We had a debate over this on the forum over a year ago. I argued that options were like gambling and far riskier. I had been investing in the stock market since 2002 and was a very conservative fundamentals investor. With the exception of BAC, I always made money with stocks, some of the stocks I bought in 2008 initially dropped in half, only to double or triple in 2010.
Some of the people here told me that I was wrong, that options are not risky, that I was over estimating the expiration risk.
I would have rather have been wrong and rich instead of right and completely broke. Yep, the MLP run was my last gamble, I should have pulled out of options a lot sooner.
Yes, it is the expiration risk that is a killer. The puts I bought that expired worthless in Sept would be worth a lot of money now in Oct. Expiration magnifies the risk to the point that options are not gambling, if you are not 100% right on the timing, you lose. And we all know you can't time the market all of the time, or even most of the time.
I'm not going to give up, I'm going to rebuild. Back to the basics. Focus on a business that generates steady income. Live below my means and put that excess into high quality dividend stocks.
I've stayed away from MLP options because they lacked the consistency and pattern formation --- unlike AGNC --- that is absolutely necessary for profitable options trading. I continue to play AGNC Call options (Doc once posted that Put options weren't as profitable as Call options, and I agree) until the pattern changes (which would mean a losing trade at the end). In the meantime, I continue to make money (5 out of 6 trades; the one losing trade was a mistake in order entry that I quickly corrected before losing more than 10%) on AGNC Call options.
In order to win a race, you first have to select the best horse (and hope that he doesn't stumble out of the starting gate) --- AGNC is the very best mREIT horse. But, your mileage may vary (apparently it has already.
One good trade and you are the expert...;-) You knew nothing about options a few months ago and you know little more now. Here is an example:
"""I've stayed away from MLP options because they lacked the consistency and pattern formation"""
They(EPD, ETP PAA, and CQP) run up 90% of the time over the last 14Q's from one month out to their EXs. Lack a pattern, hello? So we got a 1 time in ten loss, this time, on two of the four(CQP and ETP, so far) and you throw rocks at a trade which has made money 90% of the time. PAA , CQP and EPD are still not done. When you buy to open, then, after a 10-20% draw-down, sell, you lock in that loss.... only to be whipsawed when you try to get in again. If you're playing a short run, you play the short run.
I am ahead on PAA and EPD. I have taken some profit today. If I had followed your advice ,AL, I would have sold when I was 30% down or less, and have locked in a loss, without experiencing this profit. X would have been stopped out on the majority of his trades also, if he followed your stop ideas. When you have a short term strategy that has consistently worked, you hold. Yes you lose 10% of the time, but tough. If you can't handle 10% losses, don't play. Also, don't be so foolish as to burn more than 10% of your money per trade, because you can lose big with options. These 10% times are painful.
These are the times when the "experts" and naysayers come out of the woodwork(actually from under rocks) with their toxic waste thrown on those suffering from their recent losses. "If only you had followed our advice" Hello!, Toxic advice? "If only you hadn't followed Doc". Don't! You can lose money at times...but you can also make money more of the time.....;-)
How about the FSC trade for 9 days after EX, which was yesterday, I mentioned. I bought at 10.57, holding until one day B4 EX. No stops...let her rip one way or the other. Next month, do the same....we'll lose 20% of the time historically....last 12 months yielded 37% doing this....Shimei's welcome to follow...;-)
I prefer options myself. Options have allowed me to turn $5k into $520k within 2 years. But then again...options are not for everyone. We are all different. In my case, I'm just really into aggressive high risk investment vehicles.
Sentiment: Strong Buy
Xion, you are the reason why I wrote this post. You are the 1%, only 1% of all options traders will achieve similar results. Please do not expect everyone else to achieve what you have...
You put all of your money into AGNC. At any point, you could have lost all of your money, but AGNC is a freak of nature that always rises to ex-div.
I did the exact opposite. I put my money into small 5% trades ito lots of different companies. The end result was the steady bleeding of my money as my options expire worthless.
Had I done what you did and put all of my money into AGNC this year, I would be sitting on 80k profit right now instead of waiting tables. Yes after owning my own successful business, I am now reduced to waiting tables.
These days, I am long high-divvy stocks only. Obviously, there is still the divvy even if the market go down ... it also gives the PPS support. Given the uncertainty of the financial environment, this seems like a good way to do it. You could go to cash, but in this world, you could be in cash for a long time and what fun would that be. GLTA
With options you have to be right on strike price, direction (long/short), and timing. Doable but not easy. And definitely hard to do this consistently. Unless you are VERY actively watching all your positions, and have tremendous discipline, it is darn near impossible to get in/out to lock in your gains and more importantly limit your losses. There are obviously people on this board who seem to be quite successful trading options - more power to them.
There were a couple of threads on this board that are worth reviewing - one on hedging strategies (forget who started that thread) and a more recent one on income ideas (started by onion I believe).
Wish you all the best as you you rebuild
Yes, it is true that options play requires a lot of time; but, like all good endeavors, it is worth the time and effort spent. If one doesn't have the time (because of one's day job), stay away from the market OR turn your investments over to someone whose judgement you trust who has the time. Opt in or opt out, the choice is yours.
I had mentioned before when I was talking to Doc that I had played options in the past and found them too frustrating at times due to their expirations. I myself have done much better simply buying low, selling high....shorting high, covering low, and playing straddle strategies when they hit the Goldilocks zone. NO time restraints. If I feel confident on a move, I'll pad the position with margin USING ENOUGH AVAILABLE CASH TO COVER THE MARGIN MAINTENANCE WITHOUT BORROWING AND PAYING INTEREST.
Be careful shorting stocks that pay dividends as YOU pay the dividend if you hold the short through the EX date. This can limit your time to cover as you don't want to start accumulating dividend payouts waiting too long for a cover opportunity. Playing short positions on stocks that pay little or no dividend basically buys you unlimited time to cover. The key there is not to overextend and get stuck paying interest on margin maintenance (keep enough cash to cover it).
I'll tell you who I like when it comes to investment savvy ---- Ben Stein. Smart guy, level head, good advice IMO.
Good advice Eagle. I am rolling WMC as I was stuck on a short Put trade. I am out to Jan and will roll out and down to April on further PPS decline. When I am done(out of premium, I will be at the 13Apr17.50 @ EVEN premium. That is from Oct22.50@ .40 premium. Kind of fun, in a weird way. If I get SOL'd I will own the stock at 17.50, which is about a buck below IPO price. I am OK with that. Will execute in stages , as necessary.
I still have made good money with short Puts...as you said, have the cash to cover....and if the world goes #$%$ up, so does your account...but at that point we are all screwed anyway, so who cares...;-)
Personally, I prefer stocks AND one month options, but that's my trading personality. I've been trading for 11 years. Started in stocks only, then thought I knew everything and got into really short term options and lost half my accumulated capital in six months. Bad deal. Went back to stocks and it was a roller coaster of winning and losing due mainly to lack of personal discipline and making the same mistakes repeatedly. Took a six month break, seriously re-evaluated and made two BIG discoveries: 1.) if you own a well managed, hi-dividend stock, it really doesn't matter what the price does. Every dividend dividend pay out reduces your cost basis and also provides income. 2.) selling calls and cash covered puts, sometimes with multiple trades in one month, positions you as "the house' with the best advantage of success in the trade.
I've been following this strategy for the last two years with a targeted annual return of 30% - my two year average is 27% ( it could have been up around 33% but I find I still make some mistakes and still need outside feedback). Some options people would say 27% is lousy, but at that percentge my money doubles every 3 years (rule of 72). Not exciting and sometimes outright boring, but it's working, it's paying off the loans that accumulated from my kids going to college, and also building retirement accounts for me and my wife. And worst case, like now when I missed taking action on the sell signal on AGNC in October and am 100% long, the dividend will get the trade profitable again over time. And I know I will be able to make at least the return percentage of the dividend of 15% and then some, since I will be able to sell options to increase the percentage as soon as the dividend cash is deposited into my account. Your mileage may vary, but it has been working for me.
Good plan....I moved out of the broad market in 2002, only trading stocks that paid dividends. Have been playing options here and there since 2000, including commodities.
This past year I've used up to 18% of my non-IRA portfolio in options, but only 2% of my TOTAL portfolio. I'm down big in this last MLP trade, but hopefully be even for Q3-Q4 from the last REIT/BMY/ETP trades.
I could never do what Xion does!
I'm feeling your pain olee (being down a lot of my 2012 gains with these current PAA & CQP MLP options). After I close these I'll be working on trying to see if I can be far more careful and regain some of the losses.
Best wishes to you and to your success in life, business, and in the market going forward olee!