So you want to trade options....

futuresoptions · 05-06-2010, 01:45 PM

Every once in a while I get either a PM or an Email from a Pelican that sees my screen name and inquires with me about Options trading. No big deal, but instead of writing long emails each time this happens, I figured I would start this thread and then I can just point them in this direction for all the information they may need.

First off let me say that I am not currently involved with trading. I do not work as a broker and I do not endorse any brokerage houses or do I give any advice on what options to purchase.

What I can say about myself is this... I like many people hoped to make a ton of money in the markets. I began educating myself with different money related magazines that would come out at the supermarket each month and then graduated to where I was purchasing $600. 12 volume sets that had all of the technical information about the markets in them that you could think of. What I was
left with was a ton of jargon in my head that made sense somewhat, but was so overwhelming, that I could not put it into use...

I then got onto the midnight tv guru band wagon where I was gonna get rich through real estate or by placing little ads or by having 900 numbers... spent a ton of money and made none...

I finally finished schooling and got a decent job, making a little money and ended up getting a direct mailer one day... Usually after reading junk mail I throw it away, but this particular one spoke about learning commodities and since I was familiar with commodities from one of my old bosses that traded (I had conversations with him, but couldn't get the knowledge from him that I really needed) I set this mailer aside and about six months later ordered the course.

The course was from Ken Roberts and it was the TWMPMM (The Worlds Most Powerful Money Manual) course. If you google Ken, you will get scam alerts etc.. as most guru's like him, but the course is actually very good. If I remember, I think that I paid $200. for the course. Now if you compare the price to the course compared to say attending a weekend course at a local college, I would say that it is a great bang for your buck. I do not know if the course is still available or not, but if it is, get it!

I will not endorse his chart service or his brokerage house or his high dollar seminars. You don't need it. He will tell you that you don't need it, and that is the truth. If you get his course you will start out paper trading so you do not actually put money into the markets until you are ready to do so. If you are already familiar with the markets, it is worth the $200. for the golden nuggets that you will be able to pick up out of the course.

How did I do? Well, due to limited finances, I could only afford to go into the markets twice after going through his course. I lost all the money that I had invested both times... Now you may say that this was a failure and in a way I would have to agree on the surface, but what you don't know, was below the surface... I had made alot of money paper trading, but when it came to actual investing I was VERY limited capital wise in what I could invest. In both instances
I had narrowed my pics down to 1 or 2 commodities and I picked the one which I thought would move in price quicker... In both instances Murphy's law chose the commodity that I did not have money to purchase to move...

So basically if I would have had $2000. to invest instead of just a thousand, I could have purchased both... Here's the kicker, if I would have had enough capital to purchase both pics in both instances, (because of the strategies that I learned in Ken's course) the commodity that moved went so high in value, that it would have not only covered the cost of the non mover AND would have easily gave me more money that I made in a year... I kid you not...

That being said, I did not loose my $200. that I paid for the course, and technically, I did not loose the money that I had invested in the markets and I will tell you why... Right before 9/11 I guess I was like most folks. I worked hard, made good money and stuck a good chunk every payday into my 401k where it was company matched... I thought I was being smart and had diversified my 401k to where it was divided into 4-5 funds and all contributions were divided into each fund each payday... Well, I called one day and checked my balance and compared it to what I had thought I had contributed, and found that I was $5000. in the red compared to if I had just put the money in a non interest paying savings account. I got pi$$ed off at myself for just handing my money to someone else and expecting them to "do it for me". I took the principals that I learned in Kens course and applied them to my 401k account. I took control of that account and within a year I had recouped my 5k loss. Then 9/11 hit and that slowed things down a bit, but by the time I had my ankle injury in 2006 and had to leave work, I was sitting on 30k in profits alone...

Nobody can make you rich or smart... but there is good information out there, some more technical than others... It's up to the individual to decipher and implement the knowledge and put it into practice.... Hope this helps someone...

asphaltgambler · 05-06-2010, 03:32 PM

What course of action would you advise for a Guy that has a thimble-full knowledge of the market in general? I am 50yrs old and will soon will be coming into a large chunk of money (6-figures) I have been a highly skilled auto tech most of my professional life and make decent coin.
But my age and body are starting to become a factor. I see a real opportunity in making some headway to a early solid financial retirement

futuresoptions · 05-06-2010, 06:31 PM

If I were in your position, I think I would take the Dave Ramsey approach to things... While you were still working, I would set up a 6 month emergency fund, get completely out of debt and pay off my home... With the money you are going to receive, I would put it in a very safe investment vehicle (maybe someone can chime in on what is the most secure these days with the highest paying interest. If you were planning on getting into the market whether it be stocks or commodities, I would still recommend the Ken Roberts TWMPMM course. It will help you in either endeavor... But each person is different, your best investment could be starting your own shop and hiring other mechanics to do the work. I really can't say what it right.. But I do believe that the Ken Roberts course will open your eyes to the way you view any other investment or purchase the you would make for the rest of your life... Wish you the best...

stomachmonkey · 05-06-2010, 07:06 PM

Have ridden that roller coaster many times. I came close to retiring at least twice before I was 45 only to have to go back to a paper route.

These days I leave it to Ken and Jerri, my advisor and attorney.

asphaltgambler · 05-07-2010, 12:19 PM

I see no future for me long-term in the car business; possibly 4-5yrs Max. I have "invested" (flipped) BMW's in the past. My strategy has always been buy right and sell short. I have always made money and I am disciplined when investing. I would like to apply that to the market to in 4-5yrs I would have enough income to switch to a part time gig

jyl · jyl's Garage

your best investment could be starting your own shop and hiring other mechanics to do the work.

This bears considering.

For each $100K of capital you use for investing, what return can you get? Suppose you average 10% per year after taxes and costs. That's $10K gain per $100K capital. Meanwhile inflation is, let's say, 2%. So you can spend $8K of the $10K, unless you want your capital to be steadily depleted in inflation-adjusted terms.

10% is just an example, you have to decide what number to use. Investigate the long-term average US stock market return (it is lower than 10%, that's before taxes and costs). Assess if you should have confidence that you can beat the market, consistently for years (why? what's the evidence?).

Anyway, multiply by how many $100Ks you expect to get.

Now, how much would it cost to start a business, in which you already know yourself to be highly skilled and a proven success.

asphaltgambler · 05-08-2010, 07:07 AM

I have had my own auto service business in the mid-80's......made some mistakes but never repeated the same one twice. I am just coming out of a bad partnership and have zero desire to be an entrepreneur in the business anymore. My heart just isn't in it.
For a good look at my perspective; check fastfredracings' post/thread here about his desire to shorten his hours.

Is it possible to have a 10% return/ yr in today's market with $200k and be relatively safe?

jyl · jyl's Garage

Is it possible to have a 10% return/ yr in today's market with $200k and be relatively safe

What's "relatively safe"?

By my definition of "relatively safe", meaning you are quite likely (say 60%) to get the return you expect, and you have very little chance (say 10%) of a big loss, obviously this means a substantial chance (say 30%) of something between moderate loss and disappointing return, then "no".

We looked at this for my kids' school. Had a fixed income pro construct a bond ladder to give maximum yield with high safety and reasonable liquidity with low price risk. Came up w/ about 4%/yr return, using very high-quality corporate bonds maturing in 1-2 years.

You can get 4%-ish yields in longer-term US govt bonds, but you have price risk until the bond matures. If you want little to no price risk in US govt bills/bonds, you get like 1%.

jyl · jyl's Garage

Again, look at the US stock market return over a long period of time, say 50 years. Not only look at the average return, but also the volatility. Even if the average return is 7-8% (I don't recall the number exactly), this is made up of -20% years and +20% years and everything in between and even some years outside of that band.

Now suppose you are depending on return from the $X to live on. Suppose every year you need, say, $Y a year for expenses. The problem is, if you have a -20% year so your capital falls 1/5th from $X, but still you need $Y, well $Y just became a larger percentage of your capital that you just spent. So even if your very next year is a +25% year, over that 2 year period you've fallen behind. You'd have to cut your spending to match your returns. Which might be tough depending on what sums you're dealing with.

Don't plan on solving this by taking some quick trading class. Millions of people take those classes and how many become consistently profitable investors? I know a few people who actively trade their own money and are successful, at least for a while (then they stop talking about it, which might suggest something), and they are pretty obsessed with it and usually have been in the markets for a decade or more. Trading is a zero-sum game. Investing is not necessarily so, but see volatility comment.

McLovin · 05-08-2010, 08:14 AM

jyl,

what about just a tax free muni bond fund? Seems to return 4-5%, tax free (so the "net" rate is even higher).

I know there is risk of default on any given bond, but a fund that buys from many munis seems to minimize the risk.

McLovin · 05-08-2010, 08:18 AM

Quote:

Originally Posted by jyl

I know a few people who actively trade their own money and are successful, at least for a while (then they stop talking about it, which might suggest something),

lol, sounds like here.

I remember some here saying they have invested for years and years, and made tons, and that you'd have to be "an idiot" to not be able to consistently return at least 20% in the stock market.

In my line of work I deal with a lot of people who have made a lot of money, in just about every way imaginable. I can only think of 1 who has done it mainly through the stock market.

jyl · jyl's Garage

I don't know what the price risk is on a muni bond fund. Our school was looking for minimal price risk, hence the use of short maturity bonds that would presumably be less volatile in price. Anyway that doesn't address asphaltg's issue, getting $4K per $100K of capital.

Quote:

jyl,

what about just a tax free muni bond fund? Seems to return 4-5%, tax free (so the "net" rate is even higher).

I know there is risk of default on any given bond, but a fund that buys from many munis seems to minimize the risk.

asphaltgambler · 05-08-2010, 12:37 PM

Yes............please

Dueller · 05-08-2010, 12:58 PM

Quote:

Originally Posted by asphaltgambler

Is it possible to have a 10% return/ yr in today's market with $200k and be relatively safe?

No....particularly if you want immediate income and liquidity. There are some investment vehicles that if you are willing to defer income for 10 years may get you around 5+% . But not much more.

The pronlem with your question is your term "relatively safe."

asphaltgambler · 05-09-2010, 07:11 AM

Thanks all - anyone have additional feedback for my situation?

McLovin · 05-09-2010, 08:42 AM

asphaltgambler,

you don't say exactly how much you are getting, but for "six figures" maybe look into an apartment complex. One with enough units to cover professional management so you don't have to deal with the day to day operations, tenants, etc. Maybe 25-40 units or so.

Prof. mgmt usually charges 7% of the gross rent receipts, but they take care of everything.

You should be able to make 5% return on your invested cash in the first few years, with that number increasing as the principal gets paid down.

IMO you are not going to get where you want to go through the stock market. That would not be impossible, but IMO the odds are highly stacked against you. Your odds would be better in Vegas.

asphaltgambler · 05-09-2010, 08:53 AM

Fair enough - cars and bikes are my thing but with this economy I'm not buying anything to flip as money is too tight now. There's big $$$ to be made in hotrods and muscle cars but the current market is too soft

pwd72s · 05-09-2010, 10:01 AM

Quote:

Originally Posted by asphaltgambler

What course of action would you advise for a Guy that has a thimble-full knowledge of the market in general? I am 50yrs old and will soon will be coming into a large chunk of money (6-figures) I have been a highly skilled auto tech most of my professional life and make decent coin.
But my age and body are starting to become a factor. I see a real opportunity in making some headway to a early solid financial retirement

My advice would be to NOT try to make a quick killing in options.

That said, go to Amazon & buy this book:

The Bogleheads' Guide to Investing
by Larimore, Lindauer, and LeBoeuf

The best easily read & understood basic primer on money management I've read.