Buy, Hold, and Sell. Is That All There Is?

Jared at Condor Options eloquently expressed an opinion that I share.  Because he makes it sound so obvious, I want readers of this blog to benefit from the comment:

"Although the investing public seem to have little tolerance these days for anything that smacks of financial complexity, the simple fact is that some financial propositions cannot be uttered in the language of buy, sell, or hold.  For more elegant elocution, derivative language is needed."

"…option spreads allow us to express our core view [of the markets] with more precision.'

Exactly right.  In my efforts to get the mainstream media to pay some attention to options,
I constantly run into the argument that options are simply too complex for most investors and that it's an investment tool that the individual investor cannot understand and does not need.

I have been unable to find the right words to convince the financial journalists otherwise.  But Jared's words may be precisely what's needed.

I've argued that stockbrokers, financial planners, financial advisors all lack the proper knowledge to help their clients when help is really needed, and that's during market declines – especially when volatility has increased.  Because individuals tend to be 100% bullish, almost any advice works well during bull markets.  But when it's necessary to reduce risk (which is 'all the time' in my opinion), those who are paid fees or commissions for their advice have nothing worthwhile to offer.

Options are the perfect hedging tool.  They can be used to reduce risk and still allow room for ample profits.  Many will believe it's just too late, now that the markets have fallen by 50%.  That may be true, or this bear market may not be over – and even if it is, there will be other bear markets in the future.  Investors must know how to use all the important tools to preserve their assets – and the stock option should be near the top of the list.

Options can be used to buy insurance (partial or complete) or to generate extra 'dividends.'  They are versatile investment tools and when spread positions (buy one option and sell another) are used, there is 'elegance' that's simply not available to the investor who is limited to buy, hold, or sell.

One major advantage to using options is the ability to generate impressive profits when an investor doesn't believe the market is going to move by a significant amount in either direction.  Why should that investor's only choice be to 'hold' and earn nothing?  Option writers can take advantage of the passage of  time and generate income during stagnant markets.  Some strategies used under these conditions are: iron condors, credit spreads or writing covered calls.

Why should the individual investor be denied the ability to earn profits this way?  Why should the unwillingness of a stockbroker to recommend the use of options limit the choices of his/her clients?  Why should the under-educated financial planner prevent a client from adopting conservative, risk-reducing option strategies just because the planner never learned to use options?

None of those situations should occur, yet they are the norm. 

Options reduce risk.  I want to shout it from the mountaintops – but who will hear me?

If you agree, and if you ever discuss investing with friends or family, ask if they ever considered using options.  Then send them to this blog as a place to begin learning about the basic concepts of options.


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