Options and Ed Jones
Can anyone explain why Ed Jones is against options? Do they not fully understand them. There are time when protective puts work and even more time so write a covered call. These strategies reduce risk.
Someone from Jones please enlighten me.
The word that has been passed down through the grapevine is that a long time ago Jones did a study on options and figured out that it was a zero sum game. Meaning that you lose about as much as you make. So, if you aren’t going to come out ahead, why take the risks associated with options.
Here's a quote from EDJ, A History From 1871-2003 "Our IRs don't sell options, commodities, initial public offerings, or penny stocks. Over time, we have seen the ods of success with these investmetns are not in favor of an individual investor. It doesn't suit our style to be croupiers in a casino; we would not feel comfortable being reckless with other people's money." Quoting John Bachmann from the same book when he discusses joining the Chicago Options Exhange in , "By definition, options are a zero-sum game," said John. "I could see that we would be offering something where we would know from teh outset that most customers would not do well most of the time. To my mind, we shouldn't even have been talking about it. Customers come to develop a very high level of trust in you, and you have to treat them in a very sensitive way." Bachmann actually told Ted Jones that he would resign if Ted made the decision to join the exchange. I love these little walks down history lane.Technically, options are a zero-sum game. One person wins, one person loses. However, they can be very effective risk mitigation strategies. They have the potential to lower a portfolios overall return (due to expired options that you paid for), but it can also generate income, and significantly reduce risk in the portfolio.
Honestly, I think one of Jones' reluctances is due to our branch office structure. Offering options just opens another level of risk and oversight to the firm, which presents more problems for our no-OSJ structure. Not good or bad, just how it is.
You can still buy, and I often do, ETF's that have option components. My favorite including UUP (dollar long), TBT (ultra short 20-30 year treasury), and covered call S&P. You can buy ultra long and short and ultrashort ETF's galor. Currencies you can buy include the double short Euro and others. Jones has never sent me an FSPEND on any of these buys, including a double short gold that I just bought for a client. Around 5% of my book are in some educated guesses such as those listed above.
Like I said, they don’t want to go through the compliance issues and licensing issues for options. But I guess ETF’s and funds are open game.
Thanks Rank.I think your reading to much into it. Jones doesn’t do Options… big deal. They seem to be doing fine from where I’m sitting… Who bought them again?.. oh thats right, nevermind.
This is EXACTLY why no options. spiffy can you say "OVERHEAD".Honestly, I think one of Jones’ reluctances is due to our branch office structure. Offering options just opens another level of risk and oversight to the firm, which presents more problems for our no-OSJ structure. Not good or bad, just how it is.
Zero sum game? what isnt? buying options gives you casino odds and huge expense as a hedge. SELLING options is nothing short of fantastic to enter and exit positions. Most of my trades have 85% or better probability of success. A stock can do 3 things, go up, down or flat. If you buy an option you have two of those against you to start. If you sell the option you have 2 with you. Toss in time value. the credits & the ability to roll or take the short on expiration. You can also get out of huge positions without painting the tape ETC ETC ETC. Not being able to use options is a HUGE competetive disadvantage.
[quote=rankstocks]
You can still buy, and I often do, ETF’s that have option components. My favorite including UUP (dollar long), TBT (ultra short 20-30 year treasury), and covered call S&P. You can buy ultra long and short and ultrashort ETF’s galor. Currencies you can buy include the double short Euro and others. Jones has never sent me an FSPEND on any of these buys, including a double short gold that I just bought for a client. Around 5% of my book are in some educated guesses such as those listed above.
[/quote]Was the doubleshort gold your idea? If so, do you mind if I ask why?
Does EJ let you buy the oil (USO) and nat. gas (UNG) ETFs?
[quote=Gaddock]
Zero sum game? what isnt? buying options gives you casino odds and huge expense as a hedge. SELLING options is nothing short of fantastic to enter and exit positions. Most of my trades have 85% or better probability of success. A stock can do 3 things, go up, down or flat. If you buy an option you have two of those against you to start. If you sell the option you have 2 with you. Toss in time value. the credits & the ability to roll or take the short on expiration. You can also get out of huge positions without painting the tape ETC ETC ETC. Not being able to use options is a HUGE competetive disadvantage.
[/quote]You need to take a probability course. And maybe a class in risk assessment.
Remember that the investment banks have lost $1.2 trillion making mortgage plays that had a 99.99 percent chance of earning them a few extra dollars and a .01 chance of blowing up the world banking system.
This is EXACTLY why no options. spiffy can you say "OVERHEAD".[/quote] Again, it is what it is. Jones makes no beefs about it. They state clearly that they make tradeoffs with their mdoel, and this is one of them. It boggles my mind how someone goes to work for Jones, then acts surprised and outraged that we don't offer options. It wasn't exactly hidden from them.[quote=B24]Honestly, I think one of Jones’ reluctances is due to our branch office structure. Offering options just opens another level of risk and oversight to the firm, which presents more problems for our no-OSJ structure. Not good or bad, just how it is.
[quote=buyandhold] [quote=Gaddock]
Zero sum game? what isnt? buying options gives you casino odds and huge expense as a hedge. SELLING options is nothing short of fantastic to enter and exit positions. Most of my trades have 85% or better probability of success. A stock can do 3 things, go up, down or flat. If you buy an option you have two of those against you to start. If you sell the option you have 2 with you. Toss in time value. the credits & the ability to roll or take the short on expiration. You can also get out of huge positions without painting the tape ETC ETC ETC. Not being able to use options is a HUGE competetive disadvantage.
[/quote]You need to take a probability course. And maybe a class in risk assessment.
Remember that the investment banks have lost $1.2 trillion making mortgage plays that had a 99.99 percent chance of earning them a few extra dollars and a .01 chance of blowing up the world banking system.
[/quote] BH, I think you are taking too simplistic an approach. First off, the amount of money that was being made on subprime paper was not exactly "a few extra dollars". The returns were stratospheric - that's why everyone jumped on the bandwagon. The problem was - as you stated, that there was that chance that the entire thing could blow up. For example, you leverage a $1mm investment into a $100mm investment. If the value of that asset (indirectly, the value of real estate) goes down by 1%, you have lost your entire investment. But if the value goes up by 1% (or $1mm), you have doubled your investment. Now, nobody considered, hmmmmmm, what if real estate values....FELL! And then those ARM loans started adjusting up to 11% exactly when that real estate fell . And then all those people tried to refinance, but couldn't . And then they all started to default. And the high-risk tranches, of which you had made GOBS of profit, had their values cut in half, or less. And this was $billions worth of your balance sheet, of which you used leverage to finance. And then you had margin calls and minimum capital rules to satisfy. And then everyone stopped originating mortgages, and stopped loaning money to institutions, because of fear that they would never get paid back. And because of this, the entire credit system, of which our current economy and capital markets relies, was completely log-jammed. Now they all just scratch their heads while they collect their golden parachutes.
Buy&hold,
1 Apples & Oranges 2 What do you suggest? buying gold and burry it? 3 I measure probabilities as the inverse of the delta. No one position I take is of any consaquence to the overall portfolio. No trade I take has less than a 70% probability of success. If one goes against I roll it. 4 I'm not making negative comments to people. 5 There is nothing wrong with mutual funds and annuities.B24, you said it better than I did.
Gaddock, I was a bit cranky yesterday, so apologies.
3: You might have a 70 percent chance of winning the trade, but if you make the same trade 1000 times in a zero sum game and win it 70 times, the 30 times you lose it will make you equal. That’s the theory. … Honestly I don’t understand options, but if it’s a zero sum game, then you have to be consistently smarter than the guy at the other end of the trade.
Buy,
No sweat I get exitable these days as well. Trust me when I tell you it's not the zero sum game as described. You play the probabilities and you have a huge edge. Best decribed as as being conservative and taking speculation money.I do covered calls. While the portfolios are still down, they are down quite a bit less than if there were no covered call options written. I feel that if you are not doing covered calls in this environment then you are missing out. <?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />
I have been using it as a successful marketing tool. I ask prospects what their advisor is doing to offset their downside. I tell them, “If your broker is doing nothing more than telling you to buy and hold and weather the storm then you should <?: prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />FIRE them.” “They, and the mutual fund companies, only get paid when you are invested.” “Tell me, are they doing what’s in your best interest or are they doing what’s in their best interest?” “I only charge one layer of fees and I have the ability to use volatility help offset your downside.”
--WM
I can understand not doing options at EDJ, because they have a reputation of investing more for the long term using less risky methods (which I think is a good thing). I’m suprised they don’t offer IPO’s though. What’s the reasoning for that? I would think if there’s an IPO that’s really hyped up and a lot of investors want in on it, it would be risky (in terms of keeping vs losing the client) for EDJ to not offer it.
We do IPOs. They’re just not all that frequent. When we do participate it will be with companies like utilities or something boring like that.
We're more likely to be the underwriter on a bond issue than a stock.[quote=buyandhold]B24, you said it better than I did.
Gaddock, I was a bit cranky yesterday, so apologies.
3: You might have a 70 percent chance of winning the trade, but if you make the same trade 1000 times in a zero sum game and win it 70 times, the 30 times you lose it will make you equal. That’s the theory. … Honestly I don’t understand options, but if it’s a zero sum game, then you have to be consistently smarter than the guy at the other end of the trade.
[/quote]
It’s a zero sum game only if you consider ALL the options bought or sold…
Only if you do an academic study where you randomly write some and buy others, not carefully sell and collect premium.
[quote=Spaceman Spiff]We do IPOs. They’re just not all that frequent. When we do participate it will be with companies like utilities or something boring like that.
We're more likely to be the underwriter on a bond issue than a stock. [/quote] not that frequent.......talk about an understatement c'mon tinkerbell you can up with a better response than that.....check out your handy dandy ej version of history.Jones does a lot of second offerings of utilities securities… They underwrite a crapload of bonds… Crap loads, which is why they sell(push) so many…
squash,
Reading comprehension has ALWAYS been a problem with the boys in green. This thread is about O P T I O N S I heard you were not a fast reader either so I hope you don't mind if I slowly spelled it out.Evidently your reading comprehension isn't all that good either. If you back up one page and look at the post OS made, it referenced IPOs. Which is the only reason I responded back to her.
Tinkerbell? That's twice now. I must have hit a nerve of some kind. I love it when guys like you run out of intelligent things to discuss, and then resort to outright name calling. My daughter gets made at her sister once in a while and calls her names too, just like you did with me. Hmm...I wonder if there's a maturity correlation?[quote=iceco1d]Buy&Hold - You are correct with the zero sum of options (i.e. I sell you a call, on exercisee/expiration, your gain is my loss, and vice versa). But what you are missing is thee time value component that Gaddock mentioned. If you are long an option, you are holding a depreciating asset. The closer to expiration, the less valuable your asset becomes. I believe, if I’m following Gaddock correctly, this is one of the characteristics of options that he’s exploiting.
In addition, the situations he is creating with his clients is something like this... G: Mr. Client, are there any stocks out there that you'd like to own...good quality companies? C: Sure. I wouldn't mind picking up some XYZ stock. G: Well, Mr. Client, at what price would you be comfortable buying XYZ at? C: I'd buy it if it were $50 a share or less. G: OK, here's what we'll do - lets sell some $50 puts on XYZ. Right now we can get $3 per contract (obviously completely made up numbers). C: Huh? G: Mr. Client, you want to buy XYZ if it gets to $50 or less, right? When we sell these put options to other investors, we are giving them the right to force us to buy 100 shares of XYZ at $50 a share. This is the price you said you were willing to pay. C: OK? G: So 2 things can happen. The price of XYZ drops below $50 (say, to $45), and the investor that is long the put option forces us to buy it at $50, instead of the cheaper market price of $45. That's OK with us, because you just told me that you would own XYZ at $50. So we are going to get a high quality stock, at exactly the price you want. C: OK? G: The other possible option is that XYZ doesn't go down to $50 and the option we sold expires. Remember, we sold that option for $300, and the buyer didn't end up using it. The bad news is that we didn't get to buy XYZ at $50, but that's OK because we don't want it at a higher price than that, right? C: Right... G: So in that case, you just get paid $300 and have a nice day. if you still want to try to buy XYZ at $50, we'll just sell more put options. If it drops, we finally get to own the stock @ $50 (yes I'm ignoring basis here) - if it doesn't drop, then you get paid another $300 to do nothing! C: Wow Gaddock, you are really smart, here's my money. Get the point? There are plenty of other strategies out there, but this is just one of the simple ones. Gaddock - I think you are a prospecting animal, and I think you are learning a great deal about options - Kudos on both counts my friend. However, you have the worst spelling I've ever seen! [/quote] BINGO!!!!!!! The only thing worse then my spelling is my typing on this ancient laptop with tow little baby girls climbing all over me. Well said. I've been killing it with the options. One more thought ... there are so oh so many ways to worm out of a bad position that it blows me away. I've got 50 something on to expire next Friday and I think I'll only be buying 2 or 3 (that we wanted to begin with) the rest will be banked. And so starts the process again for Jan. as December is already getting a full deck.Can you believe I actually made it through college? LOL
[quote=Spaceman Spiff]Evidently your reading comprehension isn’t all that good either. If you back up one page and look at the post OS made, it referenced IPOs. Which is the only reason I responded back to her.
Tinkerbell? That's twice now. I must have hit a nerve of some kind. I love it when guys like you run out of intelligent things to discuss, and then resort to outright name calling. My daughter gets made at her sister once in a while and calls her names too, just like you did with me. Hmm...I wonder if there's a maturity correlation?[/quote] Sorry Tinkerbell (3X) I went to the VERY first post and skipped over the IPO question. my bad. In this type of market, options are a bit more logical than ipo's, wouldn't you agree? No Tinkerbell (4X) no you didn't hit a nerve. You are just a sanctimonious lacky that obviously can not think for himself and posts quotes from the ej handbook. As soon as someone catches you simultaneously sucking and blowing in one thread you jump into another one and leave the other one unanswered...... (OIT) options aren't profitable? when was the last time your firm executed one? When was the last time you bought/sold personally let alone worked it out for a client that held one? What you think your GP don't trade in options for themselves??? You must also believe that nobody at your firm holds accounts at other firms either (yeah right) The reason I call you TINKERBELL (5X) is that you live in a fantasy land (of green)...[quote=compliancejerk][quote=Spaceman Spiff]Evidently your reading comprehension isn’t all that good either. If you back up one page and look at the post OS made, it referenced IPOs. Which is the only reason I responded back to her.
Tinkerbell? That's twice now. I must have hit a nerve of some kind. I love it when guys like you run out of intelligent things to discuss, and then resort to outright name calling. My daughter gets made at her sister once in a while and calls her names too, just like you did with me. Hmm...I wonder if there's a maturity correlation?[/quote] Sorry Tinkerbell (3X) I went to the VERY first post and skipped over the IPO question. my bad. In this type of market, options are a bit more logical than ipo's, wouldn't you agree? No Tinkerbell (4X) no you didn't hit a nerve. You are just a sanctimonious lacky that obviously can not think for himself and posts quotes from the ej handbook. As soon as someone catches you simultaneously sucking and blowing in one thread you jump into another one and leave the other one unanswered...... (OIT) - My apologies for not answering your post in a timely manner. I had client meetings from 11:00 - 8:00 on Friday. I'll try better in the future to work my schedule around your posting times. options aren't profitable? - If handled correctly I'm sure they can be when was the last time your firm executed one? - I'm gonna say early 70's if they ever did When was the last time you bought/sold personally let alone worked it out for a client that held one? - Never What you think your GP don't trade in options for themselves??? You must also believe that nobody at your firm holds accounts at other firms either (yeah right) - No, I'm pretty sure that some of them do. In fact options might actually be a reason someone might have an outside account since it is something not available at Jones. The reason I call you TINKERBELL (5X) is that you live in a fantasy land (of green)... [/quote] Well, I could have just spouted off my opinion on the issue and floated a bunch of conjecture out there, but it would have been just that. I thought it might be more helpful to the OP if I showed him why Jones doesn't do options. Do me a favor, go back to my posts from this thread and put up a quote for me that shows where I gave my personal opinion on options, other than the one in fantasy land green above. When you can find one, we can continue this discussion, Mr. Smee.[quote=kujhawks300]
Can anyone explain why Ed Jones is against options? Do they not fully understand them. There are time when protective puts work and even more time so write a covered call. These strategies reduce risk.Someone from Jones please enlighten me.
[/quote] Well you've seen the response from someone at ej who quotes from the party line and me, who used to work at ej. To re-iterate my answer is simply, overhead. If this particular firm engaged in options the problem areas would be: 1) supervision (the firm has enough headaches in this area e.g. Ed Hood in TN. He was a GP excellent reading material on FINRA - Know You Broker section) 2) education and continuing ed. I apoligize to everyone out there for allowing my distaste for my previous employer and it's self-righteous, blindly following kool aid swilling hoard to upset and goad me on.However, when the decision was made, there were very few brokers who would have to have been supervised. The opinion that was offered by Bachmann and the decision that was ultimately made by Ted was made without, I would guess, thought for cost or compliance issues.
Today, it would be a compliance, cost, and supervision nightmare to add options trading to the list of products and services. You're points are spot on. Now, can we bury the hatchet and be done with the name calling?[quote=Spaceman Spiff]However, when the decision was made, there were very few brokers who would have to have been supervised. The opinion that was offered by Bachmann and the decision that was ultimately made by Ted was made without, I would guess, thought for cost or compliance issues.
Today, it would be a compliance, cost, and supervision nightmare to add options trading to the list of products and services. You're points are spot on. Now, can we bury the hatchet and be done with the name calling?[/quote] Yes Spiff, I don't know what I was thinking. I should always go to the history books of your employer to gain the truth. Once your firm makes a decision NOT to do something, it is carved in stone forever and should never be reconsidered. (fee based, satellite based communications, etc.)is it that big of a deal either way?
No, I’m done with this conversation.
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