Right clicking on any of the alpha channel tools brings up the alpha options panel.

With it, you can modify your alpha channel in many ways. you can move it around, add to it, clear it, turn it on and off, transform it, and apply effects based on it.

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On screen, the alpha channel is represented by a border that is animated. This is commonly referred to as 'marching ants.'

Some programs will call the alpha channel a 'selection', because the tool is used to isolate parts of an image.  It could be considered selecting that part of the image.

Internally, the alpha channel is represented by a grayscale image. The areas in white are areas where you'll be able to apply paint or effects, and the areas in black will be held out.

If you were to paint into this area, as you can see, the paint would only go into the area of the 'selection'

The hand icon lets you interactive move the contents of the alpha channel. Drag around on the icon and you will see your alpha channel selection move around with you.

This is identical to using the keyboard shortcut CTRL while dragging your selection.

The flip icons flip the content of the alpha channel horizontally or vertically.

Replace and Add/subtract are mutually exclusive buttons that change the way drawing on the alpha channel works. With replace mode, each time you draw something on the alpha channel, it replaces what was already there. While using Add/Subtract, drawing with the right-mouse-button adds to what’s in the alpha, while drawing with the left-mouse-button subtracts from the alpha.

Clear alpha clears anything that’s in the alpha and disables it.

Select all ‘selects’ the entire alpha, technically setting the entire channel to a value of 255. This will cause the alpha channel to have no effect. There’s seldom any need to use select all since all operations will work whether an alpha channel is active or not.

Alpha on/off non-destructively activates or deactivates the alpha channel.

Invert alpha makes a negative of the alpha channel, essentially making what was selected unselected and what was unselected selected.

Store alpha stores a copy of the alpha channel for later use. Use this to preserve your ‘selection’ so you don’t have to repeat the steps to create it again later.

These buttons let you get a copy of the current alpha channel, or current image. They will replace the alpha you have stored. In the case of getting an image, it will be converted to grayscale to be used in place of the alpha.

These three controls on the 'store alpha' panel let you perform Boolean operations on your alpha channel.  Simply put, you can add or subtract from an existing alpha channel.

One alpha subtracted from the other to create a crescent moon.

The Invert button makes a negative of the alpha you have stored.

These tools give you some touch up capabilities.  If you have some stray dots you want to get rid of on your alpha, you can use the paint brush.  The smudgy finger will let you smudge an area.  The slider lets you change the size of your brush, and there's an undo and clear button.

Blur alpha blurs the image in the alpha channel.

This can be used in combination with 'Adjust alpha' to smooth out rough details or 'jaggies'  You can also use the technique to round the edges of fonts.

Here, the text in the alpha was blurred, then the contrast was ramped back up to give sharp edges with the 'adjust alpha' tool.

Grow alpha increases the size of a ‘selection.’ Basically it expands the boundaries of bright parts of the alpha image.

Shrink alpha decreases the size of a ‘selection.’ Basically it expands the boundaries of dark parts of the alpha image.

Free Transform Alpha lets you you transform an alpha channel selection interactively on-screen. You activate the Free Transform feature from the context strip that comes up for selection tools, including the Rectangle and Ellipse selection tools and the magic wand. Once you have adjusted the selection, click outside of the selected area and the bounding box, to bring up a menu that includes the option to accept the changes undo them.

  Scale and Transform alpha lets you adjust the shape and size of the contents of the alpha channel.

This feature can also be used to store the alpha.  If you clear your alpha, you can use this to bring it back again, so long as you don't close the window.

Scale alpha takes a numeric argument to scale the alpha.

Transform gives you a panel to control the position, rotation, and scale of the alpha.

Adjust alpha lets you view the contents of the alpha channel and change its value, brightness, contrast and gamma. This can be useful for enlarging, shrinking or tightening up fuzzy or blurry areas of the alpha channel.
 

Dynamic range adjusts the alpha channel so that it uses the entire range of possible values, 0-255. If you have problems with paint bleeding through your alpha selection, this will take care of it.

Alpha glow uses the current primary color to create a glow effect around your current alpha selection.

This can be used to create glow effects around objects or text. It can also be used with a dark color to make a shadow effect.

By inverting your alpha, you can make a glow on the inside of your object. This can be useful for making shading or Fresnel effects.

Drop shadow renders a shadow based on your alpha selection.

The shadow color button lets you pick a color to use for the shadow.  You can drag a color here from the color wells, or you can click it to use the system color picker.

Fuzziness alters the amount of blur applied to the shadow. No fuzziness will give you a shadow with sharp edges.

Opacity controls how dark or intense the shadow will be.

Offset x and y control how far the shadow will fall from your image in pixels. Negative values are legal.

Paint on alpha lets you paint directly into your alpha channel using all of the programs paint tools. Painting will take place in full color, but it will be converted to grayscale when you go back to regular painting.

Close the “Paint on alpha mode active” button on the far bottom-right to resume painting on your regular image.