options trading

[frametology]

If you know some money managment rules and uses stop loss for every trade, I can't see why people will lose everthing they have instantly. Those pp are normally the gang-ho type who wants to prove the market wrong. If you find options dangerous because of the expire date, can look at CFDs as an alternative. :sweat:

the problem is, i don't think many people know money management rules. greed often blinds. we're all weak lah.

Nowasays is there still a low risk product? Put your $$ in the bank as fixed deposit the bank also will collapse...Haaa, Time to hide some in your Milo tin.

hmmm, i better stock up on the milo tins at home and withdraw all my savings, in COINS. so in the event of a robbery, it'd be too heavy for the thieves to steal my money. hahaha.

 

[frametology]

Just because its classified as high risk does not mean its dangerous. Equities are considered high risk as compared with bonds, does it mean its dangerous?

Do you know that investor actually uses Put options as a form of hedging tool for their portfolio in these times?

So by maintaining their long term portfolio, they are actually hedge against any short term fluctuations in the market. Even Warren Buffet uses options to hedge his portfolio.

it seems that you're comparing risk in relation to each other. i don't think this is how the world works right! for example, would you compare the risk of jumping out of a plane without a parachute and jumping off a cliff? i wouldn't. in both cases, you'll end up just as dead as each other. just that, i don't think you'd be THAT badly smashed up if you jump off the cliff.

investors do whatever they want because they're paid to do it. i think if the money they were playing with were their own, they would do it very differently and carefully.

lastly, i don't think our fellow CSer is the next warren buffet. you need to have money to play like one of the big boys. haha.

 

[weiconghon]

lastly, i don't think our fellow CSer is the next warren buffet. you need to have money to play like one of the big boys. haha.

You don't need to be warren buffet to use options to hedge. And you don't need to be a big boy to use options.

 

[frametology]

You don't need to be warren buffet to use options to hedge. And you don't need to be a big boy to use options.

you don't. but you'll be more confident if you were them.

it's like a poker game. if you go there with 5 times the capital of the rest of the players, what's there to fear. you are king - cash is king!

 

[Priscilia]

Hmm....i attended a seminar once. The speaker is very passionate about options (speaks like a motivational speaker) and he shared with us his financial success,showed us the properties he owned. He claims to have studied all financial tools and that options trading is the best way to earn money. During the seminar, he showed us his past students' trading successes and these people made huge profits (5 to 6 figure sums). His options course is expensive, i can't remember exactly how much but it cost a few thousand dollars. After his seminar,his staff will start a lelong style of enticing you to sign up and there is a "special price" if you sign up on the spot.

Anyway,a friend of mine signed up and attended his course. She told us that throughout the week, he taught them with enthusiasm and he shared plenty of his knowledge. He even traded together with them. However he is conservative as he will stop trading after he make a small profit of maybe a couple of hundred dollars.

I have no doubt that the speaker is wealthy (Amex titanium credit card, owns a luxurious seafront residence in Sentosa, appeared on the front cover of Millionaire Asia magazine etc..) However, i think he is kind of misleading. as he did not clearly state whether options trading made him rich. I believe he became wealthy through shrewd real estate investment and not through options trading. He probably invested the profits he made from options trading/teaching into real estate and his money grew......

Till now,my friend and most of her classmates are still losing money. I believe the success examples showed to us during the seminar are real life cases but maybe these people are like the 10% of his total student population who managed to make a profit? In addition before they made a $100k profit in one trading attempt,how much $ have they lost previously? I think the speaker is a very good speaker and he knew how to capture the audience with the right words too. Addressing the audience who are parents, he showed them a photo of his toddler and said to them...."i was born poor but my son is born a millionaire. Everything i have is under his name." blah blah blah.....

No, i did not sign up. I might join in the fun if i have plenty of cash to burn but i would prefer to invest in real estate.

Think I know who u are talking about. C.C.?

Actually, you don't have to know anything about options trading to judge whether such things are good or not. The way all these seminars and courses are coming out these days, one can't help but wonder: what's up man??? They like to feature some guy or lady in their adverts with the misleading attraction that you can also be like them. These business minded people are smart. They will manipulate your emotions to get you to sign up and be the "next millionaire". Duh.

I'd say, everything is a matter of probability. There are probably thousands of people who have signed up for all these courses thus far, by these so called motivational speakers/coaches/"gurus". Surely, out of so many, there will be a VERY small handful who will be successful? If that's the case, then what's so great?

I'd be more impress if he can prove that ALL his students are successful in one way or another, maybe guaranteed earning at least $100 or so per month. The reality is, there is no such thing in life. Nothing is guaranteed, though the unknowing participant who pays up a few thousand $ will like to dream he will be the next one to succeed.

Think Adam Khoo and you get the picture also. I don't believe every parent who sends their kids to him had a "loser" child. In Singapore, people are so kiasu. And foolish with parting their money sometimes. Kids already doing well at school but their parents are paranoid and pressurize them more. Then when these kids get good grades, they'll appear on adverts in the papers, saying Mr so-and-so did it for me! The truth is, the potential is all along inside them. They don't need Mr Khoo or whoever to directly boost their grades. Again a case of probability. Out of thousands of students, some are already gifted or have that edge over others academically. Nothing special.

If options trading is so easy or seemingly guaranteed, why do you think they even bother conducting these seminars//courses for the public at hefty prices? Might as well they stay home and continue making money for themselves 24/7. Clearly, these courses probably rake them more income than you can even imagine playing options alone.

As the saying goes, if it's too good to be true, most of the time, it is. If making money were so easy for everyone, no one will be poorer than the other guy. Not that you have to be pessimistic about success generally, but it takes a lot of effort and time to be financially rich. (Unless you are born with a silver spoon in the mouth!)

 

[madmacs]

i think you have to pay ard $2k+ to join his class right? so that'ss probably where he's making the money from.

 

[zero o]

Everything can be simplified in seminars. In real life, the markets are dynamic, so whether you employ options as a hedging tool or you are trading options, u need to (a) know what u are doing (b) have a play strategy.

Are you doing a covered option or a naked option ? (hedging or opportunistic)
Are you buying or selling an option ?
Are you playing a call or a put ?
Is your desired option out of the money, at the money or in the money ?
Are you using options to do a strangle or a straddle or its a directional play ?
What kind of timeframe are you playing ?

All these are but some possible plays that you can do with options and they affect the price, risks and profitability associated with options. I am not saying that you need to be a Warren Buffet to trade options or use options as a hedging tool, but if you want to be successful at it and not lose money @ options, then it is best that you at least read up and understand how options work and how they can be used to achieve your desired objectives. At the end of the day, used correctly, options can be your friend, bet wrongly and you can end up losing little to losing the shirt on your back (especially if u dont know what you are doing and fail to take the necessary steps to hedge the position derived from an option u have underwritten)

Bottom line, option trading can be easy or it can be difficult, it all depends on you.

 

[night86mare]

rubbish lah, options, especially derivative options are classed as high risk products. all derivatives are high risk products.

...

...

time to tell my pof lecturer that he's teaching "rubbish"

 

[obfuscate]

Just because its classified as high risk does not mean its dangerous. Equities are considered high risk as compared with bonds, does it mean its dangerous?

Do you know that investor actually uses Put options as a form of hedging tool for their portfolio in these times?

So by maintaining their long term portfolio, they are actually hedge against any short term fluctuations in the market. Even Warren Buffet uses options to hedge his portfolio.

You are only looking at one aspect of options. There are other considerations that you need to know, but I doubt that you do.

 

[night86mare]

You are only looking at one aspect of options. There are other considerations that you need to know, but I doubt that you do.

can elaborate?

i want to know

 

[obfuscate]

...

...

time to tell my pof lecturer that he's teaching "rubbish"

Yes, please tell that to your professor. There are many academics who think that they are very smart, but when you put many smart people together, everybody becomes stupid. Sub prime assets and the people who revolve around them is a very good example. But then again, I am in danger of becoming stupid for trying to be smart now. :bsmilie:

 

[obfuscate]

can elaborate?

i want to know

zero o has summarised in a few basic questions that should have popped into mind the moment someone asks about trading options, Options 101.

Other questions like such should be asked

1. Options on equities, indices, interest rates, futures with underlying equities, indices or interest rates?
2. Leveraged?
3. Exchange rate differences?
4. Legal considerations? A good example where those who traded the KLCI Index in the past will understand what happenned to their positions when the Malaysia government declared offshore ringgit worthless.

 

[nightpiper]

Thats the misconception people have. Options are not meant to be the road to riches. Its meant as a hedging tool and it is primarily designed as a hedging tool.

I don't quite get it. U mean hedging an option or commodity will not lose money? I only see 2 things.

1) If u make money, u become richer

2) If u lose money, u become poorer

Pardon my ignorance but whats the diff between hedging options & commodities? Last i read, our investment arm hedge oil & was so badly burnt, now the "cost" naturally juz pass down to every house hold. U do get burnt with options whether hedge or not.

Hedging or options is nothing new & neither is it a miracle pill. I think that is the biggest misconception if any.


Edit: I'm not against investment. Juz feel that options is not any safer than others. Investors still need to research & understand fully what is it about & the risks involved. Like i mentioned in the earlier post, many books & gurus make options trading sounds like safer & easier, which IMO, crab.

 

[obfuscate]

I don't quite get it. U mean hedging an option or commodity will not lose money? I only see 2 things.

1) If u make money, u become richer

2) If u lose money, u become poorer

Pardon my ignorance but whats the diff between hedging options & commodities? Last i read, our investment arm hedge oil & was so badly burnt, now the "cost" naturally juz pass down to every house hold. U do get burnt with options whether hedge or not.

Hedging or options is nothing new & neither is it a miracle pill. I think that is the biggest misconception if any.

Options can be used to hedge, but a hedge is not necessarily created through the use of options, it can be anything.

For what you have come across, you will need to look at the overall hedge mechanism to understand why.

 

[night86mare]

Yes, please tell that to your professor. There are many academics who think that they are very smart, but when you put many smart people together, everybody becomes stupid. Sub prime assets and the people who revolve around them is a very good example. But then again, I am in danger of becoming stupid for trying to be smart now. :bsmilie:

hee hee.

zero o has summarised in a few basic questions that should have popped into mind the moment someone asks about trading options, Options 101.

Other questions like such should be asked

1. Options on equities, indices, interest rates, futures with underlying equities, indices or interest rates?
2. Leveraged?
3. Exchange rate differences?
4. Legal considerations? A good example where those who traded the KLCI Index in the past will understand what happenned to their positions when the Malaysia government declared offshore ringgit worthless.

ah, i see what you mean. we have started on very rudimentary things, which take none of these into consideration.

 

[zero o]

Commodity futures, financial futures, stock index futures .. all these including their option siblings are tools. Tools are designed to do a certain thing and their application involves making assumptions. Assumptions are at best educated guesses. Assumptions are static - they assume one set of parameters. Real life market is dynamic. Market swings. Markets are unpredictable. Putting on a simple hedge of just buying a call or a put is easy. Letting the hedge run until the expiry date of the expiry of the instrument and then deciding on the unwinding strategy is most simple and the most headache-less strategy. There should be no management at all in this case, yet some people get greedy and unwind the hedge in the hope of putting it on again, thereby making some money in between. Managing any hedge in a dynamic market that has high volatility is both a science and an art. Even the best professional traders get them wrong sometimes.

Therefore, I would say that one cannot oversimplify the mechanism of options and its usage. Its a financial tool designed for mainly professionals, and if one wants to play, one should be well prepared.

 

[frametology]

Yes, please tell that to your professor. There are many academics who think that they are very smart, but when you put many smart people together, everybody becomes stupid. Sub prime assets and the people who revolve around them is a very good example. But then again, I am in danger of becoming stupid for trying to be smart now. :bsmilie:

haha. this is damn funny!

 

[frametology]

zero o has summarised in a few basic questions that should have popped into mind the moment someone asks about trading options, Options 101.

Other questions like such should be asked

1. Options on equities, indices, interest rates, futures with underlying equities, indices or interest rates?
2. Leveraged?
3. Exchange rate differences?
4. Legal considerations? A good example where those who traded the KLCI Index in the past will understand what happenned to their positions when the Malaysia government declared offshore ringgit worthless.

options (or for that matter, everything) that is leveraged means a high possibility of bankruptcy if the market works against you right?

also, options on indices and interest rates, how do they work? with equities, you basically buy papers (that the company promises to honor and grow) right? indices leh, who honors them? the bourse?

thanks!

 

[frametology]

Commodity futures, financial futures, stock index futures .. all these including their option siblings are tools. Tools are designed to do a certain thing and their application involves making assumptions. Assumptions are at best educated guesses. Assumptions are static - they assume one set of parameters. Real life market is dynamic. Market swings. Markets are unpredictable. Putting on a simple hedge of just buying a call or a put is easy. Letting the hedge run until the expiry date of the expiry of the instrument and then deciding on the unwinding strategy is most simple and the most headache-less strategy. There should be no management at all in this case, yet some people get greedy and unwind the hedge in the hope of putting it on again, thereby making some money in between. Managing any hedge in a dynamic market that has high volatility is both a science and an art. Even the best professional traders get them wrong sometimes.

Therefore, I would say that one cannot oversimplify the mechanism of options and its usage. Its a financial tool designed for mainly professionals, and if one wants to play, one should be well prepared.

:thumbsup::thumbsup::thumbsup: good explanation!

 

[Skiver]

as per subject.. anyone into that? any success story or horror stories to share?

I suggest you read this article on www.siliconvalleywatcher.com, to gain some insights on the lack of regulation, the gearing factor