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Option Trading Friday, 7 December 2007

Posted by dragonzlad in Money Money.

I attended a free seminar on option trading today. I was quite sceptical initially for two reasons when I signed up. Firstly, nothing is really free in this world unless you have a sugar daddy/mummy and even then, those are not “free” either! Secondly, a big name Mirriam MacWilliams would be sharing her knowledge in the seminar. So I went with an open mind hoping to learn practical stuff about option trading since I have the basics already.

Boy, was I disappointed. It was nothing more than a marketing gimmick, to foster an interest in options trading amongst us and to whet our appetite for easy wealth. Now, if you have attended a MLM “Seminar” before, you will understand why I said that. The only real thing about option that was “taught” was “Call Up, Put Down”! That is, buy a Call option if you think the underlying will go up or a Put option when you think it will go down. Other than that, success stories and testimonials were presented. I think I learnt more about antioxidants and its benefits from Nuskin seminars than I did in this options trading seminar! However, one thing that struck me during the seminar was the claim that was made by the presenter – no margin required. For a while, I was interested. Margin requirements can be a bane for most investors who do not have the cash reserve to meet margin calls. Therefore, no margin requirement would mean more funds available for investing. But I remembered that options trading, like futures trading, can be very risky. So I did a quick check when I got home and found that margins are required except when the trade done was for a long put or long call option. This information was obtained from two sources (WallStreete.com, Interactive Brokers). Maybe there is something I don’t know about the trading regulations. Perhaps, it can be circumvented? So I may be wrong (do tell me please!), but in any case, I am beginning to have doubts about this company providing the seminar and option trading training services!

While I have no doubts that the 2 presenters have made their wealth through option trading, I did wonder why they even bother to be involved in the business of teaching option trading if they are already rich (MacWilliams is reported to be a multi-millionaire after all)? To generate additional stream of income (but they are rich already, aren’t they?) or are they really noble and want to share their trading secrets (for a fee of course)? I think I am being too cynical, what do you think? 😛

Whatever it may be, I really frown on such marketing tactics. Not only did this event waste 3 hours of my precious time and peak-hour taxi charges (very expensive considering that the ride took no more than 20 minutes!), I felt like I had been taken for a ride. What about the free handbook and CD-rom that were given? Surely that ought to make up for my costs and time? For me, they were nothing but publicity material – not a shred of real knowledge can be learnt from them. It was indeed a wasted evening for me!


1. GB - Saturday, 8 December 2007

Options trading is risky DL because it’s a form of leverage. As you rightly say, no margin is required for long option positions as long as you pay for the full cost of the option upfront. But then there’s a very high probability of losing everything. Whereas if you buy a stock, even if it’s value falls by 20% you’ve still got 80% of your money left.

I can’t remember whether I told you, but at one point in my career I was an options trader at a bank I used to work for. Banks look at options in a very mathematical way, where the main idea is that by trading options you’re trading volatilty. If you’re just using options for leverage then those concepts are less relevant, but then as I’ve already said, options viewed as leveraged instruments are risky!

Take care, GB xxx

2. Matt - Saturday, 5 January 2008

Well I guess you get what you pay for – what were you expecting of a free seminar?

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