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Hey everyone and welcome back, this is Kirk here again at Option Alpha and on today’s daily call, we are going to talk about the differences between long-term and short-term option contracts. Now again, this is going to be just really a high level discussion. Somebody submitted a question and said, “Basically, I just want to know… What are the main differences? What are just the broad strokes, things that we need to consider or think about as we start to think about trading shorter-term contracts, maybe weeklies versus longer-term contracts, a month or two months out?” Obviously, if you want more information on when to trade each or how far out to trade different strategies, check out our toolbox software which allows you to back-test different strategies, add different time periods, weekly contracts, monthly contracts. You can get a better idea of what works better in a given market environment or a given scenario and that’s available at optionalpha.com/toolbox. First, let’s start with long-term. Long-term options, I think what you'll see in long-term options obviously is less price movement. They have more time until expiration. That's basically what it comes down to. Their prices are less volatile. That doesn’t mean their prices don't move. It just means that they are less likely to have these huge jumps or drops in price. You’re going to have more stable contracts. But you’re also going to see in most cases, wider spreads. If you start trading further out… This is really if you’re trading something that's even still insanely liquid, but now, trading super, super far out, 90, 120, 200 days out which is not something we do. But if you do end up doing those leap-type contracts, you’re going to see much wider spreads in pricing because frankly, nobody is trading that far out or very few people are trading that far out. With longer-term contracts, you do have more time for adjustments, so you have the ability to be patient and let the market come to you and go through maybe a couple of cycles of ups and downs in price along the way and still have plenty of time to make adjustments. You’re not going to be forced into an adjustment scenario because of timeline, so that helps out as well. There is a bigger volatility risk in longer-term contracts. Remember, volatility as it changes is going to impact those longer-dated contracts much more so than shorter-dated contracts because the likelihood that the stock is now going to go on a huge run for three months or a huge drop for three months is higher. When you trade longer-term contracts, the importance of knowing where implied volatility is becomes a little bit more paramount. And then, longer-term contracts have just frankly more premium. It's no surprise because there’s a lot of time to go until expiration, there’s a lot of volatility premium, a lot of time decay in here. And so, it's longer or bigger premiums on both sides. If you’re going to buy options, you’re going to pay more money. If you’re going to sell options, you’re going to collect more money upfront. Now, when we talk about shorter-term option contracts, I think the big thing is that they’re going to have much quicker Theta decay. We know from research that Theta decay or time decay starts to really accelerate around like 30 days. That’s when we start to see the graph of Theta decay go almost parabolic as it starts to approach expiration. And so, for that reason, it's now running up against the clock and if you're an option seller, that’s good. You collect Theta decay. That’s a way that you profit. Shorter-term option contracts collect Theta decay a little bit faster, but what they end up having is more Gamma risk. Gamma risk as opposed to what we talked about with long-term contracts is this concept that the price of the underlying option contract has the ability to move dramatically with a very small tweak in the underlying stock price because again, as we get closer to expiration, it’s now make it or break it. This contract either is worth something or it’s not. And so, small movements in price of the underlying stock can cause a really wide or big movement in the underlying option contract which again, could be good or bad. I mean, it could work in both cases either for you or against you. Shorter-term contracts also leave a lot less time for adjustments. Because the time period that you're trading is let’s say a week or a couple, like two weeks at the most for these shorter-term contracts, it doesn't really leave you a lot of room for adjustments. If the stock makes a move two days before expiration and three days before expiration, you don’t really have much time to do anything. Maybe you make a small tweak, but it’s not really going to do much to reduce risk or improve your position. You’re kind of handcuffed a little bit in the sense that you don’t have the ability to adjust these positions as it approaches expiration. And then obviously, you collect a much smaller premium. Look. The markets are pretty fair and efficient. They realize that there’s little time left, so if you start selling options out of the money on these weekly contracts, yes, you have the ability to collect money and get to expiration in 10 days or five days, but the market is going to reflect that risk in much smaller premiums, so you’re going to collect much smaller amounts because you have the ability to maybe realize that profit much quicker in the case of weekly options and so, you don't just collect as much as longer-term contracts. Not to say one is necessarily better than the other. It's just to understand the dynamics of each, these long-term contracts and short-term contracts. You know how we trade here at Option Alpha based on our profit matrix research and all the back-testing that we do through our toolbox that I mentioned earlier. I think there’s a place for each of these in your portfolio. Most of the trading that we do is longer-term contracts, so 30 to 60 days in that time period, but we also do some weekly trades. We also do some weekly trades to add some stability to our portfolio and add some consistent income on a weekly basis. I don't think that the weekly trades will ever overshadow what we do on the long-term contracts. The long-term contracts are the core of what we do and then we sprinkle in or filter in some weekly trades around it. But otherwise, we still focus on that long-term premium which we find in back-testing, it actually works better than a lot of weekly trades replicated over time. Hopefully that helps out. As always, if you guys have any questions, let me know. Until next time, happy trading!