Author/Editor
Nick Atkeson and Andrew Houghton
Publisher
Investorplace Media
Description
Weekly options trading service.
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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.
Everything Kim says is true. You looks through the performance record and see these thousand percent gainers and think WOW! Then you realize they achieve this performance through the “sell the put” trick that Kim describes. This would be great if we could just sell naked puts with no margin requirements. But we can’t – and I can’t even sell them at all. So these trades just aren’t available to many.
As for the picks themselves, they are nothing special. Hit or miss. Some double quickly. Some fall flat and die on the vine. I pay for a service in the hopes of getting a high return, either through high-percentage trades or on a good proportion of major bustout trades. Neither of these occur on a very steady basis. I found myself picking and choosing from their recommendations because sometimes the chart just looked lousy. Sometimes I lost out on a winner because of this. But just as often I saved myself some money.
I like the 3 month money-back guarantee. Haven’t quit yet and tried to get a refund, but customer service seems pretty good and I’m not expecting a problem.
Another disgruntled subscriber quipped this newsletter should be called “Big Money Losers” and I couldn’t agree more. I was taken in by misleading reports of huge gains and hints of insider information, in reality I probably could have done better picking stocks at random. I was a subscriber for three months…before using this services recommendations I was up $7,000 for the year…now I’m down $11,000 year to date. I quite this service and got a prorated refund.
Of the twelve buys I still have in my portfolio…all twelve are losing, between -20% and -143%! If you are an active subscriber you can look at their current recommendations…I took one last look before I unsubscribed and approximately 90% of their recommendations were losing money. The only stocks that increased in value in my portfolio were the puts they recommmended…so I lost money on those as well!
I’m sure these authors are well intentioned, and part of the disastrous results may have been due to the horrific stock market lately, but they seem to have a knack for picking a stock a day or two before it misses its earnings or gets downgraded by a major brokerage firm. What kind of research are they doing? I just want to keep others from making the same mistake I made and getting sucked in by their ads!