The Internet and Bad Information

While surfing, looking for interesting topics that are worthy of a blog post, I found these gems:

1) Which are the riskless strategies in options trading?  One that
will give money in any market condition.


2) Q: Which strategy gives the best profits?

    A: Any strategy that has unlimited upside profit potential e.g. Long
Straddle, which allows for unlimited profit if the stock trades up or
down.

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I don't believe there is any question that should go unanswered.  If something is troubling you as an investor, it's a good idea to seek a reply.  But it's important to have confidence that the reply is correct and provides useful – and not dangerous – information.

Look at that first question.  This was not the query of a sophisticated arbitrageur, looking for ways to eke out a penny or two per trade – and then do that trade thousands of times.

This was a novice, asking for a method that will 'give' a profit in all market conditions.

I understand the need to know the answer to that question, but does anyone – anyone at all – really believe that if you use options you can have no risk with a guarantee that someone will 'give' you money?  Surely no one can be that naive.

The blogger who allowed this question to remain on the blog failed to offer a reply.  It would have been an easy matter to say: There are none.

Question 2 is in a similar vein.  The big question is what does the 'best profits' mean?  Is it the chance to earn a gigantic return on an investment, regardless of risk?  Or does it mean the best risk-adjusted return?  

Successful traders understand that one does not just measure profits.  The risk required to go after those potential profits must be considered.  Regardless of the question, the answer is pitiful.  Imagine telling a novice that the 'best profits' come from buying straddles.  That's irresponsible.  If I had to take sides, I'd say that buying straddles is a quick path to the poorhouse (not that I recommend selling straddles – that's also risky).

The bottom line is that there is plenty of information available on the wondrous Internet.  But the surfer must not believe everything that he/she reads.

At Options for Rookies, I sincerely try to give reasonable, and accurate, replies to all questions.

629


Unsolicited from Jesse: Just would like to let you know that I really enjoy reading your Book, it's very down-to-earth and practical.

TRGFCover 

2 Responses to The Internet and Bad Information

  1. rick f 03/03/2010 at 6:55 AM #

    Mark –
    I would think those are the common signs of someone just starting out in options trading? But I agree that both questions are dangerous in and of themselves. Not to mention, different markets call for different approaches…there’s no one-size-works-always strategy for anything.
    I know in the futures world I see folks all the time talking about “the right indicator” or the “best setting to use for X index” or the “best strategy for intraday” … heck, even starting out I asked *myself* many of these same questions and then looked around to answer them, and participated in a few chats along those lines as I started out.
    But after a while of prolonged discovery, trial-and-error, (and yes, some stupidity) I found a simple system that works for me, and probably for me alone. (As how it should be.)
    Newbies ask first about the reward; (most) professionals ask first about the risk.

  2. Mark Wolfinger 03/03/2010 at 7:54 AM #

    It’s natural to ask about the reward. But the naivete
    required to ask about riskless methods that always make money is beyond belief.