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Dr. Doom

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Oct 16, 2008 9:09 pm

Ouch…doesn’t look like that GOOG trade worked out so well…at least thus far…

Oct 16, 2008 9:17 pm

And people ask Jones advisors how come we don't do options. 

Probably because it's more fun to fly to Vegas, take a $20,000 cash advance on your credit card, put the chip on red or black and spin the wheel.  At least while you're there you can catch a show. 
Oct 16, 2008 9:26 pm

Aw, he’ll only lose a bit more than a grand either way…that’s probably in Putsy’s trading budget.  Options are interesting, but for the most part, I’ve limited myself and clients to covered call-writing.  Not very sexy, but pretty easy to explain to clients and a great way to produce income, if you don’t mind having to sell stock positions from time to time.

Oct 16, 2008 10:05 pm

If somebody bought in 1998 and held till today they'd be even.  The idea of buy and hold has fallen out of favor among the baby boomers.

I showed you nimrods a way to risk $1,000 and possibly make close to $19,000 in a single day.  I can assure you that there are thousands of guys--and gals--who are desperate for advice on how to take advantage of the volatility without risking much.   As I said last night, you have to have an IQ higher than room temperature in order to appreciate things like this, and be able to form complete sentences in order to able to explain them to your clients.
Oct 16, 2008 10:33 pm

The idea of buy and hold has fallen out of favor among the baby boomers.

  Partly what they pay us for.   As I said last night, you have to have an IQ higher than room temperature in order to appreciate things like this, and be able to form complete sentences in order to able to explain them to your clients.   Why others get MAs in counseling, and why you consider retaining one and paying for help with your apparent passive-aggressive personality disorder. A college education might help your social skills, too.
Oct 16, 2008 10:42 pm

That "paying you" idea is falling out of favor faster than the Dow.  The idea that Joe and Joanne need to pay you 1% of their account so that you can tell them to buy and hold is a scam, and more and more of them are figuring it out every day.

On the other hand, if you also brought to the table the abilty to intelligently discuss the markets, the effects of volatility on option premiums and how to capitalize on those premiums without extraordinary risk you may actually be worth a few basis points.
Oct 16, 2008 11:20 pm

So long, then.

Oct 16, 2008 11:29 pm

[quote=Provocative Put]

That "paying you" idea is falling out of favor faster than the Dow.  The idea that Joe and Joanne need to pay you 1% of their account so that you can tell them to buy and hold is a scam, and more and more of them are figuring it out every day.

[/quote]   1%?  That's getting off cheap.  They should be paying us at least 1.5%.   Case in point:  Say we recover in 5 years and are back at Dow 14,000.  The average investor might have already bailed out.  If we can keep our clients in the market, it seems like 1.5% a year would be better than locking in a 40% loss.    
Oct 16, 2008 11:56 pm

What if the Dow trades between 7000 and 10,000 for ten years?

Oct 17, 2008 12:27 am

Will wonders ever cease?

Oct 17, 2008 12:44 am

Don’t be so dismissive. We just went through a 10 year period where we went from 8500 to 8500.

Oct 17, 2008 12:56 am

What specialized training do you have for helping somebody with their budget?

Oct 17, 2008 1:08 am

Well, I worked on the floor of the CBOE for a couple of years.  But the best training I had was that I was a Regional Sales Manager for Institutional Options strategies with an NYSE firm with 287 branch offices and 3,600 registered reps.

  If you uncovered a hot prospect and asked for an "expert" to come help you--that person was one of four.  I was one of them.
Oct 17, 2008 1:26 am

I believe that a well constructed portfolio would commit 15 to 20 percent to speculation such as I suggest.

  The average investors are screaming for help, and they deserve more than platitudes such as "Hold On, It Will Come Back............Some Day."   Sadly the average "advisor" is not intellectually capable of doing much more than that.    
Oct 17, 2008 1:59 am

I suggest taht everybody should set aside 15 to 20 percent of their portfolio for speculation.  Should they lose that money they should stop and the remaining 80 to 85 percent will eventually recoup the loss.

The strategy I suggested yesterday--go long Fluor at 37 and short the November 40 straddle cannot possibly result in a loss greater than 66 points, which would only happen if Fluor goes bankrupt within the next four or five weeks.   While that may happen the odds are long, very long.  The stock is down from 100 earlier in the year.  It has a hell of a beta, but with those high betas come opportunity.   The upside gain is limited.  If FLR, which was at 43 on Monday is at or higher than 40 in a month the gain will be 16 points.   The 11 points the come from the straddle can be used to pay for the shares, leaving a cash requirement of only $2,600.   By the way, today the trade was available at 35 with 10 1/2 coming in from a 35 straddle--max gain only 10 1/2 in a month.   I find it curious that so many "advisors" sneer that that is not worth their attention or attempt to understand.  
Oct 17, 2008 2:02 am


I sympathize with what you’re saying.  I really do.  If I had the time to do it for all my clients, I would.  At the moment, with my client base, I really only have time to write covered calls for some people. 

At some point, it becomes economy of scale.  Tell me you have the time to balance accounts, make sure cash disbursements are being met, advise clients on educational funding, insurance, estate planning, taxes, day-to-day stuff, annual reviews, and then be able to establish and manage option strategies on top of it all. 

If I had 10-50 clients with 100m-500m AUM, then I would consider it, I really would!  Unfortunately, I’m servicing more than that. 

I really don’t think anyone here is too dimwitted to set up option strategies, but I do think many of us have a large client base that makes it difficult to micro-manage such transactions.

How would you handle it? 

Oct 17, 2008 2:29 am

It is not at all time consuming to engage in sophisticated options strategies--just choose one that you believe in, put it on, and have a planned exit strategy should it not work out.

The true danger to the stock market is on the short side--either shorting shares or writing calls naked.   The downside risk is scary as we've seen in the last several weeks--but it is not unlimited so there is no reason to be super cautious.  Especially now that the market has already lost 30 to 40 percent.   The danger to today's clients is not further erosion so much as not mounting a significant advance for a decade or longer.   Your clients are going to have to AVERAGE huge returns in order to return to what they had last October by the time they retire.   It ain't gonna happen in diversified stock fund.  It ain't gonna happen in an annuity.  It ain't gonna happen in muni bonds.   It might happen in commodities, but if you think that options are scary.............   I know, I know---hold on, it will come back if you live long enough.  Meanwhile let's talk about how you can cut 10% off your electricity bill by weather stripping those windows.   I'm a professional financial advisor...........see, my business card says so.  
Oct 17, 2008 2:41 am

Is this Ferris Bueller the biggest cypher I’ll encounter on this forum, or are there others who are more vapid than he?

Oct 17, 2008 3:05 am

are there others who are more vapid than he?

  Could be you. One who tries to make a virtue out of trading options, while attacking the fee-only model as being expensive, appears to be dull.   Why don't you call yourself, "tempest in a teapot." Try taking up squash, and prove yourself on the court, man.
Oct 17, 2008 11:24 am

When the client’s results in a fee only model is a negative return, and that fee increases the negativity the model is wrong.

  Fee only can be justified so long as the asset base grows so that the man-child who is the "advisor" is able to pillage the account for the pound of flesh and still leave a reasonable return for the sucker client.   Not unlike making a mortgage loan to a borrower that will default, but the  home will be worth more so the default--while inconvenient--will not affect the lender's bottom line.   The idea that a twenty-five year old kid who achieved a GPA of 2.2 before dropping out of some third rate college in his junior year brings something worth having to the table is specious.   When the market was roaring along somebody like that--let's call him Jason--was thought he was a financial wiz kid because his accounts were growing.  They were not growing any faster than anybody else's, but that was irrelevant--they were growing.   Then one day the music stopped.   All across the fruited plain there are families staring at their statements, and staring at the fees that are being sucked out of those balances, by the Jasons of the world.   I'm not saying they're not nice guys.  They don't beat their wives, they don't kick their dogs, and they pay their bills.  But they're pretenders--posers strutting around in $300 slacks and golf shirts emblazoned with country club logos of places they drove by---perhaps even played as a guest of somebody who knows somebody they know.   They introduce themselves as, "Hi, I'm Jason Jones.  I'm a financial advisor, are you working with anybody locally?"   As we all know, if you ask that often enough somebody will let you talk some more.   As we also all know, if you talk some more to enough people somebody will actually open an account with you.   As we also all know, once that account is open Jason Jones is now saying a prayer that he doesn't phuck it up.  Well, not all of the Jason Jones's.  There are a lot of them, sadly way too many, who are sociopaths.   They don't care what happens to the clients and their money as long as they're getting paid.  They see their function as nothing more than asking enough know the drill.   When you think about it, doing nothing but asking enough people..........then showing them a computer print out a couple of times a year..............sending them a birthday card..........inviting them to a BBQ at the actually what could be described as a job that could be done by a trained chimpanzee.   If you think that your best clients are not staring at their statement and wondering what you did to justify that fee you're naive.   I first picked up a phone and smiled and dialed in 1972.  I have been involved in the hiring, training and advancment of thousands--as in thousands--of men and women who come in and eventually leave the revolving door.   We have experienced a stock market CRASH.  This is not a bear market, this is a crash.   There has never been anything like it before.  Perhaps the 1929 event--but certainly not the tech bubble or the market fart of 1987.   Look at GE, yesterday it traded in the 18s.  Its yield is better than 6%.  GE is not likely to be going bankrupt, it's just that nobody wants to buy GE.  There are lots and lots and lots of those stories out there.   Your clients are thinking, "What the hell is wrong with Jason?  Here we are having lost 40% of our retirement fund and all he can say is hold on it will come back?"   We, you and I, know that the reason that's all he can say is that he's a poser--a man-child wearing great clothes and carrrying a business card that says he's a financial advisor.   It is to laugh.