Big Money Options

Discussion in 'Options' started by akivak, Apr 1, 2010.

  1. akivak


    I keep getting ads from those guys, so I decided to give it a try, considering the fact that they have a risk free subscription.

    They advertise profits of “…1,100% gains in 15 days, …1,200% gains in 7 days, …2,300% gains in 10 days.” They promise to double your money twice a month.

    Let’s analyze some of those profits, beginning with the largest one. 2,300% came from VZ April 29 Call-April 28 Put Debit spread. They call it Debit spread; in fact it’s called a risk reversal. You buy a long call and “finance” it by selling a short put. In this case, the position was purchased for $0.03 per spread and sold for $0.72 per spread for a profit of $0.69 per spread.

    Now, based on 2,300% profit calculation, you would think that if you invested $10,000 in this position you would grow your money to $240,000, right? Wrong!!! This calculation completely ignores the margin requirement for the short put of about 20% of the underlying stock value – in our case, about $600. With $10,000, you could buy about 16 spreads, and your profit would be $1,104 (16 spreads * $69 per spread). That’s 11% return on $10,000 investment.

    Those types of spreads are about third of their positions, so you can imagine what impact all those fake percentages have on their statistics.

    So all those 1,200% and 2,300% gains are in fact only 10-20% return on margin on average, and in terms of growing your account, this is the only thing that matters. About 20-30% of the trades lose 80% or more, very few big real winners.

    They also claim that “our string of 12 winning trades handed us average profits of 423%. $1,000 in each of those trades grew into $62,760”

    Simple math shows that they calculate the profits based on the average gain multiplied by 12 trades ($1,000*5.23*12). That assumes that only one trade was active at any given time, which is not the case (currently they have 20 open positions). Saying that “$1,000 would grow into $62,760” is extremely misleading and completely dishonest.

    Bottom line: this service is a complete scam.
  2. Honestly. Did you believe that someone who promises to double your money - twice per month - could be honest?

    Just the promise, all by itself, tells you they are not legit.

    Thanks for sharing.

  3. akivak


    Mark, you are absolutely right. I just was curious how they calculate returns. Already cancelled and got a refund.

    What is surprising is the fact that those guys belong to InvestorPlace Media, which is considered a respectful organization. How do the agree to those kinds of lies??
  4. cloudy


    I don't consider "investor place media" all that respectable for real trading anymore. Maybe good for news and analysis. But just like Cramer. Still a crap shoot.

    I signed up for Markman's list, another investorplacemedia "affiliate". It touted to make 50% gains in no time. It turned out to be nice fancy reports with charts from a professional >reporter< who seems fascinated with the depression era and Jesse Livermore. 90% of the picks were stopped or gapped worse. I lost pretty much the rest of my trading capital and a big chunk of my savings in a couple of weeks. Stupid me to trade more than 5% of my capital combined though my mistake...

    But I did something right in canceling my membership. 2c
  5. rew


    It is of course a red flag any time an options advisory service ignores the margin requirement when computing "gains". Otherwise I'd get infinite percentage gains every time I sell a naked put.