lystn

Hey guys. Welcome back to the daily call. This question came in from somebody who submitted a question online after we just got started and launched this podcast. Very cool that you guys did that. If you have questions or topics you want me to cover, head on over to optionalpha.com/ask and that’s the best way to leave me a message. But the question was, “Kirk, it looks like you prefer ETFs versus stocks.” The big question here is should you trade ETFs or stocks. I would be totally open in saying yes, I prefer ETFs over stocks given the choice. Given the choice, meaning if we’ve got a market that all has implied volatility that’s high or all has low implied volatility and nothing is really discernibly better or worse than the other, then yeah, of course I’d prefer ETFs over stocks. The tradeoff that you make in doing this is that with ETFs, we know that they’re going to be less volatile, so does the market, so does everyone else. Option premiums on ETFs might be a little bit lower than option premiums on a stock because a stock still has that risk that the company gets bought out or that the CEO, whatever embezzles money and dropped. There are so many different risks in a stock that could change it in a single day or a couple of sessions. I just don’t want to take that risk for my main portfolio. That doesn’t mean that we won’t trade stocks. We do very often. But we prefer to trade stocks when implied volatility is a little bit higher. What I mean by that is if we’ve got a market that’s say lots of our ETFs are implied volatility rank of 40 to 50, we’ll still trade those, we’ll still make up our core positions, we won’t overly-allocate into those, but we’ll have a good mix of those. But right now, we’re looking at a trade where Amazon and Apple have high implied volatility still after earnings and for us, that’s good. We don’t have an earnings event coming up on the horizon, so we made trades in those. We entered positions there because they’ve got high implied volatility. They’re not the only positions in our portfolio and never should just stocks be the only positions in your portfolio, but they make up a little subset of trades that we’re making. I think most of your trading should encompass a lot of ETFs. I think they’re more liquid, I think you can get better diversity with ETFs than you can with stocks, but you don’t want to shy away from some really, really good opportunities in stocks. Just be more picky about it. I think it’s really the gist of it, is just be a little bit more picky about which stocks you choose. Don’t choose to trade Nike just because you want to trade Nike when it’s got low implied volatility and option volume is really crappy. Skip it. Go over to an ETF that has much more liquidity even though it might have low volatility. It might generally be more stable for your portfolio, more consistent steady growth in your account. Hopefully you guys enjoyed this. Until next time, happy trading!