#303 - The Top 5 Things I Love About Options Trading

Episode of: The "Daily Call" From Option Alpha

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Jul 22, 20185m
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#303 - The Top 5 Things I Love About Options Trading
Jul 22 '185m
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Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, I’m going to share my top five things I love about options trading. This was actually hard for me to whittle down into five things, but I think I can really do it in five really good, very solid categories as reasons or benefits as to why I absolutely love the options trading business.

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

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

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

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

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

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

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