answer Vault that has all kinds of different categories. I think we've got 12 or 13 different categories right now. And within each of those, every time we get a brand-new question, we add it to the Answer Vault and it's all totally free, it's all open and available for you guys. And in many of the cases, we've started going back to these questions and started answering them in video format or in audio format to give you a little bit more context as to what might be able to help out. If we have a question on portfolio size or position sizing, now we've gone back and we've started adding videos that walk through some examples here.

My goal, again, is to literally overwhelm you with value and free education that can help you out in your trading and hopefully reach a lot more people in this business. If you do like what we're doing on Option Alpha, please share it with your friends and your family and again, if you have any questions that you haven't seen answered in the Answer Vault or here on the daily call podcast, just let us know. Leave me a voicemail at optionalpha.com/ask. That's the best way to get your question queued up and we'll make sure that we get it answered somewhere or somehow. Until next time, happy trading.

#246 - The Failure Of Speculation Disguised As Income Investing May 26, 2018

Show notes

Hey everyone. This is Kirk here again from optionalpha.com and welcome back to the daily call. Today, we're going to be talking about the failure of speculation disguised as income trading. Let's call a spade a spade here. I see this all over the place, not only with people that I'm emailing or chatting with, but also on the boards and groups and forums that I literally just spent my time watching, reading and monitoring and seeing what people do. I'm kind of fascinated with the investor psychology, so I don't interact a lot, but I also just watch and see what people do, what questions they post, what trades they post, how other people respond. It's fascinating to me to see so many people who are so heavily invested in options trading and theoretically, for income. They are investing because they want to generate income and they want to quit their job or whatever the reason is, but their actions are more like speculators. In fact, it's more like gambling in many cases.

And so, I often relate this actually to somebody who wants to be physically fit and healthy. You want more energy, you want to feel great, you know it's going to take some time. But then it's like you eat a bowl of ice cream which has a bunch of sugar and that gives you an immediate high, a sugar rush, but you know it's going to fade. And so, what I see people doing all over the place is they're saying, "I want to be an income trader. I want to trade options." But then they go out and they buy 20% of their account in long option strategies before an earnings event and then in some cases, they double their money. They have let's say $200 invested and now they've got $400 of potential money. They doubled their money and they think to themselves, "Yes. This is the magic pill. This is the answer. But I still want to be an income trader. I'm just doing this thing on the side when opportunities present themselves."

But it's very much speculation and gambling and unfortunately, for many of these people, it's going to fail miserably. In fact, I've been posting screenshots and unfortunately… All personal information disguised obviously for people that I'm seeing in all of these groups. I'll often post on the Facebook group in our community in Option Alpha, people who are literally blowing up their accounts left and right trading options all over the place and I don't know what the reason, the big push is for people to trade options and buy option contracts. Maybe it's the Robinhood free options model that we see all over the place right now. And that's created a very low barrier of entry for all of these new option buyers to come into the market. Now, as an option seller, I'm obviously not depressed necessarily about this because their failures are contributions to our income strategy.

But the idea here is just to really understand what you're going after if you want to be investing for income. It's not something that you can speculate and gamble and it does take time. It takes a little bit of persistence and consistency in your trading and it takes enough patience to not be too heavily invested no matter how great the position looks because in many cases, it could blow up in your face. And so, sometimes, those false positives, those trades that you shouldn't have made that you did and you ended up winning are actually the ones that end up eating and crippling you long-term. Don't let any false positive trades… Again, trades that you really know you shouldn't be making, but then you did and you won, don't let those trades become the new normal for you. Hopefully this helps out. As always, if you guys have any questions, let us know and until next time, happy trading.

#245 - What Is Opportunistic Options Trading? May 25, 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 answer the question, "What is opportunistic options trading?" I've started talking about a little bit more of it the last couple of months and I figured I'd do a daily call podcast on it because I think it's really important. I've used the word, opportunistic a lot because that's what I think it is. I think it's taking advantage of opportunities when they present themselves, not necessarily when it's best for you to get into a position. I think honestly about people who were in the car business… I know this probably doesn't make sense initially and you're thinking to yourself, "What in the world does the car business have to do with options trading?" But if I was running a car business just theoretically… I think about just different business concepts all the time, but we can apply it to whatever. But if I was running a car business and say I was running like a used car business for some reason, then I would look to buy cars when I potentially could buy the car cheaper that what I thought I could sell a car for and that might mean that in some months, I might buy 50 or 100 cars and other months, I might buy two cars and if I buy say 100 cars and I only sell two the next month, then some people will look at that and say, "Well, you bought too many cars." But if you're buying cars below their fair value, you get them for a deal because somebody has to dump it or you can improve the car for some reason and you know that they're worth more than what you bought it for, you have to be opportunistic in buying at the times or selling at the times where it's profitable for you.

And so, I think this concept is really related to options trading because what people try to do is they try to trade when it's convenient for them and I understand the idea behind that. We have limited time and that's why we build out our auto-trading platform, so we could help you out with the time aspect. But when it's convenient for you, doesn't mean that that's necessarily the best opportunity. You could have a convenient market that also ends up being a really good opportunity, but it's not likely going to happen, meaning every time that you come in to trade the markets, pricing is going to be amazing, liquidity is going to be all over the place, you're going to be able to get in and out at the snap of a finger. That's never going to happen all the time. We have to be opportunistic in getting into positions when the opportunities are there. It might be tough to hold through some of those market ups and downs during those environments. When implied volatility is really high and maybe stocks are falling, that's probably one of the better times to be an option seller because you get compensated for the additional risk that you take on by selling a bunch of premium and selling options all over the market, but that may not be the best opportunity or time for you. You may have something going on that week or that day and so, you miss that opportunity. Likewise on the other end, we have to be opportunistic in getting out when we're presented with a winning trade. This still baffles me all the time. You just have to be patient enough to wait for your exit.

I think about it as driving down the highway. If people want to get off the road and many people do want to get off the road all the time, you don't just drive over the median and crash your car through the barriers. You wait for your exit. Your exit could be a mile down the road or it could be four or five different exits and you can pick your exit. But if you need to get off, you take the first exit you see. Options trading is very much the same thing. If we're looking for a 50% profit on a trade, if we get a 50% profit, we're taking the trade off. We're not assuming that we're going to have another opportunity later on. We're going to be opportunistic and take that trade off when presented with an opportunity to exit. If we don't have an opportunity to exit, then we'll sit back and we'll patiently keep driving down the road, waiting for out exit point. I think being opportunistic in trading really hits on a lot of different things and hopefully this helps out. But try not to be so forceful with your trades. I think that's really what it comes down to. Put a lot of positions on, increase your trade frequency and then be really opportunistic about how you leverage either new positions, bigger positions and get out of positions. Take things off and make decisions when you're in the best environment for that. That might mean sometimes waiting for some of those environments to come around. It might mean waiting two months or three months for a trade to come back around before you have an opportunity to take it off. But that's what I think really good traders do. I think really good traders are patient and wait for their exits and then take them. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

#244 - How To Setup A Short Strangle May 24, 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 run through the basics very quickly of how to setup a short strangle. A short strangle is an option selling strategy. It's one of the core strategies that we actually trade here at Option Alpha. I really believe in this strategy as the basic building blocks of a lot of different strategies that you can start to setup. But a short strangle is effectively created by selling an out of the money short put option and an out of the money short call option. Now, how far out you go, how many strikes out you go is up to determining the position that you are in and how often you want to win, what probability of success you want to see and also, how far out you go into expiration. There are a lot of factors and moving parts here. There's no one right answer. There's no unicorn strangle that always works in every market environment, so we encourage you to back-test your strangles and your setups and try to optimize for the best setup for whatever market environment you're in right now.

But the idea with the short strangle is that you sell options that are far out of the money and you take in a premium, but you still remain neutral to the overall move. For example, let's say a stock is trading at $100. You might sell the 110 call and the 90 strike put option. And so, the stock has to trade basically within a $20 range. It can go sideways, it can go up, it can go down, but as long as it stays between your short strikes at 110 on the call side and 90 on the put side, you'll keep all of the premium that you sold in selling those option contracts together. Now, again, how far out you go with your short strangle determines your win rate, but it also determines how much money you take in. Remember, there's no free lunch in the market. If you sell options even further out, you probably have a higher probability of success because now, the stock has to make an even bigger move than say a $20 range that we talked about earlier. Say you sell options at the 120 calls and the 80 strike puts. Well, you have now a $40 range that the stock can trade in and you can make money, but because the markets are efficient and fair, that means the amount of money that you make if the stock does land in that range is going to be dramatically lower.

We start to see that option premium starts to tail off or starts to decline the further and further you get out of the money. There's got to be some sort of sweet spot in many cases and in many market environments. We think there is based on back-testing where the sweet spot is in setting up these short strangles, how close or how far you set them up and how far out in expiration time you set them up. Do you sell options 30 days out or 60 days out? Is there a breakeven point that ends up working better right now versus in another market environment? Again, what we wanted to do is just present basically a quick guide of the basics here on how to set these up and hopefully, this at least gets the ball rolling if you're new to options trading, if you're new to option selling on how to use options to profit from a range and sell options for monthly income. As always, if you guys have any questions or any additional comments on these, let us know. Just shoot us a message on Facebook, Twitter, Periscope, YouTube, LinkedIn, etcetera and we'll be able to help you out and point you in the right direction. As always, we have additional free courses and training on all of these strategies on our website for free, so you just have to sign up at optionalpha.com Until next time, happy trading.

#243 - How To Completely Avoid "Pump And Dump" Scams May 23, 2018

Show notes

Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, I'm going to try to hopefully help you completely avoid pump and dump scams because I think they are still running rampant in the market and I can't believe these are still around. I can't believe people are still getting sucked into these. Let's first describe what pump and dump is. I think actually, Timothy Sykes actually probably has been the best at making money from these in the opposite direction. I'm not saying he's pump and dump. I'm saying he's probably totally the opposite of that. He's trying to make money in the penny stock space by identifying which ones are pump and dump and then trying to trade the opposite side.

But pump and dump is just this idea that you get a potential penny stock and it usually happens in penny stocks (not that it can't necessarily happen in regular stocks, but it's much easier to manipulate in penny stocks) where you get this huge run-up in the price because these promoters or newsletters or investment houses are pumping up this potential penny stock company and you'll see an email or an ad or something along the lines of this potential company is primed to take off and it's got this whatever thing, this widget that is going to solve world hunger and cure cancer, whatever the thought process is around how they're going to pump this thing up and what the spin they're going to have on it is. But they send it out to a lot of people, they spam the crap out of people and in fact, I still get these in my email inbox. I try to unsubscribe from all of them. I don't know what's going on, but one day when I have much more time, I'll start actually going after these guys legally because I do unsubscribe and I still get emails which is crazy. But anyway, so they send out these emails and they try to pump it up and they try to get a lot of people to start buying into it. And so, after a couple of people start buying into it, then you start to see more emails like, "We told you that it was going to go up 40%. It already did and it's still going to move another 100%." It's just this self-fulfilling prophecy of people buying into the hysteria of the stock or penny stock going higher.

Actually, very similar to what happened in bitcoin in late 2017. Everyone was buying in and then it just kept going higher and higher and people were tripping over themselves to get in. And then what happens is those people who are promoting were originally buyers probably at some point down in the low pennies of those penny stocks and then they start dumping it when the stock goes higher. All they were doing is they would buy something, they basically promote it to everybody that they can find, they get a bunch of people to buy into it and buy up the penny stock and then they dump it and then the stock goes down and they sell all their shares and people are left with basically nothing. It happens all the time and it's totally ridiculous that happens. But look. Investor, beware. Your own worst enemy if you read into all this stuff and you think that something really is going to double, trouble, quadruple, 1000% overnight or potentially, over the course of a couple of days, that's not a legitimate company or a legitimate business. Now, I'm not saying that these companies aren't legitimate. There's lots of penny stock companies that are real companies and they're really doing something or trying to do something, but I just don't believe in that type of mass hysteria around it. How I would avoid it is don't trade any penny stocks.

We say at Option Alpha like anything under $5, totally avoidable, don't even mess with it. And really, you could say under $20 or so, you want to avoid. But there are some ETFs that are fine, that are $22, $23. You can still trade those. SLV is a very popular, very liquid ETF that's $16, $17. You could trade those. But really, anything lower than that, you just want to completely avoid. Anything with low liquidity, low float, low volume, totally want to avoid and you won't find yourself in these situations. Hopefully that helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

#242 - The Weekly Close For Stocks Is Always Revealing For This One Reason May 22, 2018

Show notes

Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be talking about why the weekly close for stocks is always revealing for this one reason. The one reason for me is who's holding all the cards. I say this because when you get towards the end of the week and the global markets generally close down, people are left with the decision of what positions they want to hold through the weekend. Look. The weekends are not what they used to be. The weekends used to be calm and quiet and people used to go out to the park or fishing or whatever people do on the weekends now. But now, in this global economy, things still happen over the weekends. Businesses don't shut down, Amazon is still up, Facebook is still up and things can go really crazy over the weekend. People tend to not want to hold positions or take on undue risk in a potential situation where they can't get out of a trade or unwind a trade over the course of the weekends. And so, for me, getting towards the end of a trading week is always revealing because I want to know how are people holding positions into the close this week. Are they dumping their stocks? Are they holding stocks? Are they buying more up because they're really optimistic?

I think what we see is we see a lot of continuation of potential moves that started maybe a week or two ago where people started buying into stocks or dumping stocks as you got into a weekend type of event. I think it's interesting. It always adds another layer of complexity for sure. But when I go back and we start doing the strategy calls with elite members every Sunday night, that's something that we always look at. We always look at it and say, "Okay. What happened last week? How did the market closed? Did it close on the lows of the week? Did it close on the highs?" And if it did, then maybe we change our assumption about what's going to happen the next week or start planning out what would happen in our portfolio or new positions we might add or adjust based on the expectation that stocks continue higher or continue lower or whatever happened last week. But it's always interesting for me to see who's holding the cards at the end of the weekend and I think you see a lot of activity towards the end of the week and particularly, Friday's close because people don't want to hold things over the weekend that they are not 100% confident. And so, if they don't, they start dumping them over the weekend. It could be revealing and just maybe help adds a little bit more to your analysis plate, I guess. Well, hopefully this helps out. As always, if you guys have any questions, let me know. Until next time, happy trading.

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