Options and Ed Jones

or Register to post new content in the forum

33 RepliesJump to last post

 

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Nov 5, 2008 12:04 am

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.

Nov 5, 2008 10:37 am

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. 
 
 
 
Nov 5, 2008 11:20 am

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.

Nov 5, 2008 6:29 pm

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.

Nov 6, 2008 9:02 am

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.
Nov 6, 2008 9:19 am

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.

Nov 11, 2008 6:56 pm
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.

 
This is EXACTLY why no options.
 
spiffy can you say "OVERHEAD".
Nov 11, 2008 7:59 pm

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.

Nov 11, 2008 8:12 pm
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.



Was the doubleshort gold your idea?  If so, do you mind if I ask why?

Nov 11, 2008 8:50 pm

Does EJ let you buy the oil (USO) and nat. gas (UNG) ETFs?

Nov 11, 2008 8:59 pm
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.



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.


Nov 12, 2008 9:08 am
compliancejerk:
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.

 
This is EXACTLY why no options.
 
spiffy can you say "OVERHEAD".
 
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.
Nov 12, 2008 9:20 am
buyandhold:
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.



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.

 
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.
Nov 12, 2008 5:42 pm

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.
Nov 12, 2008 6:02 pm

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.






Nov 12, 2008 7:02 pm

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.
Nov 13, 2008 4:35 pm

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

Nov 13, 2008 6:01 pm

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.

Nov 13, 2008 6:20 pm

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. 
Nov 13, 2008 6:49 pm
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.








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.