A stock option gives you the right, but not the obligation, to buy or sell 100 shares of a specific stock at a specific price within a fixed time period. Driven by technology, options can cost a fraction of actual shares. Too risky? Sitting on the sidelines is as much a choice as going all-in.
6-Jan-19 – I have spent most of the last year – doing two live morning shows a week – on the web having a couple of actual experts and seasoned veterans, Tom Sosnoff and Tony Battista from tastytrade.com, trying to teach me how to trade options. We started my adventure with an account of $250,000 and ended the year – spoiler alert – with pretty much the same amount, give or take $500, even after the December debacle. If the mostly rotten month of December wouldn’t have tossed the markets – especially the tech stocks – off a cliff and screwed things up, I would have ended the year ahead by about $8,000 to $10,000 which, considering that I never really had more than about $50,000 at risk at any given time, would have been a pretty impressive outcome for a complete novice. But it was not to be. Of course, if the Queen had a couple of different chromosomes, she’d be the King. So, who am I to complain?
Notwithstanding their clear advice that, by and large over time, betting on the direction of the market or on the up-or-down movement of a specific stock was a losing proposition, I generally did exactly that – betting based on my ideas and beliefs regarding the merits of the specific underlying businesses and assuming that their stock prices would reflect what I thought was likely to be their actual operating performance. Think of this as the struggle of hope (mine) against history (theirs) and you’ll have a pretty good idea of what went on. And, just to make things worse, I never let my complete lack of actual experience get in the way or reduce the fervent intensity of my opinions. Sometimes wrong but never in doubt. I have to say that overall it was a great experience. Experience, in case you don’t know, is what you get when you don’t get what you want. Or, as they used to say about Wall Street in general, they take your money and their experience and turn it into their money and your experience. So, I’m grateful to have broken even and to have learned a few things that I think are worth sharing. Even more importantly, thanks to Tony, I realized, maybe for the first time, that even if your money is safely stuffed in your mattress at home, you’re still in the market – whether you like it or not, whether you know it or not, and whether you want to be or not. Because no one really has a choice today – including the mattress stuffers. If you’re not playing, you’re paying one way or the other. But I’ll get back to that.
We’re all in the market I had included another “lesson” when I first made my list which was all about the traditional advice that you give every gambler in any sport – don’t bet or invest anything more than you can afford to lose. Be sure you keep some funds put away and on the sidelines for safety and security. You’ll sleep much better at night and your family members and relatives will thank you. Now I know that no one ever plans to lose anything, just like no one wants to be happy later, but my initial thought was to suggest that this isn’t a game to be playing with your retirement funds or money you need to live on or for emergencies. Then I had a conversation with Tony and he suggested something to me that really changed my mind. He said that we’re all always in the market and that whatever choices you make about where to put your money – or if you decide to keep it all in your own little piggybank – are just shades and variations on market decisions in the same way as any stock purchase or sale might be. The big difference today, especially for young entrepreneurs, who are already making big bets on their futures and their own businesses, is that standing still – not having a strategy to grow your assets – is actually slipping backwards every day. Especially in a period when the interest rates being paid on “secure” savings accounts and even CDs are embarrassingly modest and unlikely to remotely keep up with inflation. So, while you may think you’re being cautious and playing it safe with some of your scarce dollars, you’re mortgaging your future and digging yourself into a hole.
A side note – even with my $250,000 account, I couldn’t realistically do much of anything with Amazon or Google because the share prices were so high that to buy a bunch of the shares of either stock would have consumed big chunks of my funds in a very short time and given me way too much exposure and too few underlying stocks. But I could simulate and model the interest that I had in these stocks by using options costing only a fraction of the cost of the actual shares. I could play with the big boys without betting the kind of bucks that made no sense and, if I did it right, as noted above, I was looking at annual returns approaching 20 percent on my money rather than two percent from some savings account along with a free toaster. None of this is easy or straightforward, but it’s important to think about when you’re looking at your own financial future. No one becomes an expert in a year but if you take the time, learn to trade for yourself, and start small before you scale, you’ll be doing yourself and your family a big favor. Website: tastytrade |