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Nick Chiu
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Senior Options Trading Strategist at Optionity, MBA. Our trading approach starts with the fundamentals, then through short-term technical analysis, to finally leverage options trading (with the combination of long and short positions) to achieve favorable risk and reward ratio trading plays. Our... More
My company:
Optionity
My blog:
Optionity - specialized in Options Trading
  • Can Options Trading Considered As Seeking Alpha?  2 comments
    Jan 3, 2013 2:45 AM

    "Although options may not be appropriate for everyone, they're among the most flexible of investment choices. Depending on the contract, options can protect or enhance the portfolios of many different kinds of investors in rising, falling, and neutral markets," as quoted from The Options Industry Council.

    I like to break down simple options trading into two categorizes: offensive and defensive.

    Offensive strategies: including (but not limited to) simple call/put, debit call/put spread

    Defensive strategies: including (but not limited to) covered short call, married put strategies, credit put spread (to acquire the stock with a discounted price)

    Of course, there are more advanced strategies: strangles, straddles, butterflies, and iron condors to bet all sorts of outcomes.

    It is true that the prices of options change quickly; however, by understanding and using options properly, options can be a great way to reduce beta for the underlying stock holdings or set up for a long-term trade.

    Options Trading could be Options Investing

    By writing calls/puts, the edge of time decay is on the options sellers' side. By leveraging time, options trading could become options investing. Investing in time. A great way to demonstrate options investing is a credit put spread with a 3 months term. 3 months term is a great time frame as options decay the most in the last 60 days and the earnings report for the company is released every 3 months. By using the credit put spread, investors/options traders can acquire the stock at a lower price if the price falls below the strike price of the short put option. However, if the stock price closes above the strike price of the short put option upon expiration, investors/traders earn the premium.

    Seeking Alpha as a great platform to Seek Alpha

    As quoted from SA website, "Seeking Alpha is the premier website for actionable stock market opinion and analysis, and vibrant, intelligent finance discussion." Further, "Seeking Alpha differs from other finance sites because it focuses on opinion and analysis rather than news, and is primarily written by investors who describe their personal approach to stock picking and portfolio management, rather than by journalists." Lastly, as stated from SA About Us Page, 'Alpha' is a finance term referring to a stock's performance relative to the market; it's used more loosely by fund managers to describe beating their index - so every stock picker is essentially "seeking alpha."

    The main question now is, "Can options trading considered as seeking alpha?"

    Alternatives

    Options trading is here to stay and its value of hedging, reducing beta, and leveraging capital will always be there if used properly.

    As reported from Bloomberg, "Fund managers learning to trade options are the "engine of growth" as they use more contracts to guard against stock fluctuations, speculate on share moves or bet on higher or lower volatility, according to the report from Andy Nybo, head of derivatives at New York-based Tabb."

    Instead of closing options section on Seeking Alpha, perhaps, another approach is to create a special Seeking Alpha division dedicated to options.

    Perhaps, a similar concept like "Seeking Alpha PRO" article, such as "Seeking Alpha Options" could provide more in-time actionable ideas for investors. Thus, create another new revenue stream for SA.

    All things considered, SA is a great platform with great management and superb SA staff. Wish SA all the best for 2013 and beyond.

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Comments (2)
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  • Rookie IRA Investor
    , contributor
    Comments (2612) | Send Message
     
    The truth is that you can't really beat the market and inflation and currency devaluation by using fundamental analysis unless you know something that other people don't know, and even if you do you could hardly be the only person.

     

    I wrote an article on LNG a few months ago, and the price of the stock has since doubled because the company seems to be executing its business plan in a way that the street doubted it was capable of, but this was really just good luck on my part, plus the fact that I live in a place where most people use bottled gas for cooking, and many for transportation fuel too.

     

    But where do fundamentals really get you? Apple being a case in point. Amazon another. Certainly over the long run profitable companies will be profitable for their investors, (but look at the number of DJII companies that have dropped out over the last few decades) but as Keynes notoriously said, the markets can remain irrational longer than you or I can remain solvent and most of the time there is no rhyme or reason to stock prices. Why has WMT been on a tear the last few days and hit new highs? No one really knows.

     

    The small investor does not care about purity in matters of alpha. He or she just wants to make enough money to live on, retire, support dependents, leave a legacy, or whatever. It's the MONEY that matters, not the alpha.

     

    Options are one of the few things that help to level the field for the small investor and enable him to hedge his capital invested in dividend stocks, make money by selling premium, or make fast money following momentum stocks.

     

    If we can't write articles about option trading techniques like using stop limit orders and trailing stops with momentum stocks, or selling the LEAP calls and puts to build positions in dividend stocks, or even day trading, then we are depriving them of the chance to learn about ways to make money, which is surely why they are reading Seeking Alpha in the first place.

     

    Through the study of prices and options and candlestick makers we get to see what a racket the market really is and how prices are manipulated by unseen forces until eventually we have a pretty good idea of what is likely to happen next.

     

    Boo to SA for banning articles that focus on options. There should be more articles on options.
    10 Apr 2013, 08:18 PM Reply Like
  • Nick Chiu
    , contributor
    Comments (678) | Send Message
     
    Author’s reply » Rookie IRA Investor,

     

    Your comment is greatly appreciated and very thought provoking. I concur that when it comes to street investors, what matter is if he/she can make a profit and achieve his/her goal of capital preservation/income/re... I doubt if usual investors know the term Alpha well. However, it's an learning process. SA provides a great community for investors to learn from each other.

     

    I really believe there will be values for street investors to learn options to better hedge against the risk and learn how to achieve better returns in the long-term instead of viewing options as risky, exotic trades.

     

    Thanks again for your great comment.

     

    11 Apr 2013, 06:08 AM Reply Like
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