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#524 - How To Profit From The Emotions Of Other Traders & Investors: Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to talk about how to profit from the emotions of other traders and investors. Someone recently asked again in our Facebook community and...

#524 - How To Profit From The Emotions Of Other Traders & Investors: Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to talk about how to profit from the emotions of other traders and investors. Someone recently asked again in our Facebook community and...

A partire dalThe "Daily Call" From Option Alpha


#524 - How To Profit From The Emotions Of Other Traders & Investors: Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to talk about how to profit from the emotions of other traders and investors. Someone recently asked again in our Facebook community and...

A partire dalThe "Daily Call" From Option Alpha

valutazioni:
Lunghezza:
5 minuti
Pubblicato:
Feb 28, 2019
Formato:
Episodio podcast

Descrizione

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to talk about how to profit from the emotions of other traders and investors. Someone recently asked again in our Facebook community and they said, “Kirk. How do you determine a psychological factor when considering options or do you consider any psychological implications upon noticing volatility in a certain stock or a movement in a certain stock? Are you just focused on the numbers or do you see value in the emotions of others in the market?” I thought it was an interesting insight. “Do you see value? Can we make a trade based on the emotions of other people and how do we discern the emotions of other traders in the market?” I think this is actually a very easy answer and the easy answer to this is that as options traders, we are always making trades based on the emotions of the underlying market or the mass or the herd and many people have said this. I don’t know who was originally credited with it, but it’s this idea that people think logically, but they act emotionally and it's no different in the options market. Believe me, having been in this for 10 years and even just seeing a lot of traders come through Option Alpha, we always get people who think logically and they understand the numbers of how options trading should work and how a high probability system should generate money over the long run, but for whatever reason, they are attached to one single trade that ends up being a loser in their first three months or their first two months and they know rationally that it's totally part of the business and part of the process, but for some reason, they just act crazy and overly-emotional because they’re tied to it and so, they think logically, but they act emotionally. This same thought process could be held in the regular markets when it comes to option buying and option premium. Because we know that implied volatility is always overstated, that means that on both sides of the market, long-term investors are always over-reactionary and overemotional in both directions. Call option buyers are euphoric and think that everything is going to go to the moon and so, they overpay for call option contracts relative to what actually might happen in the underlying security. Put option buyers get overly-fearful and really worry about black swan events and they over-purchase protection to the downside and that's relative to what actually happens in the underlying stock. I guess you could say as an options trader and specifically, as a premium seller, we’re always trying to take advantage of the over-reactionary or extreme emotions on both ends. I think when it comes to the underlying stock, I think we always see an overreaction at some point. We recently saw it at the top in 2018 which we said was going to happen and we played that perfectly. We said that during the bottom and the early part of 2019, we’re now seeing it in a little bit of a topping process here kind of like February, March of 2019 where the market has rallied so far, so fast, it's gone almost parabolic, nobody is fearful anymore and two and a half months ago, everyone was fearful. We see these large swings in emotions and I think as an options traders, what you have to do is you have to kind of drown most of that stuff out because you know markets are cyclical, they don't move in one direction and we want to take advantage of the broad underlying edge that we have in implied volatility. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.
Pubblicato:
Feb 28, 2019
Formato:
Episodio podcast