As I have said in two previous columns, because nobody seems to be willing to pay a paltry $10 a month for a daily column from yours truly, I will no longer contribute original content as of October 1st, 2018. My website will stay here as an educational resource and my personal options education business is and remains open for business.
Let me say in this next to last contribution a bit of an educational screed against the media powers that be::
Don’t Believe What You See On TV
The so-called options “experts” on the financial TV programs drive me crazy sometimes with their misinformation and ignorance. Here are a couple of examples: “I’m bullish on X so I bought calls,” or “I’m bearish on Z so I bought puts.” Haven’t they ever heard of time decay?
As I discussed above, the novice trader’s single most frequent lament goes along the lines of “I thought Q was headed lower so I bought puts. Q went lower and I still lost money. How did that happen?” Because options are a wasting asset, obviously. They clearly haven’t read this book or they’d translate their vision into a hedged option spread instead of buying calls or puts outright.
They also clearly did not heed my teachings on implied volatility as well. If implied volatility declines, the option loses value even if the direction is correct.
Another piece of talking head stupidity goes along the lines of “A large institution bought 1000 puts on X. Clearly they are very bearish.” Wrong! They might be very bullish on the stock, bought 100,000 shares, and those puts are downside insurance.
Or “a hedge fund just bought 1000 calls on Z. Clearly they must be very bullish.” Wrong again! Perhaps the fund sold 100,000 shares short and the 1000 calls are upside insurance.
You cannot draw any easy conclusions from large option trades. Don’t let fools mislead you! Why the networks give them airtime is often a mystery to me.