The Best Investment Advice You'll Never Get (2008)

I'm sorry man, you don't get it, but you're sure that you do, and you're so sure that you can't be wrong that you dismiss things you clearly don't really understand. You disagree that retail investors should use options? Make an argument aside from "it doesn't work" because I have years of returns -- and you can watch HUNDREDS of hours of studies on TastyTrade and others -- that makes a far better case than your abject dismissal.

I write about option strategies because I'm certain that it's good for individual investors to see serious, experienced people talk about it. I know, I know, you're certain I can't possibly be right (for some reason) and I guess you think I'm just making it all up out of some 4chan like desire to ruin people. Whatever, man. The only traffic to this page now is you and me and other existing commenters.

What's crazy is, TastyTrade, it's a startup! They took VC money and have a dozen data scientists producing meaningful research -- the same stuff hedge funds and prop firms do -- and they release it all publicly. They have a market theory, and they've built fantastic free trading software (first Think Or Swim, now Dough.com) to give investors tools to implement their strategies. These are the good guys, empowering people to not get screwed by some shitty store front financial advisor. They had a 1/2 billion dollar exit with ThinkOrSwim and they give everything TastyTrade does away for free. There's an app you can subscribe to if you want to, but there's no obligation, it's real altruism.

Now, feel free to have the last word. If you're up to it, I'd love your take on the question I asked somebody else:

Wouldn't you agree that it would be a bad idea for a retail investor to invest in OTM options hoping the stock price will move in their direction? It's an awful strategy, with a low probability of success. Almost certainly those options you bought will expire worthless. So why on earth are you advocating so strongly against taking the OTHER SIDE of that trade? Here's a good answer: If you just do not have any time to invest, if you can't put in 15 mins each morning, then fine. But you must feel pretty strongly, so please, explain why you wouldn't want somebody to make that trade.

Regardless, it is believed that you owe it to the people you leave behind to be clear with your intentions. People dying intestate is a massive drain on society, and it often brings out the worst in people.

Of course, the opposing argument is "yeah but I'll be dead so what do I care?" and to be honest it's hard to argue with this.

If I may give a couple of my own personal reasons:

1) It's not that hard. My first one was written at a "Will Writing Party" where no-one had kids, so we all just either left everything to our partner or to be divided up among our siblings. One guy had neither so his estate was bequeathed to his parents, and if they were no longer alive to everyone in attendance at the party (except one poor person who was to be the witness and therefore excluded from being recipient to the estate). For most of us the will we wrote at that party served us until we married.

2) It forces you to think about "the end." Stephen Covey first highlighted the importance of "beginning with the end in mind," and it's something that everyone just puts out of their mind as long as they are able.

Also in my case, I married someone for their child-raising skills rather than their ability to climb the corporate ladder (not that these are mutually exclusive), and sitting down to rewrite a will forced me to think about the added cost of term life insurance because I was taking her prime marrying years from her, and I don't want to leave her unable to remarry and only suited for unskilled labor with no cushion. My wife is also a basket case with investments so you can have some say in that regard too.

3) It forms evidence if you have to show proof of your commitment to someone. In my case our respective wills formed part of the evidence when applying for my wife's visa.

The SPY is an index fund. Of the S&P500. So no, you're not saying "they're both stupid". You're saying "buy an index fund" and I'm saying, there are more sophisticated ways of doing exactly what you're advocating.

And I'll answer your questions: 1. I don't have to "beat" professionals. When you sell options, you're selling at the Bid price. The market makers are still making their few-pennies cut, because that's how their business works.

2. Option pricing is transparent. One of the multiplicands in options pricing formulas is Implied Volatility. This is a forward looking, crowdsourced guess of where the market thinks volatility is headed. It's not backward looking, that's Historical Volatility. The thing about IV is that empirically, it over-estimates. Since the CBOE first invented the Call option 20 or 30 years ago, actual volatility has been lower than the Implied Volatility predicted. And that's the edge dufer, it's an arbitrage opportunity between IV and actual volatility. There is of course no guarantee it will always be there, but it always has been, and that counts for something.

Another way to look at this is simple: People buy options for a variety of reasons. Speculation and Hedging primarily. The options market has to build-in an edge for option sellers, otherwise nobody would sell them.

Alright, I'm sorry if ever my emotions ran a little high. I love HN but the tendency to shout-down what you don't agree with sickens me a little and I have a hard time just yielding to it.