The "Daily Call" From Option Alpha

Latest Episodes:

#191 - The Only Two Things You Can Control In The Stock Market Apr 01, 2018

Show notes

Hey everyone, Kirk here again and welcome back to the daily call. Today, we're going to be talking about the only two things that you can control in the stock market. I will come out right away and tell you exactly what those two things are. The only two things you can control in the stock market is the underlying in which you trade or the security and the strategy or the technique in which you trade it. That's it. Now, this might come as actually a shock to some of you guys because many people still think that they can control the market. You either try to do it… I don't know, like Jedi mind tricks or move the market with your mind. You stare at the screen so much until your eyes bleed because you want the stock to go up or down. But I have learned a long time ago that we have no control on price and direction. The only things that we can control are the underlyings in which we trade, the tickers in which we trade and the strategy in which we trade them. That's it. Everything else is out of your control. The political environment, what this country does or what that company does or what Amazon versus Tesla does. None of that stuff you guys can control. Unless you're leading those companies, you have absolutely no control over where the market goes, where the economy goes, where the stocks go, where bonds go. We have no control over that. And the sooner that you realize and accept that, the better off you're going to be because you're not going to worry about it and because you're going to focus, re-shift your attention onto the things that you can control.

If you can control the underlying, great, what underlyings are you trading? Are you trading a diversified basket of tickers or are you focusing all of your attention on just one ticker which is a bad idea? And then on a strategy, what type of strategy are you using? Are you buying options which doesn't work? Are you selling options which does? Are you properly position sizing? Are you keeping your position small and increasing your frequency? Do the things that you can control and don't worry about everything else you can't control because not having control for direction or the economy or bonds does not matter when it comes to options trading. It doesn't matter because we frequently will reset strategies every 30 days. If the market starts to go down or if the market starts to go up, we're constantly resetting strategies and improving frequency. That's why direction is meaningless when you trade options and you do an option selling strategy the way that we do. Direction becomes meaningless. It doesn't mean that direction can't hurt your position. Of course if you have a huge down or a huge up move and it's unexpected, of course, you're going to have a little bit of a setback, but it's not going to change the outcome of the strategy, it's not going to derail you from being successful trading. Control the things you can control. Don't worry about everything else. Hopefully this helps out as always. Until next time, happy trading!

#190 - When Trading Options Patience Pays 5X More Overtime Mar 31, 2018

Show notes

Hey everyone, Kirk here again and welcome back to the daily call from Option Alpha. Today, we are going to be talking about why when you trade options, patience pays five times more over time. Now, I think the easy and simple way to describe this is to use the analogy of reaping what you sow. Basically, the concept here is when you plant or when you're a farmer and you start to plant seeds or crops, it takes a long time for those crops to mature. You have to patiently wait for them. You plant, you water, you're watering, you're watering, you're waiting, you're waiting and then boom! It's like overnight, they pop. And then after they pop, then they just go bananas. We see this in our area where we live. There's a lot of cornfields. It's truly like I didn't think I'd ever live in an area like this because I grew up in Northern Virginia and DC and lived in New York, so that was totally different to me. But now, there's a lot of cornfields and man, when you see the corn pop out of the ground, it literally feels like the next day, it's like four feet tall. It goes bananas once it actually starts to mature and hit and gain some traction.

I think this concept is very, very similar in options trading. Options traders I think… Let's say the default options trader who is new to trading thinks that when they place a trade, immediately like snap of a fingers that it's going to be profitable two days or three days later. That's why people actually are very, very attracted to weekly options in most case because they feel like they could get quick profits. They want quick money. They want to get rich overnight. The reality is that patience in options trading pays way more to just wait for profits to come to you. Our whole framework is built upon selling options and then sitting back generally and waiting for time decay and IV's over-expectation to play out, to basically mature over time. We know that option pricing and most pricing is generally fair and efficient at the time of trade entry. At the time of trade entry, there's no real edge that can be gained in the market, there's no arbitrage opportunity that you can gain. Where the opportunity comes is by sitting back and waiting for pricing to mature.

I talk about pricing maturing all the time because that's what happens. Volatility is not as high as people expected on trade entry, you also have time decay, the market doesn't move as far as people expected. All of this stuff works out in favor of the option seller long-term, so that's why we just have to be patient. You just have to sit back a little bit more and wait for the corn to grow. That's really how I think about it. Hopefully that helps out. Again, just be more patient. Try to be more patient with your strategies. Realize that it's not an overnight get rich quick type of thing. It's a long-term wealth building process and that takes time. That's why it's called a long-term wealth building process because it takes time. Sit back and wait for the corn to grow. Until next time, happy trading!

#189 - How Much Money Do You Need to Start Trading Options for Living? Mar 30, 2018

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, I'm answering the question, "How much money do you need to start trading options for a living?" This a big topic that we get all the time. People want to know, "How can I start trading options? How can I generate a living, an income from trading options?" I think it's a challenging topic for me to broach with people because frankly, there's a lot of misconceptions out there and a lot of stuff online that you see that just really isn't that true. And so, when I unfortunately have to tell people how much money they need to generate whatever income they're looking for, it's kind of shock. Unfortunately, I don't always want to be that person that gives them the shock, but I'd rather be the person that tells them honestly and upfront where they are. In most cases, that leads a lot of people away from us, meaning that they just don't think they can ever get to that point or they'll ever get to that point, so they just give up which I don't think is a good idea, but it is what it is. I'd rather be open and upfront and honest with where they should be.

I think when it comes to trading options for a living and just generating an income, I've openly said and I've said it in some of our courses before that if you want to use a withdrawal amount per year of somewhere between 3% and 5% if you want to use a range, ultimately, I think that's probably a very stable level that will allow you to keep money in your account and keep it growing and leave wiggle room for drawdowns and market events that we can't yet predict. I don't know what the sequence of returns you're going to have are, but if you're in that range, that 3% to 5% range, I think you're really, really comfortable for being able to not outlive your portfolio and the income you can generate from it. Now, I know people can poke a lot of holes in 4% rule that you hear all the time and I've done a lot of research on this myself and I know that there's a lot of reasons why 4% doesn't necessarily work and you might have to be at 3% or if you have a lot of capital, you could be at 5% and be totally fine.

There's probably a lot of things out there you can take a look at like retirement withdrawal tables. You can search that online. There's really cool research and studies out there on what is the right level based on how long you expect to live and how much money you expect to drop. But ultimately, what it boils down to are basically two things. If you really look at a lot of the research on withdrawal rates and retirement and income stability for portfolios, it boils down to really two things. It boils down to where the market is at the time that you start these withdrawals. If you start withdrawals at the top of a 2000 bubble in the market or a 2008 bubble in the market or even potentially here, 2018, if the market tops this year… If you start your retirement or your options trading for a living now, you probably have to take a lower number because we might see a downturn in stocks, we might see a downturn in the economy and so, you might want to take a lower number. Now, I'm not even talking about options trading at this point. I'm just talking about the general research that's out there around stocks. And so, if you start your retirement then at the bottom of market moves, so call it 2002, 2003, also 2009, 2010, you start your retirement there or your withdrawals there, you're much more likely to be able to sustain a higher withdrawal rate.

How do we transition this to options trading? Well, obviously, if we're trading options, we can generate a higher expected return in the market. Even just a very simple covered call generates a higher expected return with less volatility than the market. That's why I think you can probably bump that up to like the 4% or 5% range in most cases and take that as a very stable withdraw from your account. Now, that still leaves ample room for growth as I think you should. My thought process on this and the way that I think about it with my wife when we talk about this is that if we're at like 3% to 5% withdrawals from our account, we're leaving a lot of room for compound growth. What people will often do and they email in and say, "Well, Kirk. If we can generate say 15% a year, why can't I take 15% a year?" I say, "Well, you could if you want to, but that doesn't leave enough room to generate compound growth." What I would rather see is people start off with a smaller amount and let that amount grow with your portfolio. The first year, if it's 5% of some number of portfolio, then next year, your portfolio grows because you only took 5% out and now, you're taking 5% of a much larger value and the third year, you're taking 5% again, a much larger value on average. That's the way that I think it should happen.

The reality is that in most cases, you can manipulate your finances and your budget to reduce cost, reduce expenses and live well below your means. I drive a minivan. I don't drive a Ferrari or a Lamborghini. I see that all the time online, these people doing this and I'm like, "That is not longevity. That thing is not going to last forever." My minivan probably won't last forever either, but you can reduce your expenses, you can budget a little bit better. We moved from DC to Pennsylvania and cut our expenses by half when we did that and we have kids. You can do things that manipulate your expenses and your budget to be able to take a lower withdrawal rate, so that you can let money in there to grow. Hopefully that helps out. As far as how much money you need, look, it depends. You can reverse engineer this based on say 5%, maybe use it as a target and then start working towards it. It doesn't mean that you should give up or quit now if you can't get to that level. You can get to that level over time and try to attack it from both angles. Try to save more money by reducing your expenses and that helps get you to that point just that much faster. Hopefully this helps out. As always, if you guys have any questions, let us know. Until next time, happy trading!

#188 - Don't Use Your Day Job As An Excuse For Not Trading Options Mar 29, 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 why you shouldn't use your day job as an excuse for not trading options. I do see this a lot. I see people using… In this case, we'll just say your day job or your regular job as an excuse for why you shouldn't be trading options. But I don't think it's just that. I think there's other things that people use as excuses or crutches, if you will. They use kids, they use their wife, they use their basketball team. I've seen people use their kid's swim practice as excuses. "I can't trade because they have swim practice every day." But ultimately, I think you should find time to trade if it's important to you and I think frankly, your money is important to you or it should be important to you. You work really hard for your money, as do I and I wouldn't want you to just blow it and throw it into the market. I'm actually just fascinated by that whole concept that people have or just this underlying psychology in the world that money that we earn and we work so hard for should just be given up to somebody else or to the market or a brokerage house or a financial advisor. It's fascinating to me that people work so, so hard to earn their money and care so much about their job and what they do in budgeting and then when it comes time to actually invest their money, they don't think that they have an obligation to really work hard at that as well. I think you do. I think you owe it to yourself to make sure you understand what the heck you're doing with your money and where it's going. I don't think a job or a swim practice or anything is an excuse. I think you can find time in the day to make trades. Yes, your job might not have internet access to get to the markets or your broker platform might be locked out. Find a way around that. Can you trade at lunch? Can you take a break? Can you place your trades early in the morning and use contingent orders? There's a way to do it. You just may not be looking at that avenue right now. You got to be creative in how you approach this.

The second thing I'll say on this is that as you've probably heard by now or you have been hearing about our new auto-trading platform that's going to be rolling out in the next couple of weeks… We don't have a definitive date right now, but we're exceptionally close to rolling it out. That is the premier reason why we're doing this, is for people like you that have limited time and even like me. I think there's a lot of reasons why a fully automated trading platform which literally nobody has in the entire market… This is revolutionary software that we're going to be rolling out to everybody. Nobody in the market has this and it's because I want to and our team wants to overcome this time hurdle or this time challenge that everybody has. Everybody wants to trade. I think a lot of people want to trade. Everybody understands trading, but what they don't yet have is the ability to make trades or use a system or a bot to make trades based on a strategy or assumptions. Everything right now has to be manually clicked. That creates its own challenges. Everything has to be clicked. I've got to click through all my trades, you've got to click through hall your trades and that's a hurdle that now, we're going to cross over to where we can build a bot or a strategy that does everything we try to do automatically without us having to interact with it unless we want to. That is really, really cool stuff and I think that will also help because now, you won't have truly an excuse. You won't have an excuse to say, "I don't have enough time." or "I don't have time in my day. I have my kid's swim practice." whatever it is. That will no longer be an excuse. You will only be limited by the ability to just truly go in for an hour or two maybe at tops. Usually, it's going to be like 10 minutes or so just to clone a bot or clone a strategy and get it setup and go, but after that, it's going to be on autopilot for you and that's really, really cool. I still think though, if you're trading and you use your job as an excuse, I think you can work around it. Try to figure out a way you can do it and of course, let me know if you have any questions. Until next time, happy trading!

#187 - When Do You "Cry Uncle" And Give Up On Adjusting An Option Trade? Mar 28, 2018

Show notes

Hey everyone, Kirk here again and welcome come back to the daily call. Today, we are going to be answering a question that came in from one of our users which was "When do you cry uncle and give up on adjusting an options trade?" I think this is a fascinating topic because I like the idea of just crying uncle and giving in. I think actually, a lot of people give in too early. I'll mention that when you make an adjustment to a trade or when a trade goes wrong, there's probably a lot of things that you can do either early on in the cycle or even late as you get towards expiration to reduce risk to some degree. You can roll strikes, you can roll the entire position, you can add corresponding legs if you're doing a one-sided trade, you can turn it into a neutral trade. There's actually probably a lot of things that you can do to a trade that's going bad or going wrong early on.

But when do you give up? I think this is really the topic of what this person was getting to. After you've done all of those things, assuming you have, when do you just give up on adjusting the trade? I think you give up in two scenarios. One, you give up when there's no value to be gained from the adjustment. What I mean by value is that if you can't adjust and reduce risk, it's not worth adjusting. If you want to roll down a strike price and that roll down might give you $5 of premium, but might increase your risk because you had to roll a strike by $200, well, taking on $200 of risk for an additional $5 is not worth it to me. I just would not make the adjustment. To me, that's no true value. Again, that's going to be different for different positions and yes, there's a little bit of subjectivity in that. Value for you is a different value for me. I think when there's no value to be gained by the adjustment, it's not worth doing the adjustment.

The second time I would say it's not worth doing it and you should basically give up on the trade and cry uncle is when you can't move the position or extend the duration. We recently went through this a lot with expiration where we actually have been in a position in TLT where we've been able to roll the position twice. From January to February, February to March… I think it was actually February to March, March to April that we actually rolled the position. But we still have the ability to roll for a credit and extend duration, so we're going to keep moving the trade out. The trade wasn't profitable in February, but we could roll it. It's not profitable or wasn't profitable in March, so we could roll it and we'll see what happens in April. If it's not profitable in April, at least we gave ourselves an opportunity and reduce risk along the way. If you can't roll for a duration like that and you can't roll for value or credits, it's not worth doing.

It's not worth paying money to say I'm right and I always tell people that a lot. I'm never going to pay money to move a position out to the next month which is basically increasing the risk just for the sake of saying potentially I'm right on a video or a podcast. It's just never worth it. I think those are the two scenarios when I would I guess cry uncle and give up is if I couldn't gain any value from it and I couldn't extend the trade's duration. Hopefully this helps out. Again, if you guys have any questions, we'd love to hear them. We have a laundry list of questions that we want to get to, but we're always looking for new questions. Head on over to optionalpha.com/ask. That's the best way to get your question answered and get it into the queue here for the daily call. Until next time, happy trading!

#186 - The Top 4 Reasons To Sell Straddles & Strangles Mar 27, 2018

Show notes

Hey everyone, Kirk here again from optionalpha.com and welcome back to the daily call. Today, I'm going to go over my top four reasons to sell straddles and strangles. Straddles and strangles for those of you who are not familiar with them are pure naked option selling strategies. Straddles are where you sell the same strike price on both sides. You sell the 100 call and the 100 put. With a strangle, you'd be moving further out from where the stock is trading. If the stock is trading at $100, you might sell the 105 call and the 95 put. But in either case, they're both naked option selling strategies where you have undefined risk and you're not buying any strategies or creating any spreads.

Now, to tell you honestly, these are two of my favorite strategies and we do very synthetic versions of these a lot. We trade a lot of iron butterflies, iron condors, but we also do a lot of straddles and strangles. I think it'll be personally interesting. I'm interested to see what I do personally with myself. It's like I'm talking to myself in the third person. I'm interested to see what Kirk does (my new self) when we get this new auto-trading platform live with how we're going to go about trading straddles and strangles versus iron condors and iron butterflies. I imagine and I hope that I start gravitating a little bit more towards pure naked option selling in its raw form because I want to not only do it for my own account, but I want to prove its validity in a more public way with these auto-trading bots which you can then see and clone and mimic what I do from that side.

So, to get back to why I think that these things are so good, here are my top four reasons. Number one, it's pure option selling. We said that already, but what does that mean? It means that in this case with straddles and strangles, you're not buying any options. You truly are doing option selling in its purest and most raw form, but that means that you have additional risk. The downside to that is that when you do pure option selling, you take in more money, you generally have a little bit more risk. My number two point is that they're really easy for adjustments. Unlike iron condors and iron butterflies where you have to worry about the location and the strike prices of the long legs, with straddles and strangles, it's a lot easier to adjust. You can still go inverted, you can still roll. It just makes it a lot easier because you don't have to worry about extra contracts. As far as management goes, it's a lot easier.

Number three is that they have faster decay. Again, because they're pure option selling strategies and you don't have to buy another leg to create a defined risk position, you generally see faster decay in the value. Most of the time, that means that you can take these positions off a little bit sooner when they hit their profit targets. If you're trading a spread, a spread might take a little bit longer. As you go through expiration, you might have to hold it a little bit longer before it hits its profit target. Number four is that it's more profitable if you can handle the volatility. One of the things that we learned in our profit matrix research which you can check out on our website is that straddles and strangles absolutely are very, very profitable strategies, but the profitability of those strategies comes with a little bit more volatility in the account, meaning that with the undefined risk nature of these positions, you're going to see a little bit more ups and downs along the way, but ultimately, you should generate more total dollars than other strategies out there.

Again, that's one of the reasons why I think we'll be gravitating maybe a little bit more initially to straddles and strangles in its purest format when we release this new auto-trading software, so that we can see some more of that long-term profitability start to shape out. That's going to take some time. It's going to take some time for these bots to really mature as far as number of trades and frequency, but ultimately, I'm thinking like four or five years out from now, that's where I want to be. I want to have a good backlog of those trades in place. Hopefully this helps out. As always, if you guys have any questions or comments, let me know in the comment section on the website or on Facebook or Twitter. Hit us up anywhere. And of course, add your questions in. We're always looking for new questions for the daily call. Any topics you want to see me cover, just shoot me an email or head on over to optionalpha.com/ask which is the best way to get your question answered here on the show. Until next time, happy trading!

#185 - Being Broke vs. Staying Broke Mar 26, 2018

Show notes

Hey everyone. This is Kirk here again and welcome back to the daily call. Today, we are going to be talking about the difference between being broke and staying broke. This one's an interesting one for me because although I don't publicly talk about this all the time, I have very strong opinions about people's perception of money and wealth. Again, I'm a student of the game if you will. I read and I study and I love thinking about finance and thinking about wealth and returns. It's just how my brain is wired. I'm just weird like that. But I have a really strong opinion about it because I've seen two different areas or many areas I guess in my short time on this earth and hopefully, I think those themes are going to present itself over time in where I live and the people that I interact with. I think there's a true difference between people who choose to be broke, that being broke at a certain time or a certain moment in their life and there's people who choose to stay broke and I think there's a difference between that.

I think being broke is just having no money. That's really what it is. If you're broke and you don't have any money because of whatever circumstances, you're just getting out of college, had a debt, a job that went bad, that's one thing. That doesn't define who you are. Not having money at any particular time doesn't make you a bad person. But if you choose to stay broke and not do anything about it and not improve your circumstances, then it's your own fault. I got a problem with that. I have a problem with people who choose to stay broke and then choose to either harass or try to take money from other people, try to feel down on themselves, try to feel like they're the victim. Everybody in this world has had something happen to them. I've had different experiences and you've had, but ultimately, we all have generally the same opportunities.

Now, I get it. Some people grow up in different areas or different races or ethnicities and that may put them one step back or one step forward in many cases. But we all have an opportunity to do something different and if you choose to stay where you are right now, that's your own choice. Don't push that on me and don't cry to me or cry to anybody else about the choices you make. You can either be broke for a moment in time which is just a moment in time where you don't have money or you had a downturn in your account or you had a job that you lost or you can choose to move past that and start increasing your wealth, start learning how to trade options or invest or manage your finances better, budgeting, whatever the cases is. I think there is a difference between being broke and staying broke.

Now, for full disclosure, when me and my wife got married and when we were engaged, we were pretty much broke. This was over 10 years ago now. We were broke. When I proposed to my wife, I really didn't have that much money. At that time, I was basically living in New York and then I moved to DC and both of those cities are terribly expensive to live in, so I always say saving money in New York or DC is like holding water in your hands. It's just not going to happen. It's just gone and slips through your hands even though you want to hold so much of it as possible. But at that time, I consider myself broke. I had a little bit of money saved, but I didn't have a lot of money saved.

And so, that's where I started my journey in understanding really markets and wealth generation and income streams, all of this stuff that led me to where I am now. But that was a choice at that point. I don't consider myself to be somebody who was looking at other people and saying I'm mad at you or I'm mad at this group of people or this political class or whatever it is for where I'm at. It was only my doing. It was where I was raised and what I was doing and what path I chose to take. I could choose to take a different path. Again, I don't know where I'd end this, but I know that there is a difference between just being broke for a moment in time and staying broke is a choice. If you choose to stay broke, that's your choice. If you choose to do something else with your life, that's your choice as well. Alright, hopefully this helps out as always. Until next, time happy!

#184 - The Theory Of Relativity For Option Pricing Mar 25, 2018

Show notes

Hey everyone. This is Kirk here again at Option Alpha and welcome to the daily call. Today, we are going to be taking things a little bit different here and talking about the theory of relativity as it relates to option pricing. I've always said and I continue to say I'm a student of basically everything and for whatever reason, I've dove into quantum mechanics lately and that's been a hot topic of mine for reading when I'm just cruising the internet, looking for articles and videos on it. I thought about this concert because I thought it was very similar to how we should think about options trading, so therefore, the daily call and talking about this.

There basically two schools of thought I guess and you could simplify this down. I'm not a physicist by any stretch, but I'm trying to simplify it down the way I think about it, that there's the theory of relativity or general relativity which I think is good for behavior of big things, like planetary orbits or stars movements, movements around suns. That's really the theory of relativity, the general relativity framework. When you get into quantum mechanics, that's when you start nitching down if you will or start focusing in or zeroing in on the individual atoms and protons and neurons that are moving between everything.

Quantum mechanics for me then in thinking about the options market or the stock market is the intraday or daily chart, the one minute, five minute, 10 minute charts. That's quantum mechanics. There's a lot of people out there who would focus on that. They really hone in on that particular aspect. They dissect every little movement that the market has. If somebody sneezed in a political environment next to the president, what does that mean? Does that move the markets? That's like the quantum mechanics thing. While I'm interested in that, I'm not in the case of the stock market and options market, that's not my sole focus.

My thought process is that when I think about options and stocks, I think about the general relativity of things. I think that I don't understand, nor could I ever understand. I don't think anybody could really understand every single intraday movement that a market has, every five minute, one minute movement. People try all the time, but it's just a lot of white noise and a lot of randomness. It's truly human nature at its most core imperfect state. But what we need to focus on is we need to focus on the big picture, the general relativity of things, the relativity of IVs expectation versus actual volatility and how that plays out over longer periods of time and how that moves and shakes as you go through different expiration periods and different months and different years.

If you think about options trading in these two frameworks, quantum mechanics being intraday, daily trading, very high frequency, trying to predict the market in its most random state versus a general relativity of where markets are, trends, longer-term trends, IVs over-expectation, I think you'll have better success if you think about the longer-term stuff, the relative stuff that really makes a difference over time. Again, not to say that I'm not interested in some of the things that happen intraday or how stocks move or how option pricing changes. It's just not my sole focus when it comes to the markets. I think you're better off served thinking about those big stones, those big rocks and those relative concepts over time.

Hopefully this helps out. I know we took it in a little bit different direction, but it was a hot topic for me in the top of mind, so I figured I'd add it to the daily call stream. As always, if you guys have any questions or comments, let me know. Until next time, happy trading!

#183 - Buying Stocks For Free Via Robinhood.com - Easy Or Hard? Mar 24, 2018

Show notes

Hey everyone, Kirk here again at optionalpha.com. Welcome back to the daily call. Today, we're going to answer a user question that was basically submitted which is "Are buying stocks for free via Robinhood easy or hard?" I do have a Robinhood account. I'm very familiar with the platform. We actually interviewed their cofounder, Baiju just a couple of weeks ago depending on when you're listening to this podcast. You can listen to that over on our weekly show where we talked about the history of Robinhood and where they're going with their new free options trading that they're going to be releasing. I still have not gotten the free options trading on my end, so I'm signed up on the wait list because I want to see what it looks like and how it functions. I still have not got any up, but maybe I will here in the future.

But I think that buying stocks on Robinhood for free is actually very, very easy. I think they've nailed the stock side of what they do. It's incredibly easy, incredibly intuitive. There's not too much open for interpretation on how you would buy securities. And for most I guess regular investors who just want to buy a couple of stocks or hold some stocks, I think it's totally an option to do because of the commission cost. You can basically have no commission cost in it. You maybe lose a little bit to margin and slippage I think which is really not talked about that often because you can't set a price. Basically, everything is market orders for what they do. I can't go in and say, "Okay. I just want to buy Apple stock at 92." I might buy it at 92.15. If I buy it at 92.15 or whatever price is now times 100 shares, that could be the difference in commissions right there. I don't think that that's talked about a lot, but as far as like true commissions, no, they don't charge it. There's probably a lot of slippage in there because of market orders that people just don't expect. You can probably shave some pennies off of the prices all the time by just being a little bit patient and placing limit orders versus market orders. But it is what it is. The platform is not meant to be a huge advanced trading platform. I think the charting is very basic. It's all line graphs. You can't really decipher anything from it.

I will say that the one dispute I have with their platform (and I brought this up many times to their developers) is that most of the data in there is actually not accurate at the time that the markets opened. We oftentimes see dividend stocks… I check a lot of REITs in there that my wife owns in her account. I checked those in there and the dividend information is not correct and sometimes very, very far off. That means that PEs are wrong, it means that sometimes I see the highs and lows being wrong or the volume being wrong or delayed. There are some things in there that when you dig through it, I think maybe it's not the best platform for the sake of analysis or looking into a security and determining a position, but as far as actually buying the stock or selling securities and getting into it, they have made that very, very intuitive and easy.

I look forward to seeing what they can do with options trading. I've done a couple of reviews on that after our podcast and interview with Baiju that you can go back and take a look at. We'll talk about it more here in the future as we get access to Robinhood's free options trading. I think it's going to be very, very simple and very straightforward which I do think is not necessarily that good for regular investors. I worry that they're going to be releasing options trading out to the marketplace without any of the education and opening people up to do options trading and I think initially, it's just long calls, long puts, covered calls, etcetera which ultimately, we know from our research is not the best way to generate money. I hope that they release advanced strategies very soon because that is going to be one of the keys for people to control their risk and actually generate some money, is some of these spread strategies which I don't believe they're releasing at the moment. We'll see where it goes in the future. But as always, if you guys have any questions or comments, let me know. If you thought this was helpful, if you thought any of our daily podcast are helpful, again, please let us know on Facebook, Twitter, Instagram, YouTube, wherever you follow us at and give us a rating and a review. Until next time, happy trading!

#182 - Quick Guide To The AMEX: American Stock Exchange Mar 23, 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 doing a quick guide to the AMEX which is the American Stock Exchange and just giving you a little history on what it is and what it's come to be and who owns it now, basically. I think it actually has a very cool history when you start digging into some of these stock exchanges. It's just absolutely fascinating how these things came about naturally or organically back in the late 18th century and through the early 19th century. It's amazing actually. Right now though, the AMEX is the third largest exchange I think still by volume. It was acquired about 10 years ago I think by NYSE. And so, now, NYSE basically owns it, but there's still a lot of things that are traded on the AMEX. It does a lot of small cap and mid cap, a lot of ETFs. A lot of derivatives still get traded on AMEX. When you actually route your orders through any broker platform like Thinkorswim or Tastyworks or Interactive Brokers, they can still get routed through the AMEX if you do best fill. You could actually in most platforms, designate where you want the order to go to and in some cases, if you want it to go to AMEX, you could. But usually, you just do best fill or it's done best fill on the backend.

The history of it through is actually crazy. The AMEX used to be or I guess where it came out of was what's called curbstone brokers. Back in the early 1900s, even probably before the 1900s, there were traders in the streets who were known as curbstone brokers that really would specialize in some of these emerging market or small companies and people would literally trade in the streets. They would be railroad guys and oil guys there and they would trade with one another literally in the streets over this. And of course, naturally, that was insanely disorganized. There was no regulations, no standard of contract size. It was just a free-for-all. But this was really the early days of these markets and these exchanges developing or maturing from something else. Then later on, they organized themselves into this New York… What it was called, the New York Curve Market Agency which was again, just an agency of brokers and traders basically who decided to have their own rules and regulations and framework around trading practices. But then later in the 1930s, they became actually the New York Curve Exchange. They actually adopted a totally new set of principles, they had an actual trading floor, they started actually trading on a much larger scale, billions of dollars even at that point and they started to become a lot more sophisticated which eventually got changed. I think in the 1950s or 1960s, maybe officially to the AMEX and started trading in that space.

It's actually a crazy history that's taken almost maybe like 70, 80 years or so to actually get to the AMEX from its original roots. If you actually do a lot of reading, there's a lot of research papers out there and a lot of good old historical articles on these curbstone brokers. It's just crazy what they would do and how far they would travel with all their stock tickets and their stock receipts and everything every single day. It's actually amazing. Maybe we're going to be the curbstone brokers or the curbstone traders to automated trading in the future. People are going to look back and be like, "I can't believe that people actually used to click and choose and make decisions with their mouse and with their brains versus making it mostly automated through bots." Maybe that's what we'll be in the future.

I think the coolest thing though about the AMEX is that it was the original place where the S&P 500, the spider index was actually introduced. It was actually the original place where that ETF was actually traded. I think it was 1993 when it was originally traded on the AMEX which was crazy. That was maybe the beginning. They could definitely be seen as the very, very beginning, godfather of index ETF trading or that kind of avenue that the markets have gone since then which is absolutely completely blown up. I do all the ETFs that are out there now and how we can trade options on them. But they were the first pioneers in that venture. As always, hopefully it's good to just get a little history on where things have come and again, another little perspective that's not necessarily so options specific, focused on strategies and techniques and adjustments. But a little bit of history I think is always important and helpful. If you guys have any other questions about other things that we can go over and other history events or other exchanges or general market questions, I'd love to know. Let me know at optionalpha.com/ask where you can leave me a message and leave me a recording. Those always get first priority in the daily call, so if you want your question asked, get it there at optionalpha.com/ask. Until next time, happy trading!

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