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Saturday, December 15, 2012

LIARS! Slowly but surely, the truth will emerge....

I've been taking a bit of a sabbatical, of late, trading less because I have needed the dough in my trading fund to live on, due to a major real estate setback, (the damned house sold for much, much less than it was worth). (Which is how "Main Street" got changed to "Mean Street.")

However, that has been no reason not to continue my studies, and I'm still involved in reading/learning about commodity options.  But I'm not ready yet to discuss them intelligently, much less trade them!  All of my years of equity option training will be useful in commodity options, so it's just another step up the ladder of derivative trading.

Meanwhile I have been reviewing all the various philosophies of trading I have studied, and while I don't regret one bit of my past learning, I think I am settling on Tom Sosnoff's and Tasty Trade as the most realistic and honest trading principles.  I still endorse Options Animal as the best foundation for beginners, but then I think Tasty Trade is the next step.   And for very good reasons.  I see their "truth" subtly reflected in various books and on website articles, but it's never put out there as cleanly and clearly as Tasty Trade does.

So what am I talking about?  It's a bit shocking if you tear off all the "wrappings" and look at what is really going on.   Options trading is a huge business -- bringing income to brokerages, teaching programs, trade advice services, monthly newsletters, clubs, ad nauseum.   Most of us who begin trading fall prey to many of these entities.

As an example, my brokerage, Think or Swim, has fabulous option chains that show percentages in and out of the money, theoretical pricing, and real time prices on both equities, futures and forex. It's a terrific full service brokerage, designed by Sosnoff  and Tom Price before they sold  it off.  It took me four brokerages before I found Think or Swim.  At first it looked too complicated, but what it is is exceptional, unlike any other broker platform because it's been designed by guys who breathe option trading.

So you can imagine my confusion when reading one of Carley Garner books (on commodities), telling me that I must  BUY trade services to get real time prices on commodity options. She said that you needed to subscribe to different ones for different commodities, at prices like $75 per month.  NOT true. TOS has the information for free on their platform.

This is just bad information.  She's also  said in almost every beginning chapter that the retail trader  needs a commodities broker  (which she happens to be) because the floor trading of commodities cannot be navigated easily, and certainly not electronically, without a commodities broker.   That's just not true, and it  is reprehensible to cajole new traders with such misinformation.  Some of that information WAS true decades ago, but when I checked the copyright, it was 2010.  Feh.   Think or Swim can access any of the normal commodity markets electronically with no problem, and no assistance needed.  It really pisses me off that these lies are propagated by supposedly reputable individuals.  And this is just the tip of the iceberg.

It's one thing to say that "This is my trading style, and how I like to do it."  It's something else to say "this is how it's done and how you must do it."

So what else do "they" lie about?   Well, given my opinions, here's a little list of things I've been told and which I now reject out of hand as untruths:



1. NEVER SELL A NAKED OPTION!

The lie:  You should never sell a naked option!  It's unlimited risk, thus suicide to even think about it.

The truth:  Selling naked puts is a well-known, often used strategy for buying stocks at favorable prices.
Selling naked straddles and naked strangles has been documented as a more profitable and successful
trade than selling risk defined iron condors.  (statistics available in Market Measures archives on Tasty Trade website).  Hop over to YouTube and watch a couple of videos of "Karen, the Super Trader" if you have any doubts.

The caution:  Nobody should be selling (or buying, for that matter) any options for any reason until they know what the obligations are, and how to exit the trade in a safe and timely fashion.



2. YOU MAKE MORE MONEY BUYING CALLS/PUTS THAN DOING RISK-LIMITED SPREADS!

The lie:  Doing spreads instead of buying Calls and Puts is a waste of time, because the premium is so low.
And when you BUY a call or a put, there is unlimited profit if the equity moves in your favor.  Besides it's
easier, and is what everyone else does.

The truth:  Buying Calls and Puts is a beginner's trade.  Everyone else who are amateurs are doing it, that much is true. But the odds are against long trades.  The odds favor short (selling) trades.  The percentages of options traders who are unschooled and/or ignorant overwhelmingly buy long options, and lose their money to Sellers.  Most professional traders are Sellers.  A retail trader can emulate the professionals and make a lot more money.

The caution:  Emulating professional traders means HONING your skills, so that you know what they know, and maybe a little bit more.  (which by the way is possible!  You'd be amazed what some of them
don't know).

3.  YOU MUST KNOW THE FUNDAMENTALS AND TECHNICALS (HOW TO READ CHARTS) OF A STOCK BEFORE YOU TRADE AN OPTION ON IT

The lie:  You must know fundamentals (company information)  and technicals (charts) before you can trade options on an equity.  All the education that you pay for is going to teach you that you MUST know the company fundamentals, the charts' indicators, and the sentiment of the equity.  This can accrue to a LOT of expensive schooling by folks who make their money teaching.

The truth:  There are lots of traders who never look at fundamentals, and seldom even glance at the indicators on a price chart.  (They may use charts for a  visual of the price trends, but do not study crossovers, MACD or RSI).   Instead they are what is known as "Tape Readers" and do an entire 'take' on an underlying by watching prices, opens, closes, volatility, liquidity and their own experience of the equity's movement.  Trading is a probability game, and historical and technical information does not necessarily inform a trader of the future.  Take a look at Netflix and Rimm if there's any question that you can't count on
yesterday's information to predict today.

The caution:   I do believe that the more tools you have in your bag when trading, the easier and quicker you will become profitable at trading options.  But the point here is to try dissuade you from thinking that there is only ONE holy grail of trading, or that it must be done a certain way, taught by a certain teacher, and that there is no margin for creativity and luck.

4.  OPTIONS ARE EASY MONEY.  TAKE $5,000 AND TURN IT INTO $1 MILLION IN NO TIME!

The lie:  If you receive newsletters, email promotions, or any kind of options' marketing materials
(and most of us do),  you will be promised the moon, and the stars, and a private guru---all for the price of whatever they're selling.  Some of the promotions are SO well done, that it is easy to believe that they know what they are talking about.   Trust me!~  It's all a lie, or half truths at best.

The truth:   It takes money to make money.  If you have a $5,000 trading fund, I can almost guarantee that
you will not make more than 10% profits while you're learning (if indeed, you do that well).  I've been studying for four plus years, and still have a long way to go.  My losses in that time would make your head
swim, to say nothing of the thousands I paid for education.   So don't get hooked into "Blue Sky" promises and schemes.  DON'T let some "service" do your trading for you.  You can be sure that if you don't know and understand what you're doing, you're bound to eventually lose.

The caution:   Sometimes we just have to drink the Kool Aid and make our own mistakes, but I hope that
you can find your own path, without being too much in awe of others, their promises and their hype.  I heard the other day about one service who bragged that in 100 trades they hadn't lost one.  Well, it turned out that they just kept rolling their losers forward, forever and ever, increasing the risk, increasing the costs, so they would not have to admit to a losing trade.  AND guess what?  They also didn't tell you that the stats were all based on a paper-trading account.  Not real money.

I wish you wealth, and I wish you well.  But don't be lazy about exploring what's out there for free.  There are websites that offer endless education for free, including brokerage platforms, YouTube videos, Yahoo Financial, FinViz, and countless others. Even the well known teachers who are trying to grab your money offer free webinars on a regular basis, and have education videos on their websites for free.  Don't be shy.  Look around, check out everything.  Just google, and you can study for weeks without it costing you a dime.

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4 comments:

  1. I don't understand. HOW much did you lose by trying to do this by yourself?

    But you are saying we SHOULD do this by ourselves?

    Just trying to follow your logic.

    ReplyDelete
  2. I am trying to share my experience, and am not saying you SHOULD do anything. If you read my blog, you'll see
    that I spent a lot on education. I won the first year, lost the second, and decided to tell others that you don't
    need to make my mistakes.

    My only logic is that your capital needs a lot more protection than "they" would have you believe. And that options trading may take you as long as five years to grasp, so paper trade!

    ReplyDelete
  3. Finally, somebody is telling the truth. I googled 'options trading truth' and had to scan through 16 pages of nonsense to get to your blog. Seriously, not a single link on first 16 pages worth looking into. Happy to find yours after so much noise.

    I have been educating myself, and like most people, I am also skeptic to get-rich-quick schemes. But when you google it, it seems like that's all there is -- gimme your money and I'll teach you the secret to get rich. Obvious question is, if making money with options/futures/forex trading is so easy then why are all those 'gurus' spending so much time and energy on acquiring students to get paid? Why they are not doing it themselves making millions like Karen the Supertrader or other successful Hedge fund manager etc. Obviously, the answer is almost all of them are lying to you. If they are not lying they are hiding a whole lot of truth to sell their "fool-proof" secret to you.

    I have been trading equities for some time now, and want to get into trading options to see if I can improve my annual return. Luckily, I haven't spent any money on it yet, and most probably I wont. I completely agree with you on so much is already available for free on youtube and other sites. Tastytrade is definitely one. Swim lessons on ThinkorSwim and optionsplaybook.com are also good ones. They are owned/sponsored by brokerage firms so obviously they have vested interests in educating you, but at least they don't claim to make you millions in first year.

    From what I have learned so far, I agree most professional trader make money by selling options, and I think that's where most of the money is. It starts making more sense when you understand the mechanics of options trading.

    Thank you again for sharing your experience. I wish you all the best too. Happy trading. -A

    ReplyDelete
    Replies
    1. Thank you for your wonderful post! Somebody out there gets it!! And that's the entire reason fo this blog -- to just try to re-educate the investing retail trader.
      A pleasure to receive this, thanks.

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