Beware of swindlers

On a personal level, one part of the options business that truly bothers me is that it its filled with people who want to take your money. I politely refer to them as hypesters, but a better term is swindler.

Swindle: Use deception to deprive (someone) of money or possessions. (source: Google search)
Fraud: Wrongful or criminal deception intended to result in financial or personal gain(source: Google search)

I don’t know the difference between deception and criminal deception, but these hypsters feel like criminals to me.

These swindlers publish stories that are so outrageous, that I am amazed that anyone on the planet could fall for it. Or is that just me being naive? Tell a good story, repeat it a few times, and the customers flock to you. Maybe ‘flock’ is an exaggeration, but people come to you, begging you to take their money.

There’s nothing special about the options trading business. The liars and cheats are present in every business, dreaming up scams to separate people from their money. It makes me angry.

Here’s one example, chosen via search:

Do you generate less than 20% profit every month in your trading account?… If you answered yes, what I’m about to share with you could change your life forever…

That profit can vary but if you do it right you should be able to generate at least a 20% profit each month – yea that’s right, I said each MONTH.

I don’t know whether to laugh at the nonsense or cry for the victims. He says you SHOULD be able to generate AT LEAST 20% EACH month. And how do we accomplish this miracle: By writing covered calls. If he were to say that it’s possible to earn 20% when things go your way for an entire month, I’d agree with the statement. But ‘should’ and ‘each’? Has he never seen a down market? Does he believe that VIX is always 100?

It’s beyond belief. But I’m sure he sells his costly software and courses to the gullible. $1,000 invested for one year, growing at 20% per month compounded, becomes $8,900. Do it for six years and you’d earn one half-billion dollars.

Sure, I omitted commissions and assumed taxes could be paid with other funds, but here is someone who would have you believe that this is the minimum result you SHOULD anticipate. How can making these statements not be against the law?

I recently claimed that a skilled options trader – someone who exercises good risk management skills has a reasonable chance (but it’s not a cinch by any means) to earn 20% in one year. Mark, who blogs at option pit recently held a webinar through the option and suggested that 13% is a reasonable annual expectation. So who is to be believed? The 20% per month boaster, or two experienced traders and teachers?

The Banks also play the game

It’s not bad enough to be cheated by random individuals. What chance does the naive person have when the banks openly overcharge for structured products- or options in disguise. One simple example is described by the Amsterdam Trader.


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7 Responses to Beware of swindlers

  1. Lies 05/19/2011 at 7:36 AM #

    I heard from Mark Sebastian that it is a huge mistake to trade always the same option strategy. Only ‘fools’ trade every month the same strategy, because there are times when a particular strategy is not the right thing to do.

    May i ask if you trade the iron condor on a regular base or just when the conditions are right?

  2. Tiger 05/19/2011 at 9:07 AM #

    Options are a ripe area for scams. I met a guy at church who had signed up for a fly-by-night options course. The particular strategy they taught was buying straddles ahead of earnings reports. Option veterans know that is a high risk strategy. Their instructors and coaches did not talk much about risk, only about the reward, and how they would win no matter which way the stock moved. I tried to give him some benefit from my 20+ years of options experience. However, he had paid big money for the options course and believed what his instructors and his coach were telling him.

    It ended very badly. This smart educated man in his 50s, lost his entire retirement nest egg in a few months of live trading, after being successful in the paper trading and the the trainer software. I am guessing that the training program gave fills that would not occur in the real world, making it possible to have profits where none were available in the real world.

    Last I heard, the guy had to move to a trailer park in the middle of no where, to cut expenses to the bone, his financial situation ruined.

    • Mark D Wolfinger 05/19/2011 at 9:53 AM #

      Hello Tiger,

      Horrible story. But it’s reality. What I don’t understand is why anyone would believe the hype. If it were truly as easy as he believed, everyone would already be doing it. More than that, no one sells a proven, huge money-making strategy for the measly few grand he paid. Common sense just evaporates and greed takes over.

      Thanks for sharing

      • Chris-O 05/19/2011 at 2:50 PM #

        Well seems easy why people buy it. A lot of people think themselves a lot smarter than they really are. So about the straddle thing, “This looks really complicated” and “I am smart and gutsy enough to stick with it”

        Harsh comment perhaps…

        • Mark D Wolfinger 05/19/2011 at 3:14 PM #


          Not nearly harsh enough

  3. Tyler Craig 05/19/2011 at 10:27 AM #

    Hey Mark,

    I’ve always heard it’s easier to get a good fill (split the bid-ask spread by a greater degree) when entering a spread trade over the purchase of a single option. This subject recently came up in an article I read:

    “Why would market makers (the traders on the other side of these trades) be willing to accept lower profits by conceding and selling lower than their offer or buying higher than their bid? To be sure, these professional traders are usually much more receptive to do so only with spreads. That’s because spreads have less risk, and more potential profit for bid-ask trading market makers. Often they will gladly concede a little bit to get the trade done and lock in some bid-ask profit.”

    I’ve always assumed it was true, but was wondering what your take was.

    • Mark D Wolfinger 05/19/2011 at 11:04 AM #

      Hi Tyler,

      I believe it is true. I know it was true for me as a market maker. Whenever I was given the opportunity to make a hedged trade, I’d prefer it over taking down a trade that was far from neutral (where I would have to find my own hedge). Thus, I was willing to pay a bit more for that spread. To me, that should still be true – even though there are no market makers on the floor. They can still see the spread orders may take the other side of any trade offered.

      They concede nothing. ‘Their’ bid and ask are not really the true bid/ask. The true markets are almost always tighter than those displayed on the screen. As to why this is true, it’s pretty simple. Too many traders are ignorant and simply pay the offer and sell the bid. Why should market makers advertise that you can buy calls @ $3/80 if some of their customers are willing to pay $4.00? They leave the wide markets to trade with the fools. If anyone bids $3.80 (in this example), the market makers sell. But they also see $3.90 and $4.00 bids, and there is no reason to advertise the true markets when people don’t even try to get a better fill.