Certified Public Accountant
While it’s true that the old advice to stay away from markets and instruments which you don’t fully understand is generally sound, if approached correctly; that’s to say by applying the same principles of stock selection and risk management as you would apply to any other trade, options need not be any riskier than dealing in the underlying stock.
In fact, they can be considerably less risky because options to buy at a particular price (calls) can be purchased for a fraction of the cost of the stock itself. So this can be an excellent strategy for those who want to take a position in a rising stock while keeping a considerable cash reserve on hand.
Options to sell (puts) can also be used to protect against sudden falls in a share’s price. A sharp fall may lead to the dreaded “gap” phenomenon when the markets open with a stock priced much lower than it was at the close of the previous trading session. Stop losses are often useless in these circumstances, but a put option will still be operative.
Finally, options may deliver a higher percentage return than trades in the underlying stocks; and creating options over stocks you already own can be a good way to earn some income in a sluggish or static market.
78-year-old Bill Blakeslee, of Ambler Pennsylvania, has experimented with various ways of “playing the markets” during 30 years of trading, but has only recently found a strategy with which he’s entirely comfortable. Focusing on options and a few select day trades, he intends to maintain a safe cash balance of at least 90% to maximize his buying opportunities if and when today’s bull market comes to an end.
Now, it’s true that there are different types of options out there. And it’s essential to understand precisely what you’re buying.
But for long-time stock trader, Bill Blakeslee, all these advantages mean that after 30 years of experiments in trading a variety of different markets, options are now the instrument he overwhelmingly favors.
“At 78, I’ve been “playing” the market for almost 30 years,” he recalls, “trying out warrants, commodities, stocks, and options. I’ve done okay with stocks maintaining a positive growth in an IRA account, but only options seem to hold promise.”
Bill’s positive experience with the long-term stock holdings in his IRA is typical of the experience of many passive investors during the record-breaking bull market which began after the financial crisis of 2008.
But until recently, his experience as a trader had been much less happy.
“I spent a lot with a former Turtle trader who recommended trades. The problem was the Turtle guy’s strategy seemed to be, get in after the stock made its move. Consequently, the results were mixed, and for me, mostly negative.”
Bill spent a lot of time and money learning at the feet of a “turtle trader”; that’s to say someone who bought into the results of a legendary market experiment conducted in the 1980s by hugely successful commodity traders, Richard Dennis, and William Eckhardt.
The story goes that Richard Dennis set up the initial turtle experiment to win a bet with his skeptical friend, William Eckhardt, that anyone can learn to trade successfully.
The initial students were selected according to strictly-guarded and still secret criteria and were dubbed “The Turtles” in deference to Dennis’ belief that he could fatten their trading accounts as quickly as farm-reared turtles.
Controversy rages to this day about the success or otherwise of the “Turtle Trading” experiment. Certainly, some of the initial turtles seemed to do very well indeed, but the correct operation of the strategy is still disputed, and many who have tried it have been unable to make it work. This is not surprising because what is not in doubt is that turtle trading is a high-risk strategy.
In essence, the idea is to profit from new trends by buying (or selling) breakouts and then closing the trade when the price begins to consolidate or reverse.
The problem is that well-established market statistics show that as many as 40 to 50% of breakouts turn out to be false moves, making sharp pullbacks and significant losses inevitable.
This is not to say that the strategy cannot work, but would-be turtles need to have strong nerves and a high tolerance for risk.
“At 78, I’ve been “playing” the market for almost 30 years. Trying out warrants, commodities, stocks, and options. I’ve done okay with stocks maintaining a positive growth in an IRA account, but only options seem to hold promise.”
Certainly, Turtle Trading wasn’t a style that worked for Bill, as he somewhat ruefully recalls: “I spent a lot with a former Turtle trader who recommended trades. The problem was the Turtle guy’s strategy seemed to be, get in after the stock made its move. Consequently, the results were mixed, and for me, mostly negative.”
You would have to read a lot of stock market literature to find a more concise analysis of the dangers of Turtle Trading.
It was Bill’s frustration with the essentially hit and miss, “coin flip” nature of this strategy that drove him to seek a better system. And he believes he has finally found it with Kyle Dennis and his groundbreaking program, Option Rocket.
Kyle Dennis teaching options trading at a recent live event
Like many part-time traders, Bill has neither the time nor the desire to spend hours of every day staring at his computer screen. He has found that working with Kyle enables him to take his pick of carefully-selected, fully-explained trading opportunities. Furthermore, it’s a methodology which dovetails perfectly with his daily routine.
Focusing on options is already starting to pay off for Bill, and he recently banked a good profit by trading calls on Twitter stock. As pleasing as they may be, these kind of wins are only a part of his long-term strategy.
“My goal is to have an all-cash account that I can grow through the use of carefully-chosen day trades and/or short term trades in the options market,” explains Bill. “Ideally, I would never have more than 10% at risk. That way, if the widely predicted crash occurs, I am perfectly safe and might have a chance at some real bargains.”
It’s a plan which makes a lot of sense.
“I finally have a feeling of optimism that I won’t be stumbling along fearing sudden losses. I have confidence that Kyle has done the homework on the moves he makes and I appreciate the opportunity to follow them.”
Most investment experts now regard the current 10-year bull market as the longest in Wall Street’s history, and with the Dow Jones, S&P 500 and NASDAQ all posting a series of record highs during this period, history suggests that a sharp correction if not an outright crash is becoming ever more likely.
No one, of course, knows exactly when it will happen, but what is certain is that when it does there will be opportunities to snap up some great stocks at bargain-basement prices.
Options traders like Bill who have had the foresight and self-discipline to build a war chest of ready cash will be well-positioned to take advantage of many lucrative buying opportunities.
For the time being, though, perhaps the key benefit of having said goodbye to the turtles is the sense of security which Bill now enjoys, “I finally have a feeling of optimism that I won’t be stumbling along fearing sudden losses. I have confidence that Kyle has done the homework on the moves he makes and I appreciate the opportunity to follow them.”
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Certified Public Accountant