Option FanaticOptions, stock, futures, and system trading, backtesting, money management, and much more!

Money for Nothing?

Dire Straits! While I love the song, no longer do I think it characterizes premium trading groups that charge for attendance.

In June 2015, I was irked to see a new trading group for $15/meeting. I e-mailed the organizer to verify: “as in $780/year?”

“It costs $100 for a day of golf,” he replied. “This is a good value.”

Although I enjoy watching on TV, I have never been a golfer.

Charging for a group like this was something I truly despised about the financial industry. I viewed the category of self-directed traders as bifurcated between the traders themselves and the set of companies looking to profit off them. The latter sells mentoring, trader education, market software, coaching, etc.

I could accept raising funds to cover group expenses but I could not accept raising funds simply to pad pockets. I considered myself to be in the business of trading—not a business of the just mentioned that would involve marketing, sales, or advertising. As a group of equals, I figured what a trading group had to offer me was what it had to offer every member: new ideas to bolster trading income. Why should the organizer alone, then, profit from its formation and attendance?

One reason I have since had a change of heart is because this is not a group of equals. I have unsuccessfully searched for others with a full-time trading business (see here, here, and here). I have found many who say they want to learn. I have found some who describe themselves as [inconsistent and] “part-time.” I have found more stock traders who know nothing about options. If the group I form will not be a group of equals and they have more to gain from an informational exchange than I do, a per-session charge is justified as an investment for their future.

My second objection to free trading groups involves accountability. I blogged about this here but the seeds for this belief were planted much earlier. On July 19, 2015, I wrote:

     > I’ve said this recently but I strongly believe it takes a
     > lot of time and effort to make substantial money trading.
     > It takes constant, continuous commitment. I almost believe
     > one must approach trading as a business whether it actually
     > is or not. I think the time dedicated to learning and
     > practicing will ebb and flow and without a maximal
     > level of devotion, when that time ebbs much of what
     > was gained during the flow will be lost.

We hope that with experience comes wisdom. I have changed my tune with regard to investment advisers. I have changed my [Dire Straits’] tune with regard to premium trading groups as well.

Meeting with XC (Part 3)

Today I conclude with summarized notes from my meeting with financial adviser XC on August 22, 2017.

If I want to find people with a disproportionate equity concentration then XC suggested looking at Domino’s Pizza, headquartered locally, which has gone from $8 to $160 in recent years. Ford is another possibility (think of all the commuters going to Dearborn every day) along with DTE Energy and Consumers Energy.

XC is a believer in credentials: the more the better. Series 65 is the minimum requirement to manage money in Michigan but it’s given by FINRA, which is focused more on brokerages. He suggested looking into options/derivatives licenses as well.*

Hypothetically speaking, if he advised for one of my trading clients then I would be my own solo practitioner. He would not officially recommend me—doing so would put his company’s reputation at risk—but he would be interested in my performance. He would also be mindful of my fees. If I were generating a lot of short-term capital gains for a client with an annual capital gains budget then it might affect how he would manage their trading portion. The more fees I charge, the less the overall AUM, which would lower his compensation. This could be a potential conflict of interest.

If I were to pitch my trading strategy then XC said they would have to play devil’s advocate by addressing risk and liability exposure. I was not sure whether or not this was intended to be a hint.

XC recommends Schwab Advisor Services at >$5M AUM because of the useful tools they offer. At $25M AUM they pair you with a corporate relationship expert.

XC seemed like a sincerely nice person with a solid knowledge base. He was also generous with 100 minutes of his weekday time. If I start an IA then he said he would be interested to hear how I progress. If I need anything further then he invited me to call. He expressed interest in reading my blog and suggested again that I check out their website and available tools.

I took a few useful suggestions away from our meeting. I will make a LinkedIn profile. I will think more about putting together a presentation of my story and/or what I do. I will also look into whether any [insurance] companies might be looking for IAs to manage their cash position.

*–Series 3 is the National Commodities Future Examination and Series 4 is the Registered Options Principal Examination. I question the relevance of the former to trading options and I’m doubtful about the latter, which deals with supervising option traders and trading activity.

Meeting with XC (Part 2)

I continue today with summarized notes from my meeting with financial adviser XC on August 22, 2017.

XC managed assets for an insurance company that grew to over $200M AUM through some fortuitous M/A activity. His first personal clients were co-workers who liked what he did with corporate funds and asked him to manage their money. This was $25M in a single-shot that he credits more to luck than he does to investing skill.

XC introduced me to E/O (errors and omissions) insurance. One example of an E/O situation is where the IA goes to buy 25,000 stock shares of stock for a client and accidentally enters the wrong ticker symbol. The IA would be liable for any losses and E/O insurance would protect the firm. I did not get the chance to ask about cost.

He talked a lot about some of the free tools located on his company’s website, which allow clients to make future growth projections and to see how their overall financial situation is progressing. He suggested I check out these tools and encouraged entry of some personal information to see what it says about me.

After discussing these tools for a few minutes I pointed out that trading, not financial planning, is what I want to do. Even so, he argued, I should not aim to be a trader who has no personal relationship with clients. Talking about their total financial plan and where I fit in is a way to avoid such anonymity that could otherwise leave clients’ future satisfaction solely dependent on my trading performance [“everyone knows” no strategy works well in all markets]. XC said client turnover is very costly in this industry because expenses to the firm are front-loaded.

Getting back to the website, XC said they post a blog every 2-3 weeks of 1,000 words or less. They rarely post market commentary because he doesn’t want content to be time-limited. He said the blog is a really good way to get an idea of how/what someone thinks. The posting date (although it may be changed or the post deleted) adds context about current events surrounding a stated viewpoint.

He attributes a lot of his success to networking. Some of his jobs arose because of people he knew as far back as college.

XC talked about a gynecologist he knew who later went into finance. He was interested in trading but didn’t want to be the one doing the trading. Instead he did extensive research on a broad spectrum of wealth managers and became an encyclopedia of available offerings in the industry. Combining this with his knowledge of physicians’ backgrounds and needs, he was able to talk to clients and make (give) relevant recommendations (advice).

I will conclude next time.

Meeting with XC (Part 1)

On August 22, 2017, I met with a financial adviser to share my story, to learn about his, and to hear any ideas or suggestions he might have about transitioning my career toward the IA domain.

Although I have removed/changed his name (initials), I would feel comfortable recommending XC to anyone looking for a financial adviser. Please e-mail me if that might be you.

I was shocked to realize our meeting had lasted 100 minutes. XC was very generous with his weekday time.

As part of their service, XC’s firm trades securities for clients and he believes their edge is 25-50 basis points. For smaller net-worth clients they use ETFs. For larger net-worth individuals they use individual equities. They do a fair bit of covered call writing as a mechanism to defer capital gains taxes. On two occasions he mentioned an example where someone with a large equity position and low cost basis would trigger heavy capital gains upon sale.

I am very curious to know more about their trading edge. Does he believe in CCs as a mechanism for outperformance? Where did they procure their trading expertise? How were they trained? Do they make consistent efforts to improve? If so then how? I believe it’s important to remain focused on realistic returns but I would also recommend any self-directed investor to aim higher than 50 basis points.

XC believes the money management industry is a highly competitive space with a low barrier to entry. He estimates a start-up cost of $50K to start an IA—much higher than I would have guessed!—and significantly less on an ongoing, annual basis.

He thinks my best chance for success is to find people interested in my particular type of trading and/or what I offer. I asked if he thinks the average investor is educated enough to understand what I do and he said no: the average investor doesn’t really care much about how the IA generates returns. This struck me as contradictory: why try to find people interested in my type of trading if they can’t understand what I tell them?

XC recommended I subscribe to LinkedIn professional as a way to find others who share my niche expertise and interest. His preferred approach to networking is finding someone else who knows the target and asking that person to refer me.

He also suggested I speak with the Ross School of Business (daughter’s alma mater) to find others working on related [option trading] projects.

I will continue next time.

The SEMI Trading Collective

Greetings everyone!

In the time since our last contact, I have teamed up with a full-time retail option trader to organize this group. After lengthy discussion, we have decided to change our focus.

Welcome to the Southeastern Michigan (SEMI) Trading Collective. Our main goal is to promote financial literacy with a focus on trading and personal portfolio management.

We hope this group will be significantly different from other trading-related groups we have attended. Among other things, we welcome and encourage participation of men and women. We encourage and support presentation on different topics by different group members. We encourage networking and the formation of trading teams.

Here is a partial list of topics for discussion:

The cost to be a member of this group will be $10 per year. We will also charge $10 per Meetup for those who attend.

If you make this group a priority, attend meetings consistently, and keep an open mind then we hope you will come away with an understanding of finance unlike anything you have seen before.


SEMI Trading Collective provides information for educational purposes only. We are not a Broker-Dealer nor are we a registered financial adviser. We do not know your situation and have no way of knowing what level of risk may be appropriate for you. We make no specific trade recommendations. The risk of loss in trading options can be substantial so please be aware of all risks before placing any live trades. Hypothetical computer-simulated trades are believed to be accurately presented but actual profit and loss may vary due to market factors such as liquidity, slippage, and commissions. All information provided here is for your personal, non-commercial use only.

Birds of a Feather

“Birds of a feather flock together.” So why don’t we as retail investors? I want to spend some time discussing this based on my time spent trying to network with others and meeting with trading groups.

I have had a difficult time trying to find other traders with whom to discuss option trading much less to collaborate on trading system development. I have already written about trading as a lonely pursuit.

If I were a conspiracy theorist then I would say this happens by design. “Divide and conquer” must be an institutional mantra because working unchecked, we [retail traders] fall prey to heuristic thinking. This probably contributes in large part to the fact that 80-90% of retail traders lose money to institutional coffers.

Except I am not really a conspiracy theorist.

Varied style preferences are perhaps the biggest reason traders have difficulty hooking up. Preferences are responsible for what tickers I like to trade, what software I like to use, what time frame I like to trade, and many other considerations. Incongruity amid any of these factors may be sufficient for incompatibility. If I am lucky enough to find a trading group where 10-20 people come together then what’s the probability I will find matches across the spectrum?

Aside from individual preferences, differences in personality traits can derail a potential partnership. I may not like anger, sarcasm, conceit, or laziness. It’s almost like we need eHarmony’s 29 dimensions of compatibility to discover who will get along. This isn’t like a corporate job, either, where people are forced to cooperate or be fired. When we can walk away without obligation, we will. I have found traders (myself included) to be a very fickle lot.

Bottom line: when I overlay the low probabilities of finding an overlap in style with finding a solid personality match, it’s no surprise why the trading space ends up seeming sparsely populated. Suddenly it makes more sense why people turn to commercial means (e.g. selling newsletters, trading services, or forming “trader education” companies) in an effort to create a following and to foster community.

Day Trader Meetup Review (Part 3)

Today I will conclude my review of the first day trader Meetup.

Once we finally got around the table and through the introductions, the organizer took 15 minutes to present one strategy and a few other slides. We then got to eating and talking among ourselves. It seems like a good group of people. Being filled with newbies, I think the group could benefit from some basic presentation about trading. This would include some teaching on trading system development, countering heuristic thinking tendencies, and general tenets of optionScam.com.

Later that evening, WM posted a comment on the website:

> I came to a day trading group with undesired long term ideas. I
> then tried to force them on the group. SORRY won’t happen again.

My intent was not to make this guy feel bad but rather to teach him something. I figured that unfortunately, he would just go on studying Hurst and continuing to get nowhere. WM is like the occasional entrepreneur we see on Shark Tank who has spent a huge amount of money [and time] trying to develop a product/business. Without revenue the Sharks often shake their heads and say things like “this is just a bad idea,” or “cut your losses already and move onto something else.”

The Holy Grail is advertised and marketed in many places. I firmly believe it is myth and only capable of impeding my progress by draining resources. One way I avoid this trap is to steer clear of anything too complex. In WM’s case, the advanced theoretical math is literally way over his head. Anything “proprietary” is also too complex for me because by definition, I will never know what it is.

A second Meetup was held a few weeks later on a Wednesday evening and only three of us (WM, the organizer, and myself) showed up. Yes, WM was still trying to preach Hurst theories and he eventually stood up and said “thanks guys but this group just isn’t for me.” I think he’s too brainwashed to contribute but I do hope others attend future Meetups.

Option Trading Meetup (Part 3)

As I was writing the last post I got the sense I was being too hard on this group. Today I will reality check myself.

I criticized DY for claiming to have been trading for 30 years and over seven figures per week. This is not verifiable and therefore not something I believe should be brought into the discussion. All it can do is serve as a faulty basis for trust. For this reason, I don’t share such information with others and this is probably why the organizer treated me as a newbie when answering my question.

But experience is often stated in other fields. Pharmacists will say they’ve been practicing for X number of years. Surgeons will say they have done Y number of surgeries. Lawyers will say they have litigated Z related cases [and won, which is also not verifiable]. As a society we accept these claims. Why should one not accept a similar claim from a trader?

I feel like fraud and deceit are more prevalent in Finance because it is all about the money. Pharmacy, medicine, and law may indirectly come down to money but there can also be other things involved (e.g. medical treatment, legal rights, and wanting to help others). Finance is the direct conduit to money and is therefore at risk for stronger exposure to greed: one of the seven deadly sins. While this sounds good, I have no data to support it. I should therefore recognize it as a personal bias but not act on it.

I sometimes disagree with other traders because I focus on data science while they employ “conventional wisdom.” I can continue to follow the data. If disagreement leads someone to say “I have been trading for 30 years and I trade seven figures per week” then I can respond “I have extensive live trading experience too” and move on. I don’t need to disqualify them just because they stated unverifiable experience. I also don’t need to accuse them of fraud.

Hopefully my second visit to this Meetup will be more fulfilling.

Option Trading Meetup (Part 2)

I left the Meetup fuming and doubtful about my prospects of returning in January. I texted the following to a friend:

      > I always find know-it-all type people at these
      > Meetups who are totally full of themselves.

      > Maybe I should look in the mirror and ask
      > whether I am one of these too.

      > I am somewhat dogmatic in my belief that so
      > much of this stuff cannot be known for sure.
      > Much certainty I often see displayed is
      > totally unfounded.

      > Perhaps that means I often butt heads with
      > supposed “experts” only to raise some of the
      > thought-provoking issues I believe we should
      > all explore in an effort to understand this
      > complicated stuff. There are many key
      > concepts I still struggle with after years
      > of work.

      > I guess I get irritated at seeing them make
      > definitive claims about things that I do not
      > see as definitive. Nobody else in the group
      > is going to challenge that because they are
      > beginners.

DY claimed to have been trading for 30 years and over seven figures per week. I don’t care how long someone says they have been trading options or how much they claim to have made or trade because none of this is verifiable. The world of Finance strikes me as screwy because those lauded as de facto experts are usually people with significant conflicts of interest. Given the all the financial fraud perpetrated to date, I would have great difficulty trying to argue that “financial professionals” actually care more about my performance than they do getting my business, bolstering the total AUM, and making more money for themselves.

I did not enter the room with hopes of being respected as the trading expert. I hardly think of myself that way. I did not talk about my experience or about my profits (or losses). I did find it amusing/insulting that when I posed a couple discussion questions about the first instructional video we watched, the organizer herself answered with simple, incomplete answers almost as if to placate me.


I’ll break this down further next time.

Option Trading Meetup (Part 1)

I wanted to report on a new option trading Meetup I attended in December.

I was excited to finally attend a Meetup dedicated to option trading not sponsored by any financial company. I have attended Meetups sponsored by a trading newsletter, a trader education company, and a financial planner in the past and every time I have encountered a potential/likely conflict of interest. While I got little/nothing out of those Meetups, the organizer always found some potential customers. That did not seem to be an issue here although reading that their November presenter was CFA at a “wealth management” firm did arouse suspicion.

With the CFA not present in December, I thought I might have a good opportunity to network with “like-minded” individuals.

This was clearly a beginner’s Meetup with the intent to teach people how to trade options. The organizer herself and husband both said they were just learning. While I don’t feel this is necessarily a problem, who was going to teach on this night?

The one like-minded individual for me to meet was a guy [I’ll call him DY] who had supposedly traded options for 30 years. He also said he trades options amounting to seven figures per week.

DY was a “know-it-all” (sound familiar?) who stepped into the expert role almost without being asked. I say almost because the organizer did seem to defer to DY for answers a few times and I surmise that was based on how things went at the first meeting in November. Outside three instructional videos shown by the organizer, a few questions were asked and some discussion was had. Involved with every exchange was DY who at times seemed to stumble over his own feet rushing in so fast to provide what he believed to be the correct answer.

I’ll continue next time.