Covered calls at EDJ

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Jun 23, 2006 10:49 am

I spoke with a veteran employee of Edwards Jones last night and he said that the equity dept is going to rollout a covered call package to the IR's. No puts or uncovered calls just covered calls! There is a catch tnough, the only time an IR can do this is if the stock has been held for more than 30 days and the stock must be on the EDJ approved list, not only that but there will be restrictions on how far out the month and strike price can be for the approved stock. The IR who has a good connection to the GP's said that this was Weddles plan to retain more veterans.

Jun 23, 2006 10:56 am

My understanding of the reason for Jones not offering covered calls in the past was that they envisioned huge supervisory problems, and probably rightly so.  If this is, in fact, the case, the system that you describe seems to be a good idea. 

Jun 23, 2006 11:04 am

Starks


One thing I forgot was that the IR's have to get another license...not sure if it is a 9,10 or 24.

Jun 23, 2006 12:20 pm

In not trying to sound naive in this - they would get their 9/10 or 24 and then not use it for supervision?  Seems like a waste to me. 

Jun 23, 2006 12:52 pm
BrokerRecruit:

In not trying to sound naive in this - they would get their 9/10 or 24 and then not use it for supervision?  Seems like a waste to me. 


does that surprise you?

Jun 23, 2006 1:44 pm

Not really, but you would think a guy would be smart enough to think "hmmm...I'm taking this (or these) exams for supervision, but I'll settle for having it do make covered calls."  What a complete joke if that is the case. 


Why don't they have them get their CFP (since there really isn't any financial planning done at Jones), or their CFA in order to hang it on the wall and not manage accounts discretionarily.  Hell, have them become CPAs so they can't partner up with themselves for tax purposes. 

Jun 23, 2006 1:55 pm

The whole plot is to discourage the employees from doing calls but have the limit ability to dabble in a restricted environment if they really want to.It si the same way they (GP's) have created the 7 fund selection and limited equity group.

Jun 23, 2006 7:57 pm

Not too many of their folks could pass the CFP, let alone CFA. This whole

licensing bit, if true, makes no sense at all.



I think Jonesescapee is right on target. They roll this idea out and you will

have 3 people writing covered calls charging an arm and a leg to do so.

Jun 24, 2006 3:44 pm

Does this mean that there's a chink in the buy and hold mantra? Buy and hold. Whatta joke. Ask people (who've been around longer than the last training class) if buy and hold worked from 1966 through 1982?

Jun 24, 2006 5:59 pm
Revealer:

Does this mean that there's a chink in the buy and hold mantra? Buy and hold. Whatta joke. Ask people (who've been around longer than the last training class) if buy and hold worked from 1966 through 1982?


Nobody would be alive who remembers that far back--ancient mariners not worth a bucket of warm spit.


I've heard that about the only thing that worked, other than the occasional blind luck pick, was covered call writing.  The stocks didn't go up or down, but the calls expired cycle after cycle.


Wonder if we could be in a similar phase now?  Enough good news to keep the market from caving in, but enough negatives present to keep it from soaring.


Bueller?  Bueller?  Is he off winning Ben Stein's money?

Jun 24, 2006 6:45 pm

This will be interesting, I am sure that any client that ever brought up a

desire to participate in covered calls was ridiculed by the IR because they

were "risky and not wise" when the IR probably didn't really know how

they worked. Now go back to the client and tell them its appropriate..

Jun 25, 2006 11:31 am

This is not likely to happen anytime soon. The EJ trading platform is from the 1980's and was not designed to support options trading - from order entry to settlement and everything in between. Heck, the firm isn't even a member of the options clearing corp!



I believe someone's been blowing smoke up your, well, you know...



Bye for now!

JoeDog    

Jun 25, 2006 12:08 pm
BrokerRecruit:

In not trying to sound naive in this - they would get their 9/10 or 24 and then not use it for supervision?  Seems like a waste to me. 


Since the Jones model is the small office idea there is a question regarding supervision.


Series 24 does nothing for you regarding options.  9/10 does, but sure seems like overkill.


I'll bet they're going to require Series 4, the Registered Optioins Principal.  There is a built in danger in this.


When one qualifies as an ROP it is assumed that the individual is an "expert" in options--which automatically makes them subject to higher degrees of fiduciary responsibility.


It is also one of the legendarily difficult licensing exams, so they may be discouraging options accounts by requiring that their reps obtain a difficult to obtain license.


Most guys won't even bother to attempt it--part of the "when the going gets tough I quit" mentality that infects far too many.

Jun 25, 2006 12:21 pm

Technically you are right on joedog. However Jones management is brilliant when it comes to selling futures. Example below:


1- Email is coming (finally it is but it is limited). Today I can not email anyone within the company and I have it. Of course I am told I should not want it. Plain hogwash. Our society could not live without it now and our industry as well.


2- Succession planning. Work your ass off for twenty years and then work three more on a reduced basis to receive some of the revenue. Ask anyone who is trying it and they'll tell you up front that management has no clue how to do this. Employees have nothing to succeed only owners. This transition program has zero impact on the partners.


3- Covered calls. Remember Jones has to meet the lowest common denominator because most IR's are not intelligent. Just very good salespeople who do the five critical activities.


4- Wrap Programs. Have a butchered version of SMA program but to offer what clients and IR's want, management will have none of it and continue to harp on the tradeoffs. To be fair they have never brought wrap programs in the conversation of future enhancements.


5- Financial Planning Software- For years we have been told we don't need to have IRR calcs or true financial planning software. Tomorrow the rollout begins in three phases with the last requiring a  Series 65.


6-LP Offering. The carrot that if anyone ever figured it out is the biggest ripoff of all.


7- Satellite communication system is going away. T1's are the wave of the future. This project which has been talked about for several years is rolling out finally. And slowly. With hurricane season, and the horrific challenges that hit the south coast, it is justifiably their first priority to complete them first.


8-Group medical insurance at a fraction of the cost for IR's. Hasn't happened yet and probably never will.



Jun 25, 2006 12:26 pm

Foot: And they come in #1 in RR surveys??

Jun 25, 2006 12:55 pm
NASD Newbie:
Revealer:

Does this mean that there's a chink in the buy and hold mantra? Buy and hold. Whatta joke. Ask people (who've been around longer than the last training class) if buy and hold worked from 1966 through 1982?


Nobody would be alive who remembers that far back--ancient mariners not worth a bucket of warm spit.


I've heard that about the only thing that worked, other than the occasional blind luck pick, was covered call writing.  The stocks didn't go up or down, but the calls expired cycle after cycle.


Wonder if we could be in a similar phase now?  Enough good news to keep the market from caving in, but enough negatives present to keep it from soaring.


Bueller?  Bueller?  Is he off winning Ben Stein's money?

Newbie: When was your training class? You passed your test yet? My "bucket of warm spit" has a multi 7 figure number on (in?) it. I'll give you another period (maybe your parents can help you with this one) to ponder. How about the "one decision" (kinda like buy and hold) stocks of 72-74 work? Ya'know....Polaroid, Xerox,Avon,Merck,etc.,etc. Many of the nifty 50,fabulous 40, sexy 60 have gone to that great stock place in the sky, kinda like the .com companies of late 90's. Coulda bought the Nifty Fifty in 1973 and on avge held them for 12 yrs JUST TO BREAK EVEN. How many option premiums do you hope to capture to cushion that decline? Suppose you or your client are gonna GIVE UP after about the 4th write? How many option premiums could you get from JDSU in the past 6 yrs to cushion its decline? At least JDSU is still in biz. (Heck it IS an option now selling @ what... 2.50-3.00). You state that my "ancient mariner" period was one where things just moved sideways. Sorry to "bust your bubble" (mkt will do that for you) but the "ancient mariner" has experienced brutal bears firsthand. Ask me about the time I shorted Avon @ 31 (down from 140) and covered too early @ 24. Stock wound up going to 19 and they were paying a 1.40 div @ the time. AVP 7%+ yield?? How can that be? Just is.....Mkt can do ANYTHING it wants. Don't even try to pretend otherwise. Ancient Mariner FKA Revealer

Jun 25, 2006 6:46 pm

NASD Newbie- Model has nothing to do with it. There are plenty of other

firms out there that have a sim. model and yet still trade options. Difference

is Jones hires clones to do the supervision. Folks making $40K to sit around

and not stir up any trouble. The risk is taking inexperienced supervisors

who would have difficulty supervising this type of activity.

Jun 25, 2006 8:48 pm

I would assume that any option business would be channeled through the home office to only a few traders.  The rank and file Jones reps are not going to be allowed to touch this business with a ten foot pole.

Jun 28, 2006 12:13 am
The Truth:

NASD Newbie- Model has nothing to do with it. There are plenty of other

firms out there that have a sim. model and yet still trade options. Difference

is Jones hires clones to do the supervision. Folks making $40K to sit around

and not stir up any trouble. The risk is taking inexperienced supervisors

who would have difficulty supervising this type of activity.





The Truth? Really?

Sure wish I made $40k.