option hype

Discussion in 'Options' started by Free Thinker, Feb 2, 2003.

  1. If you aren't VERY familiar with options, programs that teach about options (I'm NOT vouching for this one in particular) are not bad at all. I mean you have to learn somewhere and very few people have the patience/stamina to read through Larry McMillian's books.
    #21     Feb 7, 2003
  2. white17


    BMF: You got that right !

    VHEHN: I'm disappointed
    #22     Feb 7, 2003
  3. The guarantee is conditional :D :

    "IIIIFFFFFFFFFF the stock doesn’t fall by a large amount over the two-year period."

    So it is not a real garantee.

    Frankly you open any bet account and you have those kind of double up / double down bets available even on intraday basis. So this is really marketing hype.

    #23     Feb 9, 2003
  4. Do read MacMillan's book anyways before venturing into options (and also the Natenberg bible). This guy is making a great business out of his strategy, this is why:
    Yoy pay him the money today (he's getting economies of scale), and say in 2 years 50% of the people come back and ask for the double the money back guarantee, that means that out of $100,000 revenues (theoretically on a rolling basis), he needs to dish out $100,000, but in that time he's investing the money he receives and can in effect turn $100,000 into $200,000 in two years leaving him with a handsome 100,000 profit.
    It's just like when you ask for a rebate on your new monitor and it takes 3 months to get to you, free credit.
    In his case, he's making the deal very interesting because he's saying, you'll get twice the money back. It's just a game of odds but he's got the edge.
    #24     Feb 9, 2003
  5. white17


    You're right of course but he does mention something about if the stock falls more than 30% blah blah blah. Well 30% just happens to be the premium on Jan 05 LEAPS one would use in the short straddle. I agree it is a scam on his part but that doesn't mean that it won't work under ideal conditions.
    #25     Feb 9, 2003
  6. dis


    Terry's Tips is a lot of hype but it is not a scam. If you sign up for his free newsletter, he will send you a list of Fannie Mae options trades that has enough information to figure out his strategy.
    #26     Feb 9, 2003
  7. dis i agree. i will post his FNM play for others to read and comment on:
    Original Message -----
    From: Terry's Tips
    To: vernon
    Sent: Saturday, February 01, 2003 10:50 AM
    Subject: Free Fannie Mae Report
    How I made 124% in 2001 on Fannie Mae
    (while the stock fell 8.4%)

    by Dr. Terry F. Allen
    You Can Bet Your Fanny on Fannie Mae
    In 2001, Fannie Mae did not enjoy a great year in the stock market, even though it chalked up another year of 15% earnings growth. The stock started out the year at $86.75, and ended at $79.50, for a loss of 8.4%. Owners of the stock would have received a 2.5% dividend to partly offset this loss.

    During the year 2001, I employed my 10K Options Trading Strategy To Double Your Money Every Year on Fannie Mae, and earned over 124% on my investment for the year. I did this without using margin. It did require adherence to the 10 Trading Rules I set forth for the 10K Strategy (which is spelled out for Inside Subscribers to Terry’s Tips, in detail, including exactly what trades need to be made each month depending on what the stock has done, as well as other considerations).
    Getting Started

    The year 2001 started out with Fannie Mae (FNM) trading at $86.75. My 10K Strategy to Make 100% Every Year involves owning a LEAP rather than actually buying the stock (see a full discussion of LEAPS at www.TerrysTips.com/tip2.shtml.

    To start the year off, I purchased 30 Fannie Mae January 2003 call LEAPS with a strike price of $80 (symbol VFNAP). The LEAP cost me $16.50 ($1650 each), for a total cost of $49,560, including commissions at my discount broker’s rates. (From this point forward, all option purchases and sales figures will include the commissions I paid, rounded off to the highest dollar amount ending in zero.)

    While I really didn’t own the stock, I had all the rights of ownership (except voting and collecting dividends) for 3000 shares of Fannie Mae. Someone who purchased this amount of shares rather than the LEAPS would have shelled out over $260,000, or almost 7 times my starting investment.

    I immediately sold someone else the right to buy 2000 of my “shares” at a price of $85 (the strike price) for the three-week period ending on the third Friday of January 2001 (the option expiration date). I received $4.50 per share ($450 for each of 20 option contracts) for these options, or $8960.

    I also sold someone the right to buy 1000 of my Fannie Mae “shares” at a price of $90 until January, 2001 expiration, receiving $206 each for 10 options, or $2030 after commissions. (I put the word “shares” in quotations because I really didn’t own shares. Instead, I owned the right to buy these shares at $80 for a little over two years, and this gave me the right to sell someone else a right to buy these “shares” as long as the strike price is not less than $80 nor the expiration date further out in the future than January 18, 2003).

    So, if you’re not terribly confused, I’ll calculate that my starting investment in Fannie Mae at the beginning of 2001 was $38,570 ($49,560 cost of the LEAPS, less $8960 and $2030 I received from selling call options to someone else).

    January Expiration Was a Bummer
    On the third Friday in January, I suddenly felt poor. FNM had dropped from $86.75 all the way to $76.81, a plunge of 11.5% in less than one month. But if you think I felt bad, how do you think those guys felt who paid me $11,000 for options to buy FNM at $85 or $90? They lost 100% of what they invested.

    At least I still had my LEAPS, although the price had fallen all the way to $11.50. I had experienced a loss (on paper, not in real money) of about $15,000 which was partly offset by the almost $11,000 I took in from the options I sold. Still, I was down over $4,000 in less than a month.

    From this point on in my story, I will only comment on the cash transactions each month. The paper value of my LEAPS will rise and fall with changes in the stock price, but the only really significant event is what I sell them for at the end of their life (or earlier, if I choose). Fortunately, owning the LEAPS meant that I still had 23 months left during which I could sell options to someone else every month.

    I have created 10 Option Trading Rules to be used with the 10K Strategy to Make 100% Every Year – the strategy I used with FNM in 2001. These Rules dictate exactly which options should be sold each month. They also spell out exactly how you place orders with your discount broker (i.e., where in the bid-asked range, and on which day orders should be placed).

    Different Rules may apply each month, based on special circumstances which may have occurred in the past month, such as unusual moves in the stock price, the exact price where the stock ends up at expiration, or announcement of a stock split. Rules #5 and #6 apply every month, and deal with exactly how and when to place option orders. Terry’s Tips Insiders receive the 10 Rules before they make their first investment decision.

    At the January expiration, Rule #3 was applicable, so I sold 30 February 80 calls for $2, netting $5940. Now I had almost $6000 free cash in my pocket after a losing month. I calculated that my initial cash investment of $38,570 had been reduced to $32,630 ($38,570 - $5940).

    February Expiration – a Turn-Around
    By February expiration, FNM had jumped all the way back to $82.45. I bought back the February 80 calls for $2.50. (While these calls were theoretically worth only $2.45 when they expired - the difference between the stock price and the strike price - when you buy back calls on expiration day, you generally pay a little more than the intrinsic value at the close.) It cost me $7560 to buy these calls back.

    I then employed Rules #1 and #2, and sold 15 March 80 calls for $4.70 and 15 March 85 calls for $1.75, netting me $9690. My original investment declined a little further, to $30,500 ($32,630 + $7560 - $9690).

    March Expiration – Down Once Again
    By the third Friday in March, FNM had slipped again, closing at $75.64. The two options I had sold expired worthless, and I got to keep the $9690 I had received them for. I then employed Rule #1, and sold 30 April 80 calls for $1.80, collecting $5340, and reducing my original investment to $25,160. (The $1.80 premium may seem a little high for anyone who is following these prices closely, but the April expiration day was 5 weeks away rather than the customary 4 weeks.)

    April Expiration – A Real Winner.
    Expiration day in April showed FNM moving up a bit, to $78.25. Once again, I was able to keep all the proceeds from the options I had sold a month earlier. This was one of the months where I made money both on the options I had sold, and the LEAPS, which had increased in value along with the increase in the price of FNM. But I agreed not to mention the gains or losses on the LEAPS, so I won’t get into the details.

    In April, I used Rule #1, and sold 30 May 80 calls for $2.25, collecting $6690, and reducing my original investment to $18,470.

    May Expiration – Stock Down, But More Cash For Me
    By May expiration, FNM had dropped once again, to $75.56. The options I had sold in April expired worthless once again. I then employed Rule #1 again, and sold 30 June 80 calls for $1.30, netting $3840, and reducing my original investment to $14,630.

    June Expiration – My Investment Gets Cut In Half
    By June expiration, FNM had gone up to $80.66. I had to buy the 30 June 80 call options back at $.75, paying $2310. I then used Rules #1 and #2, and sold 15 July 80 calls for $3.50, and 15 July 85 calls for $2.10, netting $8340, and reducing my original investment to $8600 ($14,630 + $2310 - $8340).

    July Expiration – Cash Goes Out For the First Time
    By July expiration, FNM had gone up again, to $83.93. I had to buy back the July 80 calls I had sold, paying $4.00, or $6030. Then I employed Rules #1 and #2, and sold 15 August 85 calls for $1.80, and 15 August 90 calls for $.80, netting $3840. For the first time, my original investment increased, to $10,790 because the amount I had to pay out to buy back the expiring calls was greater than the amounts I received from selling the next month’s options.
    #27     Feb 9, 2003
  8. August Expiration – More Cash Comes In
    By August expiration, FNM had inched up to $84.35. The options I had sold in July expired worthless, and I employed Rules #1 and #2, and sold 15 September 85 calls for $2.30 and 15 September 90 calls for $1.00, collecting $4890. This reduced my original investment to $5900.

    September Expiration – the Stock Plummets Again
    By September expiration, FNM had really tanked, falling over 10% to $75.44. Rule #3 now was in effect, so I sold 30 October 80 calls for $1.20, collecting $3540, and reducing my original investment to $2360.

    October Expiration – Time for a Big Celebration
    By October expiration, FNM had rallied to close at $80.99. I had to buy back my 30 October 80 calls for $1.10, paying $3360. Then I employed Rules #1 and #2, and sold 15 November 80 calls for $3.00 and 15 November 85 calls for $1.40, collecting $6540.

    I am now a happy person. I have received back in real cash every penny I invested at the beginning of the year, and had $820 in my pocket as well. This was sort of like burning the paid-off mortgage, a time for real celebration. (My original investment had been reduced to $2360 in September, plus the $3360 I paid out to buy back expiring calls, less the $6540 I collected from selling November calls). I still own my LEAPS, but now they are free and clear, and have not cost me anything.

    November Expiration – More Cash Flows In
    By November expiration, FNM had inched up to $81.50. I had to buy back 15 November 80 calls for $1.60, costing me $2430. Then I employed Rules #1 and #2, and sold 15 December 80 calls for $3.20 and sold 15 December 85 calls for $1.55, collecting a total of $7,060. I now have $5450 in my pocket ($820-$2430+$7060), plus the value of my LEAPS.

    December Expiration – It Keeps Rolling In
    By December expiration, FNM had fallen a bit, to $80.09. I bought back the 15 December 80 calls for $.20, paying $330. I then employed Rules #1 and #2 again, and sold 15 January 80 calls for $2.05, and 15 January 85 calls for $1.00, collecting $4505.

    I now had $9625 ($5450 - $330 + $4505) in cash. It’s a nice feeling to have this much money in your pocket in spite of having bought a stock that was lower than it had been at the beginning of the year.On December 31, 2001, FNM had fallen to $79.50. If I wanted to close out my positions on that date, I would have to buy back my January 80 calls, then trading at $1.40, and my January 85 calls, then selling at $.25, costing me $2540. Then I could sell my 30 LEAPS for $8.30, or $24,840. That would leave me with a total of $31,905 in my pocket ($9625 - $2560 + $24,840).
    My average investment for the year was $13,208, ranging from $38,570 for the first month to a negative $9,625 for the last month. My profit for the year would have been $31,905 if I had closed out my positions on the last day of the year.
    That results in a profit margin of 242% for the year. Since I knew you would never have believed that I could make that much on a stock that went down over the course of the year, I said that my earnings were “only” 124% when I first told you about how I did with Fannie Mae in 2001
    #28     Feb 9, 2003
  9. white17


    So does he have a similar opposite strategy for a generally rising market? I'd say the bear has worked in his favor here.
    #29     Feb 9, 2003
  10. Has anyone gone back and confirmed these prices because they seem a little odd to me, ie a 2 year leap that is $6 in th emoney is $16 but a three week call that is ATM is over $4.00?
    #30     Feb 9, 2003