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you might also check www.schaeffersresearch.com.
Bernie schaeffer is one of the more respected option 'gurus' appearing often on CNBC and bloomberg. schaeffer is real big into sentiment analysis which is a valuable consideration for stocks or options. I say 'consideration' = sentiment analysis doesn't overcome a bull or bear trend phase. His option advisor service is relatively inexpensive (we just renewed for $ 99 for 18 months). It does well in a trending market. But I'm net loss with BS because of losses when the market turns and losses in some of his other services that I probably have tried to trade with too short a time frame, and too tight stops. Anyway, I think you could do about as well and safely with Option Advisor and small positions as anything out there. You might start limiting your OA positions to a couple contracts ($100 to $ 500) and see what happens. Don't sign up for the villa in majorca quite yet!!!!
With reference to the Steve Sarnoff's claims I don't know anything about him per se, but advise - find a real human being that is trading using his recs and ask what his/her trading account has done - Real person, real $ invested, real $ made/lost.
I don't believe any of those 76% or 81% success stories - they don't represent real trading. On some of my paper tracking of these types of claims, I've set up a spreadsheet where I could crank in what I thought were realistic amounts for commissions and slippage - the later being especially important in options - the spread is typically huge. As expected, the 70% success rates rapidly vanished - echoing my experience with real trades.
IMHO there are many problems with options (all of which can be overcome):
1> Valuation. what are they worth? - The Black-Scholes option pricing formula earned a nobel prize but two of the winners for the formula were also partners in Long Term Capital Management and its diasterous collapse - based in large part on now discredited ideas behind B-S. Fact is even the experts don't agree on what the mark-to-market value of an option should be - for us public traders it whatever the current market dynamics give - caveat emptor.
2> Spread. I just looked up ALTR the spread on the july 15 call is 1.40 bid 1.50 ask - that's 7%. by contrast the spread on the stock was 16.16 bid 16.17 ask - .06%!!. What kills you is this slippage when you try to get out of a position going against you or capture profits going for you. Not only do you lose the spread, but typically you will lose another 5 to 15% on the price if you exit in the direction of the stocks (calls will sell less going down, puts will sell less going up) So your slippage is going to be 15-20%. I can't tell you how many time I proudly exited position where I predicted the stock direction correctly only to have a net loss.ouch!
3> Stops. Money management rules say you shouldn't risk more than 1% on a trade. Take that altera example - you might have bought 1000 shares for $ 16,700 and set a stoploss at $ 500. That would be consistent with $ 50,000 in trading capital. You could afford roughly 4 of those positions. A workable option stoploss might be 50% or for 10 ALTR july calls (also controlling 1000 shares) that would be 75c * 1000 = $ 750 (about the same as our $500 on stock), but you would only have $ 1500 invested. a very small % of your working capital. Could you manage 33 or those positions to fully invest your $50k. I think not! IMHO#2 option players are forced into a lot of small positions under the illusion they are spreading risk, but actually have all their eggs in derivatives tied to stock equities which, as we know can all tank at once.
There's another bad aspect to stops, generally they only are available on 'naked' calls and puts, not more conservative spreads. Also, they usually miss by a mile - suppose you had a 75c stop on that ALTR call, its quite likely if the stock tanked you would be put out at 60c or 65c. more ouch! Unlike stock trades with small spreads and commissions, you can't afford to get stopped out and get right back in (lose 20% on each roundtrip - I think not!).
I would suggest that you start in options by using them more conservatively at first - put 'collars' around stocks you own - buy puts to insure against a drop, sell calls to lock in a profit. do that small scale and get a feel for the dynamics. or play the Bernie Schaeffer Option Advisor with no more that 0.5% of your trading capital per total position (believe me - its mucho easy to check your screen in the morning to find that your option position is worth less than the cost to liquidate - always assume 100% loss is possible, even with 50% stops).
Good luck. daver
-----Original Message-----
From: John Blucar [mailto:blucar@xxxxxxxxxxxxxxxx]
Sent: Monday, June 30, 2003 11:10 PM
To: omega-list@xxxxxxxxxx
Subject: Any options traders here ?
Not being an options trader I thought I might pose this to the list:
I'm considering trading options, but only using a hotline with a posted, trade by trade win record of like 76% to 81% over last 2.5 years.
We always hear trading options can be more risky than other types of trading, but with win percentages like those how can you loose ?
Are fees and commissions for options relatively excessive compared to trading
e-mini futures ?
I'm considering Steve Sarnoff's hotline as he gives a trade once per week and you hold an average of 2 to 6 weeks till target objective reached.
Certainly sounds like it beats staring at a computer screen all day --- daytrading.
The trade by trade track record looks rather impressive --- if you invested only $5,000 in each trade since Jan 1st 2000 his record shows like $660,000 today using about $20,000 to $25,000 starting equity (you need like $5,000 to $6,000 for each weekly play times about 4 weeks average hold then you start recycling the first trade back into the next and so on).
Of course he shows peak price prior to trigger so if you figure catching only 66% of each move you still get like $435,000, and then reduce it a little further to factor in commissions and fees.
But all this is without compounding leverage, or re-investing your gains into larger positions each time.
Any constructive comments appreciated.
John
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