"R.A. \"Red\" Lawhern" <lawhern[at]verizon.net> wrote:

- quote -

What difference does it make? The fraction of investors using a strategy is
irrelevant to the validity of the strategy.

It's true that the world (especially the net) is full of get rich quick schemes.
It's true that the promoters of such schemes are making their money selling the
scheme, not using it. ("If your scheme is so good, why are you selling it to
me?")

This forum is remarkably free of such. Thank you, moderators.

-- Doug

"bo peep" <cowartmisc1[at]yahoo.com> writes:

- quote -

Uh, no.

Or rather, there's no requirement that some "investor" (as
opposed to speculator) wrote the option.

Anyone with the requisite resources can speculatively write
naked options.

So both the buy and sell sides of the transaction can be
entirely speculative.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

<<What fraction of investors do you believe actually operate in the
manner you describe above in the options market? What I have heard and
read for a couple of decades about puts and calls seems to have more to
do with leveraging short- to intermediate-term speculations by trying
to predict the timing of market movements.>
You've apparently mostly read about the conspicuous and "newsworthy"
speculative side of option trading. Where do you think puts and calls
come from? They don't just pop out of thin air - someone has to create
each one of them, using their own cash or securities as a basis. For
each and every instance where a put or call was purchased by a
speculator, there must have been a corresponding transaction previously
initiated by an investor to create that put or call in the first place.
There is a sort of balance to it - the more speculative an option looks
from a buyer's perspective, the more conservative it looks to the
person creating it, and vice versa.

So, the answer to your question of "what fraction of investors do you
believe actually operate in the manner you describe" would be very
roughly about 50%. It may actually be a bit less than that, as I
suspect that many options are created in bulk by institutional
investors.

John Cowart

R.A. \"Red\" Lawhern wrote:

- quote -

For what it's worth, a former co-worker of mine uses this strategy on a
regular basis. He is happy with it, although I have no idea of its real
efficacy. I wouldn't do it myself.

Another friend of mine trades options for a living. Not for a firm, but
for himself at home. I know for a fact that he has increased his
wealth. His rate of return is not particularly impressive, but he has a
large amount of capital and just needs maintenance money.

As a counter-example, my cousin used to routinely trade options online
and supposedly was doing well. Then all of a sudden he had "no money to
invest". I suspect that he got wiped out, but I don't know for sure.
You know how it is, people are excited to share their successes and
reticent when it comes to their failures.

Keep in mind, I'm not advocating any of these investment strategies, I'm
just sharing personal knowledge of real-world examples.

-Will

bo peep wrote:
- quote -


I would beg to differ -- with every intention of courtesy. What
fraction of investors do you believe actually operate in the manner you
describe above in the options market? What I have heard and read for a
couple of decades about puts and calls seems to have more to do with
leveraging short- to intermediate-term speculations by trying to predict
the timing of market movements. To me, that approach would be a "get
rich quick" scheme, not an investment. Do you personally know of many
options traders who have been in that market for ten years and are now
richer than they were?

I realize that I'm a novice in most aspects of investment markets.
However, I have a fairly well developed personal "horse hockey" meter,
founded on a lifetime of observing human nature. The old cliche about
"there ain't no such thing as a free lunch" is not a bad philosophy. I
intuitively suspect that a lot of people who write about subjects like
the options market, make more money from book royalties than from using
their own "systems."

Respectfully,

R.A. Red Lawhern

bo peep <cowartmisc1[at]yahoo.com> wrote:

- quote -

The appreciation potential of the stock alone shouldn't justify the
insurance cost of the puts (unless you know something significant that
the market as a whole doesn't). -- better to simply sell the stock now
and put it in a money market account, as long as you are sure to spend
that 25K is six months. What might make your strategy helpful is if
holding the stock another 6 months will cause selling it to become a
long-term, rather than short-term capital gain. Then you lock in your
current price with the puts, but still get the favorable tax treatment.


Michael

<<stock trading systems, options, leveraged instruments, puts and
calls, or any of the other and various get-rich-quick schemes you will
see>
This is an excessively generalized and possibly misleading
characterization of stock options (puts and calls). Options are
available in a wide variety of price ranges and types, and can
therefore vary from wildly speculative to solidly conservative, or
anywhere inbetween.

An example of a conservative option: let's say you know you will need
$25,000 six months from now. Fortunately, you own 1,000 shares of XYZ
stock, currently valued at $27 per share. But the price of that stock
might decline below $25 in a half a year's time, leaving you in the
lurch. You don't want to sell the stock right now because you think it
will probably go up in price soon, but that is not a sure thing of
course. So, you buy 10 "out of the money" $25 six month XYZ puts for a
few hundred dollars.

If the price of the stock has declined below $25 in 6 months, you can
exercise the puts and receive the $25,000 you need. If the price is
above $25 in six months, you are only out a few hundred dollars for the
puts, and you've enjoyed six months of not lying awake at night,
worrying about your investments and obligations. And you will sell the
stock for the greater-than $25 price and recover most or all of the
cost of the unused puts.

John Cowart

R.A. "Red" Lawhern <lawhern[at]verizon.net> wrote:

- quote -

Does anyone think this guy actually *reads* misc.invest.financial-plan?

While I've seen some of the above discussion here, I don't think it's
ever been in the context of getting rich quick. In fact, I'd recommend
this as one of the best places to get consistently sound financial
advice on the net (assuming you read enough to pick through the
occasional salesdroid and overzealous amateur -- the worst examples of
either usually get argued out of town quickly).

This is just a note of thanks to the moderators and to the community
posters who keep it that way


Michael

This is an invitation to review an article and provide comment, via my
personal website:

http://www.lawhern.org/Investment.htm.

The article is about basic investing principles and the difficulty many
people have in finding an honest and competent financial advisor. This
writing captures things I have learned in a year of study and research,
some of it in newsgroups like this one.

The article is not about stock trading systems, options, leveraged
instruments, puts and calls, or any of the other and various
get-rich-quick schemes you will see well represented in
misc.invest.financial-plan, alt.invest and other online sources. It's
not about getting rich. It's about planning for retirement in a
sensible and thoughtful way, while trying not to go too far astray and
lose your shirt. I will never make a dime from anything you decide to do
with the information. But I hope my experience might lead at least a
few people to question the assumptions that their financial planners
have imposed on their retirement plans, and the models that so many seem
to apply with so little real knowledge or insight.

I invite comment through my personal email to lawhern[at]verizon.net. I
will also check in periodically to this newsgroup, to monitor any
discussion that occurs here.

Go in Peace and Power

R.A. "Red" Lawhern, Ph.D.
http://www.lawhern.org
"Giving Something Back"