Options Fail to Impress Most Financial Journalists

"What is exposed in desperate moments like this is
that stocks indeed
are a bet — a game of chance that offers probabilities but absolutely
no assurances."

In an LA Times column (3/14/2009), journalist Tom Petruno wrote those words at the end of an article with this subtitle: 'History says long-term investing in stocks still makes sense. But how long do you have?'

I sent an e-mail message, hoping to convince him to include a discussions of the viability of options as risk-reducing, portfolio-saving, investment tools.  The message:

I agree with your summarizing statement.  Too many
investors expect guarantees, celebrating when the market soars and
being upset when they lose.  I'm sympathetic to their plight, but there
is, and was, a readily available solution.  But it's one that the financial
pros ignore.   Investors can use – in fact, should have been using –
stock options to protect themselves
from stock market disasters.

I understand that far too many people instinctively turn away from the
topic because options are considered to be risky.  They are not risky.
Options can be used to reduce risk, and that how millions of investors use them to limit losses – and still allow for decent gains.

I've been in the option business since 1977 and it makes me sad that
too many individual investors simply don't understand that options can
help.  Not every investor, but many.  I've written three books, and
publish a blog and website – all devoted to the options rookie.

My blog post for today (3/17) provides more of my feelings on this topic.


If you'd like to consider the possibility of discussing how options can
help investors in Market Beat,  I'm
available at your convenience.

Best regards,

Continuing my zero batting average when trying to find financial journalists to tell their readers how conservative option strategies can help their readers sleep better at night, I received no reply.

311

6 Responses to Options Fail to Impress Most Financial Journalists

  1. Good for you for trying nonetheless. I remember watching a TV show in which the host had two guests on who were options licensed advisors and when they talked about portfolio insurance through the use of a collar the host thought it was too good to be true, couldn’t stop raving about it. No follow up, and never mentioned again on follow up shows.
    It’s one thing to get fleeting attention, but to get the attention it deserves seems like quite a task. Wonder why.

  2. Mark Wolfinger 04/24/2009 at 8:10 AM #

    As explained to me by a financial journalist friend, the most important consideration for someone who writes a financial column is similar to that of a doctor: ‘first,do no harm.’
    The possibility of a reader getting excited (as your host) and rushing off to make some random option trade and thus, lose money, must be avoided.
    In your example it’s true that the conservative collar strategy was mentioned, but that’s not learned overnight, and it ‘easier’ to just buy a bunch of calls or puts. Sure, that’s what the foolish would do, but this journalist believes it’s imortant to protect those foolish people from themselves.
    Combine that with the idea that there’s not too much you can tell readers in a simple column – and there’s little incentive for writrs to mention options – unless they have reasoen to believe that their readers already have some understanding. And that’s just not likely.
    I’m looking for the person who can ease his/her readers into options without fear of having them do anything stupid.

  3. kbluck 04/24/2009 at 10:20 AM #

    Perhaps what is needed is a bit of marketing and repackaging. I wonder if one could market to retail buy-and-hold investors a “portfolio insurance policy”, keeping options out of the discussion entirely. The policy would explicitly state “premium”, “deductible” and “benefits” in terms of some broad market metric, just like any insurance policy. It would be quoted individually for any given client’s portfolio at some point in time and over some explicit timeframe, again just like other forms of insurance.
    The firm offering the insurance, naturally would actually implement their own “reinsurance” using option trades, but the clients would not have to think in terms of options. I suppose it could also be offered to finanical advisors, who as you have noted are reluctant to recommend options to their clients but I’m sure are quite comfortable with products like term life insurance. This would be “term market insurance.”

  4. Mark Wolfinger 04/24/2009 at 11:48 AM #

    I’ve considered that idea.
    One problem is that insurance salespeople are used to earning (stealing from the ignorant?)hefty commissions. That would kill this idea immediately. It’s one thing to pay 20% or more of a car’s value for insurance, but it’s another to do that for an investment portfolio. There must be a reasonable chance to earn profits over and above the cost of insurance. That’s why I am not a fan of married (protective) puts. It’s just too costly.
    Then the stockbrokers should jump all over this idea. They would simply charge normal commissions, and make profit from the large number of transactions. This could be considered ‘helpful churning’ instead of merely churning. But it won’t happen. Brokers are too afraid that customers who have an unhappy result with any option play will sue on the basis of ‘they had me in options, and I didn’t understand the risks.’
    There are aleady covered call mutual funds. It seems natural to me to go the next step and have collar funds. But, even a 2% manager’s fee, on top of the limited (but acn be substantial) profits for collars, makes it difficult to make consistent money.
    There ought to be a way to get through to the public investor, but I cannot find it.

  5. kbluck 04/24/2009 at 12:10 PM #

    > It’s one thing to pay 20% or more of a car’s value for
    > insurance, but it’s another to do that for an investment
    > portfolio.
    I’m not sure 2/20 hedge fund and front-load mutual fund investors aren’t pretty close to doing exactly that already over the life of their investment. 😉 Never mind the cost of those expensive managers on average underperforming the broad market.

  6. Mark Wolfinger 04/24/2009 at 12:47 PM #

    At least the hedge fund investors had some good years before getting crushed. And thye do pay excessive, unjustified fees.
    Agree. Underperformance by managers already costing average investor. But investors must either be unaware of that poor performance, or are willing to accpet it becasue of their own laziness in learning how to do better.
    That’s why I don’t see how a fund that limits profits by adopting collar strategy can succeed when managers are already underperforming. Who’s going to teach managers to trade options efficiently? I would expect double underperformance.