Is Option Alpha Worth the money?
There are a lot of stock investing gurus out there claiming insane results and promising that you can make millions if you just follow their system....and pay a nice, hefty monthly fee.
Kirk Du Plessis runs Option Alpha which is a subscription based service where you get his trading tips and can follow all his moves in real time.
But is Option Alpha worth the $99 per month subscription fee?
How I got started with option alpha
I stumbled across Option Alpha when the founder, Kirk, did a podcast interview on the Smart Passive Income podcast which you can find here.
I had heard about options trading before and read a couple of books about it but never had the guts to dive into it fully.
At about the same time that Kirk did this podcast, Tastytrade was getting ready to launch their trading platform.
Tastytrade was a new broker that had really low fees. Just $1 per option contract and it was free to close out a trade. In the past, these same trades would cost about $6 to open a position and $6 to close it back out.
After hearing Kirk's interview and seeing the huge reduction in cost, I decided to pull the trigger and get into options trading.
At the time I had about $25k in my Roth IRA. I transferred $5k over to Interactive Brokers, then TD Ameritrade, then finally Tastytrade.
After a few weeks of trading and getting comfortable with the platform I transferred over an additional $15k or so and got to work.
Getting Started with Option Alpha
Kirk has done a really great job of putting together amazing training resources on options trading and he's made it all available for free. You can check it out here.
For anyone who is new to options trading, I can't think of a better resource for getting started. If you have any interest in trading options I'd recommend this as your starting point in your education.
I went through all of the training tracks and watched every video. I had read a couple of books on options and how they work in the past so a lot of the information was a repeat of things I already knew.
The screenshot below shows the different courses that Kirk has made. All of the videos are nicely organized and they're usually only 5-10 minutes long which makes them easy to digest.
All of these videos are just a funnel meant to guide you towards subscribing to his monthly program where you can follow along with his trades in real time.
If you aren't familiar with a marketing funnel, it's basically a way to describe how potential customers move through your sales process. Here's an example of what Option Alpha's marketing funnel looks like:
At the top of this funnel is the free content which comes with no strings attached other than requiring you to sign up and hand over your email address.
From there you'll get news updates from Kirk and an invitation to buy a couple of his one off products. There's an ebook about technical trading signals and a watch list that you can use to find companies who have high implied volatility ranks, or IVR.
I eventually gave in and paid the $40 for the watch list. It was kind of handy but didn't really give me much direction. I could find companies that had high implied volatility but unless you know what strategy to apply in each scenario, it isn't really useful. This information is also completely free on Tastyworks which was my broker.
The ultimate goal is to get people to convert to monthly subscribers. For $99 you can get all of Kirk's trade alerts in real time and copy his strategies.
At the time, $99 was a little pricey for me so I held out. But after a month or two I got a "limited time offer" to subscribe for just $49 per month. I put the 'limited offer' in quotes because anybody who has worked in online marketing before knows that creating a false scarcity is one of the best ways to get people to buy. And it worked on me.
Even if Kirk isn't the best options trader on the planet, he's a very good marketer. His website is designed very well and he has his marketing funnel nailed down. He gets his name out there on the right podcasts and does a fantastic job of attracting leads and turning them into customers with nice, monthly recurring revenue.
Option Alpha trade alerts
The whole idea behind Option Alpha's subscription is that Kirk makes great trades and you pay $99 per month to essentially copy him. By doing what he does you'll get the same results and hopefully beat the market.
Of course, if beating the market was as easy as paying someone $99 each month, everyone would be doing it and copying Kirk's strategies wouldn't really work any more.
The underlying philosophy for most options traders is that implied volatility is overstated compared to realized volatility. So you can sell an option and be short volatility with the expectation that int he long run, the realized volatility will be less and you'll make money.
This is the same options strategy that Kirk uses on Option Alpha which means most of the time you will be selling options; usually spreads, butterflies and occasionally iron condors.
Kirk usually doesn't buy options. There might be a 1-2% rate of buying options, usually going into earnings trades, but for the most part he'll be selling options and buying them back later if the price comes down.
The way you get notified of new trades is through email and text. When Kirk enters, adjusts, or exits any position, you'll get an alert. Here's what an entry alert looks like:
And here's what an adjustment alert looks like:
And finally a closing alert:
All of these alerts are formatted similarly except for the adjustments which usually have a little more explanation and rationale behind the move.
This makes sense since an adjustment is usually being made on a trade that has gone wrong so Kirk wants to let you know what went wrong and why the adjustment you're making is going to help.
One of the really nice things about Kirk's notification set up is that you can receive alerts via text message as well. Every time a trade was made I'd get a text message right away on my phone so I could make the trades at the same time from my mobile trading app.
What about slippage?
One issue with following trades and copying them is that you can change the price.
For small time traders this isn't a big deal. If you buy 100 shares of Pepsi and you tell your buddy to do the same, you won't really move the stock price.
But if you start selling out of the money spreads on Pepsi and you alert 5,000 other people and they try to do the same thing you can see some huge changes in price.
To Kirk's credit, most of the time he is trading extremely liquid ETFs. Kirk really likes to trade sector ETFs and country ETFs. These underlyings have a lot of liquidity and usually you will be able to enter the trade for about the same price that Kirk mentions in his alert.
It wasn't uncommon for me to see a 1-3% increase in price from when the alert went out to when my trade got executed, but for the most part I was able to enter the trade at a good price and get out at the same time as Kirk.
Some other investment subscriptions that trade penny stocks are particularly notorious for front running their subscribers. Basically the guy running the site will buy a bunch of stock in a company for $0.02 per share, send the alert to his 10,000 subscribers who bid it up to $0.10 per share. He gets out after capturing the 5x return and his subscribers are left holding the bag as everyone sells and the price drops back to where it's started.
To be perfectly clear, Kirk doesn't do this at all. He focuses on liquid stocks and he keeps in mind that he has a huge following that has the potential to sway prices. This is built in to the trading strategy and it makes you feel like you're getting a good deal too.
I subscribed to another options trading service called Steady Options that was the exact opposite of this. The guy running the site would send out an alert in some illiquid underlying and by the time I got in on the trade it would have already moved by 20%. So he made off with a nice fat profit that he could report on his website to attract more subscribers and I was stuck trying to figure out if I should enter at this inflated price or just sit and wait for the next trade. Not a good experience.
how much money does option alpha make?
At the end of the day, the only reason to subscribe to Option Alpha is if you think Kirk can give you trade ideas that will allow you to beat the market.
If Kirk's trades don't beat the market then you can just invest your money in an index fund and save yourself the $99 per month and the headache of trying to follow along with every single trade.
So how much money does Option Alpha's trading strategy actually make?
Well you can't find it anywhere on the site and that should be a big, red flag.
After all, if you ran a similar business and you were beating the market, wouldn't you plaster that on the front page of your website and tell everyone you know? Of course you would.
So the fact that you can't find ANY historical performance data on Option Alpha's site speaks volumes to the fact that it probably isn't beating the market.
I know during my time as a subsriber I didn't come close to beating the market; let alone making enough to cover the $1,200 per year the subscription cost.
I followed Kirk's trading for about 6 months and in that time I had a ~10% loss on my account. Meanwhile the S&P 500 was up about 7% which means I paid $49 per month for 6 months to under perform the index by 17%. No bueno.
Getting to a large enough sample size where you can evaluate if you are under or over performing vs the index takes quite a while and to be fair, 6 months probably isn't long enough. Ideally you'd want to do this for a couple of years at a minimum so you can go through bull and bear markets and get a true indicator of performance.
But when I was paying $49 per month I started to lose patience to see if this would ever work out which is why I ended up cancelling my subscription in June of 2017.
What options strategies does option alpha use?
Another big reason I ended up cancelling my subscription to Option Alpha is that there just wasn't really anything to the trades; there was no secret sauce.
As I said earlier, Kirk likes to sell premium which means his strategies mostly consist of:
- Selling call and put credit spreads
- Selling iron butterflies
- Selling iron condors
- Occasionally selling calendars
- Occasionally making earnings plays, but they were usually selling butterflies that expired the next day
If you check out Tastytrade or any other options trading videos/books, they all preach the same general strategy.
But if you can just sell butterflies and credit spreads on index ETFs, why do you need to pay $1,200 per year to do it? Just monitor the IVR on your own and set your own trades up.
At the end of the day there just isn't enough value in the trades to justify the premium you pay for the service. It's all stuff you can easily learn and execute on your own and probably get better results because you aren't in a group of thousands of people all trying to pull off the exact same strategy at the same time.
The Investment guru business model
At the end of the day, Kirk isn't really in the business of trading options. He's in the business of getting subscribers and making recurring income from his subscribers.
And this isn't a slight against Kirk. Not at all. He seems like a really honest and trustworthy guy and he puts out a TON of free content. He's got the video series teaching you how to trade and he also has a great podcast where he talks about interesting topics and interviews awesome guests. Kirk is a legitimately good dude who is trying to help people become better traders.
But if you look at the math you'll quickly see why the subscription model dwarfs the potential options trading profit.
option alpha annual earnings
Discalimer - This section is 100% speculation. I have no idea how much money Option Alpha brings in or how much it spends on the trading tools and systems so take all of this with a grain of salt.
Let's say Kirk had a portfolio of $1 million. If he can get 15% returns every year that's a whopping 150k the first year and it continues to grow after that as it compounds.
15% is nothing to sneeze at and if he could continuously achieve those numbers he'd probably be running a hedge fund raking in billions of dollars.
But with a $99 per month subscription fee, Kirk only needs 150 people to sign up to make the same amount of money.
Let that sink in for a second. With just 150 customers paying $99 per month, Kirk would be making $178,000 per year.
Based on the forum activity I saw I'd guess Kirk has much more than 150 customers. I ended my subscription in June 2017 and at the time I'd guess Option Alpha was somewhere around the 1,000-2,000 subscriber mark
At an average price of $99 per month (some people are $49 per month and some are up to $249 a month so we'll just meet in the middle-ish), that's somewhere between $99k-$198k per month, or $1,188,000-$2,376,000 per year just off of subscriptions.
You'd need a portfolio north of $10 million at 10-15% returns to match that. It's a no brainer . The money is in the subscriptions, not in the trading.
At the end of the day, this is the trap that all online trading services succumb to.
Subscriptions are more profitable and easier to achieve than beating the market. And if someone really can beat the market, they won't be selling their secrets for $99 to everybody on the internet. They'll be raising money to start their own hedge fund and rake in serious money.
Should you subscribe to option alpha?
I can't make this decision for anyone. If trading options is something you're interested in, I'd encourage you to spend 3-6 months watching videos and reading books to learn as much as possible, then another 6 months of only paper trading so you aren't risking anything. Only after you've waited 12 months would I recommend signing up for any services or starting to trade with real money.
Of course, nobody ever listens to this advice. I was in your shoes at one point in time, having spent a few months learning by watching videos and reading books and I took the plunge. I just couldn't get interested enough in paper trading so I went in with my real money and lost quite a bit of money.
The second thing to think about is the subscription fee and brokerage fees. If you have a small account of less than $5k-$10k, it probably doesn't make sense to subscribe at $99 per month.
If you're paying $1,200 per year and you only have a $5,000 account, that means you have to make a 24% return just to break even on the subscription fee.
Until your account is at least $15k, I wouldn't sign up for any subscription services. At $15k, the $1,200 per year is "only" an 8% drag on your account. Ideally you'd wait until you had at least $25k where the fees would drop to under 5% per year.
Ultimately, if you want to try Option Alpha, go for it. You can cancel at anytime so you're only on the hook for 1 month's payment at a time and compared to some of the other options on the market (see what I did there?), Kirk probably runs the most beginner friendly website and really focuses on helping you understand the process behind his trades.
If you liked this article you should sign up for my email list below. Even though I'm done trading options after my spectacularly horrible results, I usually write about starting side hustles and saving money towards early retirement.
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