The Option Alpha Podcast

Show notes: http://optionalpha.com/show54If you’re an experienced options trader, then today’s show is for you because this week we’ll be talking about portfolio margin and how it could help enhance your returns. Yes, portfolio margin isn’t for everyone (you’ve got to have at least $125k in equity to qualify and three years of experience trading options), but the ability to upgrade your margin account to this portfolio risk model is incredibly powerful.With portfolio margin, your broker is assessing each new option trade risk on the overall portfolio impact vs. an individual basis that happens in traditional margin accounts. They are asking the question, "How much risk does this new trade add to the overall portfolio?" More often than not, it means less margin required for new trades when you’ve already got offsetting positions.So, how does portfolio margin help? Well, when you have to put up less cash in margin to hold a position that takes in the same premium, it means you can generate a higher return and free up additional capital for more positions. Still, this fairy tale could also be a curse in disguise if you don’t manage your account properly.In today’s show, you’ll discover how brokers “stress-test” positions based on percentage moves in the underlying stock or ETF, how they think about concentration risk, and how margin “kick-backs” could increase exposure even when you exit trades. Don’t have $125k in equity and think you're going to skip this show? Better thing twice because the tips and advice in this show will put you light years ahead of everyone else as you account balance grows.

Show notes: http://optionalpha.com/show53What if there was an options strategy that took just 1 hour per month to implement and actually beat the S&P 500 benchmark index both in performance and with less overall portfolio volatility? What if that one strategy was available to any trader, regardless of your account type or size? You see, I believe you work too dang hard for your money and it doesn’t take a fancy financial planner or sophisticated mobile app to help you generate higher returns with less risk. All it takes is less than 1 hour per month. Yes, less time that it takes you to aimlessly scroll through your Facebook or Twitter feed. Well, you can stop day dreaming because it’s a reality and in today’s podcast episode I’ll walk through the exact strategy that beat the market. No fluff. No smoke or mirrors; just cold hard facts. I’m sick and tired of people trying to tell me that options trading doesn’t work because today’s episode crushes every one of these unsubstantiated myths about trading. Listen in and if you think this episode would be helpful to someone else, please help us spread the word here at Option Alph by sharing it with them. I mean how often can you share something online that actually helps someone make more money, with less risk? You just might become their new best friend!

Show notes: http://optionalpha.com/show52Doesn't it just sound so cool even saying it: Robo Advisors. And although some of these automated investing companies have been around for 5+ years now, the recent rise in popularity of robo advisors like Wealthfront and Betterment is alarming.If you haven't been keeping up with the latest FinTech craze, robo advisors are simply the next logical Wall Street sequence or disguise for money management. Instead of having a financial planner or "human" directing your portfolio, a computer algorithm or "robo advisor" makes investment decisions on your behalf. You input your age, current portfolio value, risk tolerance, etc. and the algorithm automatically determines the optimal allocation of stocks, bonds, cash, ETFs, emerging markets, and so on. All the number crunching and modeling are supposed to ensure that your portfolio is accurately diversified and theoretically safe. The robo advisors lure being that computers are never emotional and can often make better decisions than humans. And since you don't have to hire a certified financial advisor that charges a higher fee, you'll save money with lower fees and other premium features like automatic rebalancing, tax-loss harvesting, etc. Now, while I generally agree with the premise of what robo advisors are trying to accomplish, I believe that they are incredibly inefficient it helping the average investor or retail trader.In today's podcast, I'll help you understand exactly why these robo advisors are not the investing wave of the future and why you should steer clear of them. I'll even prove that some of the most popular and widely "respected" robo advisors underperform the benchmark S&P 500 index despite what you might read on their website homepages. I think the results and data we present might make you think twice about investing your money with them.

Show notes: http://optionalpha.com/show51You're in a trade that's going bad and are thinking about adjusting your position. But before you do, how would that adjustment impact your overall portfolio management? Would it make your portfolio more bearish, more bullish, or have little effect at all?Asking yourself this question above before adding or adjusting your positions gets to the heart of today's podcast episode. Too often I find that options traders who spend the bulk of their time concentrating on single trades that go bad, without any regard for the overall portfolio impact, actually cause more harm than is intended. They become so narrowly focused on making sure "this trade" doesn't lose money that they completely forget about the rest of the portfolio that is profitable.Maybe they have a bearish trade that's going against them as the stock market rallies. And the first natural thought is to adjust this trade and protect them from the impact of the market rallying. But, if this is your only bearish trade in a portfolio full over five other bullish trades, why bother? Sure, adjusting this trade would help reduce risk in the single position, but the overall portfolio is already super-bullish that you'd just be putting yourself in an even bigger pickle should the rally halt and reverse course.Today's episode challenges the popular saying, "What's good for the goose is good for the gander" because, in our opinion, the health of the overall portfolio is more important than any one, single option trade. Sorry little goose, we love you, but I'm okay sacrificing a couple of geese for the welfare of the flock.

Show Notes: http://optionalpha.com/show50One of the foundational elements of my personal trading style with options is the belief that the stock market is random. Random meaning that we can't gain an edge picking a direction. And for years, this assumption has been more or less accepted by the public and academia.  In the last couple months, the theory or hypothesis around random financial markets has repeatedly been challenged, which is a good thing. A countless number of people have tackled the issue and published their findings on random market behavior. I wish I could link them all up here, but it's just not possible nor realistic. Therefore, my goal on today's show is simply to present what I believe to be the best research on the topic of market efficiency and predictability.Admittedly, I scheduled this show as a follow-up to Show 49 where we backtested 15 different option buying strategies during the last market crash. And the reason is that I wanted you to recognize how much "perfect timing" had an impact on the results of that case study. In Show 49, we only backtested the put buying strategies for two years assuming you were 100% right in calling the impending market crash.If you expanded the timeline out to 3 years on either end - i.e. you're not a market wizard and can't time the crash precisely, then each and every scenario lost money. In fact, each backtested put buying strategy only made money during Sep & Oct of 2008 at the height of the collapse. During all of 2007, you would have lost on average 56% of your capital waiting for the crash to happen.Be honest with me now; how likely is it that you would have actually held through a 56% drop in your account balance before you called it quits? And that was assuming you had near perfect market timing! Still, the traders who sold options didn't try to time the market, eventually won. Sure, they may have experienced a draw down in 2008 if there were not positioned correctly, but even still they would have made money trading through the crash.As you listen to the show, I want to challenge you to ask yourself the following pressing questions about investing; Is the stock market random? If it is, why should we care so much about picking a random direction? If it isn't, and indicators are present to predict future moves, can I even uncover the non-random patterns? How much time or money would it take to profit under the assumption of randomness vs. non-randomness? What trading strategies fit my personal style the best?

Show notes: http://optionalpha.com/show49 Do you think that there will be a stock market crash soon? Maybe in the next six months to 1 year?If you are looking for the ultimate strategy to profit from the next stock market crash, then today’s latest podcast is for you. We went to 2007 and backtested 15 different put option buying strategies to see which combination produced the most profitable results during the last market crash.Honestly, we’re due now for a serious correction or recession soon, so this show might just come at the best possible time. Recall that we did the hard research into “How Often Markets Crash” in Show 15 and found that 21 times since 1928 stocks fell at least 20%. That’s essentially once every four years, and it’s been eight years since the last significant market correction.Naturally, we know that the best way to play a stock market crash, if we knew one was coming, is by purchasing put options. But which put options do you buy? How far out to you go for the expiration day? What strike prices work best? Are there some general trading rules we should follow?Today, we'll answer all of these questions and more during our first little sneak peek inside the backtesting research that we'll be launching later this year.

Show notes: http://optionalpha.com/show48 Options approval levels are options trading restrictions placed on your brokerage account to prevent or allow you from entering different options strategies. Most new traders, and admittedly some experienced traders, often don’t know which trading level they are in or even that levels exist. Still, you should always reach out to your current broker and check with them directly to be sure.While trading approval levels and names can vary from broker to broker, there are usually 4 main levels that you’ll encounter. In today’s episode, I’ll first help you understand why brokers have these levels and the types of options strategies you’re allowed to trade in each of the four. Plus, I'll help answer some common questions I get from members about either applying for a trading level to start with or moving to a higher approval level. Towards the end I'll share some tips and suggestions after talking with 6 different options trading brokers about new strategies or tactics you can use if you’ve been denied after applying for a higher trading approval level. After listening to the podcast today, if you find success using what you’ve learned please post a comment below the show notes. Tried a completely different approach that got you higher trading approval? Add that as well and share it with the rest of the community.

Show notes: http://optionalpha.com/show47One of the key elements of becoming a more successful trader is the ability to absolutely master options trading risk management. And, contrary to what you might assume, it comes down to a couple simple things. Namely, determining and sticking to an optimal position sizing range for each trade and never allocating your the full value of your account at one time. In simple terms; don’t invest too much money in each trade and always have money left over.My goal today is simply to help you trade with more confidence. The type of unwavering confidence to go out and start placing trades without the fear of losing or the fear of blowing up your account. For me, confidence comes from understanding the underlying math and reasoning behind optimal position sizes. Too often you’ll hear or see other traders spout off allocation ranges without any clear direction on WHY they chose that range. If someone told me that I should allocated just 10% of my account towards each trade I’d ask them why? Why this range and not something higher or lower? What’s the reasoning behind 10%? Rarely will you get a straight answer. The reality is that if you consistently enter high probability trades and stick to the optimal position sizing range we reveal, the odds of completely blowing up your account at any point is 1 in 28 trillion.In today’s show, I'll walk you through the math behind why I’ve said, for 8 years now, that you should never allocate more than 1-5% of risk per trade. It’s not just some cool numbers I pulled out of thin air. There’s a mathematical and logical approach and I’ll break it all down in today’s latest show.

Show Notes: http://optionalpha.com/show46Tax day has come and gone that doesn’t mean that we can’t start preparing in advance for next year by looking ways to reduce or minimize our tax exposure.Today’s newest episode is Part 2 of 3 all about options trading taxes based on the questions that our members submitted.We’ll continue to dive deep into your most requested topics and questions to make sure we’re getting the correct answers for you so that you can confidently move forward. Sure, taxes can be a little scary on the outside but our hope is that this mini-series will help give you some clarity.Finally, if you have additional questions that we didn’t cover in Part 1 or Part 2 there’s still an opportunity to get your questions answered in our final segment. All you have to do is add your question to the comment section below the show notes and we’ll add it to the queue.

Show Notes: http://www.optionalpha.com/show45Did you get flagged as a Pattern Day Trader? Concerned about what can happen if you make too many day trades in a short period of time?In this session of The Option Alpha Podcast, I'll clearly lay out the not-so-scary Pattern Day Trading Rules (PDT) that you can often run into if you're an active trader in either stocks or options.Now, personally speaking, we rarely (if ever) run into an issue with the PDT rules because we aren't day traders. We are position traders meaning that we'll enter options trades for a couple weeks to a couple months. We may have an opportunity to close a trade early for a profit but we never enter positions with the intent of closing them the same day.That said, there are tons of questions on what is classified as a "day trade" in the eyes of the regulators. How much money you need in your account to be exempt from the PDT rules and what happens if you get margin called.Lucky for you I'll walk through everything step by step so you have the confidence to trade around these irritating rules.