“Dark Equities: Secret of the Wealthy 1%”

By Travis Johnson, Stock Gumshoe, January 22, 2008

This one comes in from Karim Rahemtulla, and it’s my favorite kind of teaser: The one where they invent a fancy new term for a relatively commonplace investment strategy, and use it to convince you that the newsletter provides a connection to the deep, hidden world of Wall Street that can unlock the riches that you know you deserve.

He’s selling a subscription service called “The 400 Report,” which will run you $1,155 at the special “discount price” (normally $2,500). And apparently, that service specializes in a special kind of investment called “Dark Equities.”

“99% of Americans Are ‘Clueless’ About This Investment… the Other 1% Is Wealthy.”

Of course, your broker is going to have no idea what “Dark Equities” are, since Rahemtulla invented the term — so your friendly neighborhood Gumshoe is here to help. Though I must confess that even though I’m quite familiar with these securities and therefore must be in this 1%, I’m afraid that I’m less than wealthy. Though my life is rich with rewards.

In the ad’s words, “Rarely does the mainstream media mention [Dark Equities]. I’ve never seen them talked about on the mainstream business shows – and I’ve been a guest on them! …”

Apparently, these trades are “… executed typically by only the most savvy and seasoned traders – people who understand you can’t make real money buying stocks the way everyone else does … I will admit, though, that when I talk to investors who do know about it (typically they’re big money types… Wall Street insiders), voices are hushed and we’re usually alone. Never in a crowd.”

OK, so do you feel like you’re super important yet? “Voices are hushed and we’re usually alone?” Seriously? OK, I don’t usually editorialize like this, but if someone tries to sell you on something with language like that either it’s illegal, or they probably think you’re not too bright.

I’m sure there are plenty of “smoke filled rooms” where secrets still change hands, but the investment being teased here is clearly no such secret — even if it is somewhat less common than regular stock and options trades.

The ad says these “Dark Equities,” which sound kind of menacing to me, frankly, are “… something like a stock… and something like an option… But this investment gives you the safety of blue chip stocks, with the explosive profit potential of options… That’s why it’s the perfect investment.”

And that there is “No better way to siphon double-, triple- and quadruple-digit gains off the market – while drastically reducing your downside risk.

Karim says he learned about the importance of this asset class from a guy named “Hank” who headed a public company and was a “Wall Street Warhorse.” I’d really like to think this is Hank Paulson, former CEO of Goldman Sachs and now Treasury Secretary, but I don’t know that.

So … what else do we know? Well, we know that Karim Rahemtulla describes himself as “one of the country’s foremost specialists in options trading.”

And from the examples he gives of using this “Dark Equity” strategy, including trades in the “Dark Equity” versions of AMD, Tyco, Interactive Corp and several others, the Gumshoe can be fairly certain that the “dark equities” being teased here are …

LEAP options.

Kind of boring, eh? Actually, there’s a bit of a giveaway in that Karim does tell us in passing that these are called “long-term equity anticipation securities” — which is actually the real name of LEAP options.

But in common practice, they are essentially stock options that are the same as other put and call stock options that you might be more familiar with — it’s just that they go further out in the future (thus the “long term” bit).

LEAP options all expire in January, and they can go up to three years into the future, though one and two years are more common.

If you’re not familiar with an option — and these are “American style” options, not the less flexible variety generally available in European bourses — they are contracts that confer the right to buy or sell a particular stock at a particular price before a particular date. Just the right, not the obligation, which means the maximum risk is fully defined.

So an IACI 2009 $30 LEAP option, for example, would give you the right to buy 100 shares of IACI on or before the expiration date in January, 2009 for $30 per share. You can exercise that right any time in between now and the expiration date if you choose (in which case you have to put up the cash to buy those shares at $30), or, as is more commonly done, you can just sell the contract to reap your (hopefully) profits.

If you bought such an option today, it would cost you something between $120 and $155, or $1.20-1.55 per share (that’s the current bid and ask for that option, and one contract is 100 shares). IACI is currently trading just under $24, so if you buy that option you’re betting that the shares will go up by something over 30% in the next year (the shares have to go to at least $31.20 for the option to break even, though they almost always trade at a premium to the actual intrinsic value — that premium is the time value, or what you’re paying for the time to wait for the stock to appreciate).

LEAP call options are certainly more likely to be considered as relatively long term options than are regular options, which usually have expirations within the next six months or so — and you pay more for them, because you’re buying more time for your price to be hit. Buying the right to buy 100 shares of IACI at $30 in April of this year instead, for example, would cost considerably less at somewhere between $15 and $35.

And if you want to be even safer — though by risking more money — you can buy “in the money” LEAP options. This is still far from being equivalent to a “blue chip” in terms of safety, I would argue, because it’s still quite easy to lose money, but you could, for example, buy the $20 strike price IACI Jan 2009 calls for something between $550 and $620 per contract at the current bid and ask. That means your option is already in the money, and you’re only paying about $2 per share in time premium to get any of the share’s appreciation this year. Of course, if you’re wrong and the shares drop to $22 at expiration from the current $24, your call option’s vaue would be expected to fall by 70% or so instead of the 10% that the shares dropped.

For those of you who already trade options and know them well, I apologize for simplifying — I just like to try to share the basic facts as I understand them. If you want to subscribe to an options trading service, more power to you — but don’t subscribe just to find out what a long term option is … sorry, I mean, what a “dark equity” is.

What’s the benefit? The same as with all options: Leverage without borrowing, and a predetermined maximum risk. So you get to control 100 shares for a fraction of the price of 100 shares, and you cannot lose any more than you paid for the option — for our example above, if IACI remains well below $30 for all of the next year, you’ll be out your $155 or whatever you paid, but no more. On the flip side, it is of course quite easy — and commonplace — to actually lose your entire investment with “out of the money” options (the ones with a strike price above the current price — the ones that really give you a big leverage boost if you make the right call on the direction of a stock).

That said, options are often a significant trap for individual investors — which is why trading services like this can often convince people to give them a try. The combination of outsize returns (it’s certainly well within the realm of possibility to have 4,000% returns on one trade as is teased in this ad), and controlled risk, and the feeling of being a super special extra in-the-know trader can often get even a rational investor excited enough to get too heavily involved in options trading.

And just to put in a small warning, the thrill of a 10,000% gain on a single trade can easily be the worst thing that ever happened to an individual investor in the long run — because then you want more and more gains like that, and you put more and more of your cash into options. It is a very addictive form of gambling, in many ways.

And if we happen to have a year — as some people think is coming right now — when stocks go down or tread water for months and months and months, it’s quite possible for your whole portfolio of LEAP options — should you choose to build one — to go to zero, either slowly or quickly, depending on the individual stocks. In those markets (and most of the time, in the opinion of many professionals), the people who make money are the ones who sell option contracts and reap that incremental income, not the people who buy the options contracts. (That selling of options on your own stocks is often used as an income strategy, as per the “California Overnight” or “Transfer” dividends that Stansberry has been teasing lately).

Options prices in general move much more quickly than even the most volatile stock, so if you happen to own those IACI options and the stock for some reason reports awful news that drives the shares down by 15% next October, it’s entirely possible that the options could go down by 50, 80 or even 100% and you might well have no opportunity to sell out quickly to limit your losses.

Many options contracts have extremely low volume and only trade a few times a month, so there’s no guarantee that there will be a buyer at all when you want to sell. And that gets into the difficulty with any options trading service of any size, too, because if there are even just a couple hundred active subscribers they could radically run up any particular option contract that gets recommended — and while it’s true that you sometimes will have trouble buying any “recommended” stock by a newsletter before it runs up on the news of the recommendation, that same problem can be much more acute for options, so it’s quite possible that even if the paper returns of an options service are very good, there might be very few subscribers who were able to actually match those returns with real trading.

That said, I do have a small percentage of my portfolio in long term call options, often in LEAPs, as a way to leverage ideas that I feel particularly strongly about. And I do enjoy the occasional return of several thousand percent, which keeps you going when the majority of your options positions end up being worthless.

And since Rahemtulla didn’t tease any particular LEAP option play that he’s recommending you put on (he teased that he would tell you “in 17 minutes,” which I guess is the length of time it takes for the average person to send in their credit card and read the recommendation?). He does say that he watches “trends” and has a list of 18 “profit predictors” that he uses to determine when to recommend a particular “Dark Equity” for his 400 Report (including stuff like market direction, and insider buying — you can see the ad if you want the whole list), and that he has amassed a huge number of successful trades.

So … imagine my disappointment, the mysterious “Dark Equities” are plain old LEAP options … and this is just another options trading service. I have a hard time telling which of these services might be any good, since they of course all claim dramatic gains and most of them fail to admit that many of their trades go to zero. Add on to that the fact that most options are low volume securities, and that an adviser’s recommendation could significantly boost the volume and price of a particular contract if he touted it in his newsletter, and I end up being very wary of all of these services.

I’m sure some of them are worthwhile, though, so if you are a nimble options trader and think Karim’s 400 Report or another one of these services is worth your money, please let us know.

Related Gumshoe Articles

Pocket Nine-times your money with HCIT: “This Discreet Amsterdam ‘Rendezvous’ Will Ignite a $678 Billion Tech Explosion”

8 Comments Read More

Leave a Reply

41 Comments on "“Dark Equities: Secret of the Wealthy 1%”"

avatar

Wim van Dalen
Guest
0
Wim van Dalen
January 23, 2008 5:39 am
Thank you very much for the quality information you give about the “Dark Equities” service. I know a lot of of all kinds of investments…but when I saw this advertisement I did get again a feeling of missing some holy grail. The teasers which are used today are becoming more and more unethical…a covered call strategy they call one night dividends or whatever. I have been a subscriber of a lot of investment letters or options services. And when I became a subsriber a lot of times you do not see that insane profits they advertise in options or so.More… Read more »
G IMBURG
Guest
0
G IMBURG
January 23, 2008 4:09 pm
I love option strategies and the leap is excellent. I look for opportunity first, then try to devise an option strategy. As an example,half the market was bullish and half bearish about a month ago. The S and P was around 1400. The risk was the S&P would go both directions.One call and one put at the same price netted great gains on both sides of the 1400 trade. Leap strategies give time to trade and sell when the option is profitable. Thinking through the Wall Street noise can give give strong clues to future movement and opportunity, and wise… Read more »
Gravity Switch
Admin
11
January 23, 2008 4:15 pm

Thanks to both of you for the comments — and Imburg, I agree with you in spirit — and I think the key word in your comment is “wise.”

Mahkel
Guest
0
Mahkel
January 23, 2008 6:42 pm
I’ve attended an Oxford Seminar 2 years ago where Karim talked about LEAPs in bounds, he’s part of the show there (or was). That’s when I got interested. At the time his hard and fast lecture was double-dutch to me, but then I subscribed to a low-coast teaser-account for half a year. During that time he walked his brethren through a pizza-play that was typical of what on earth can happen with LEAPS. His key-issue was, and I agree with him, to determine your exit-strategy on profit-taking and perhaps sticking with something like 50%, rather than waiting for the thousands… Read more »
Chris
Guest
0
Chris
January 24, 2008 1:07 pm

This service/newsletter has been around for a while… Agora/Mt. Vernon/Oxford Club used to call it (creatively enough) the LEAPS Trader. After following these cats for a while I notice that they like to change the name of the services every once in a while.

sequential
Guest
0
sequential
January 24, 2008 2:09 pm

I believe Karim Rahemtulla has 3 investment letters based on options
ect have any of you tried his services and if so how has your success rate been ?
Thanks Sequential

Jake Witmer
Guest
0
January 24, 2008 4:44 pm
Thanks! I suspected Rahemtulla was talking about LEAPS. Hilarious. (I am a total novice stock trader) The newsletter is psychologically designed to be very effective (If it had only cost $30 or so, I might have signed up for it, instead sanity prevailed when I saw that he wanted $1,500! and I googled “dark equities” and got your article back -LOL). A friend of mine subscribes to “Investment U” by Mark Skousen which sells similar types of hype. I get their promos in my email all the time. I’m not saying that there’s no value there, there may well be,… Read more »
A. Haque
Guest
0
January 25, 2008 12:05 am
Well, I don’t know what to say except thank you for enlightening us with your simple coal-face explanation. Like many of your readers I found the “dark equity” a curiosity as I too had never heard of options being christened with such an exotic name. I have several years of experience in the market but I get very wary of returns of such magnitude as I know the obverse fact is that there are lots of losers which regrettably no one talks about. I know of an individual who lost over $300k several months after attending an options course. The… Read more »
Marilyn
Guest
0
Marilyn
January 25, 2008 9:45 pm

Once again brilliant, I appreciate your commentary. Seems I’m on everyone’s hit list. I got this one in my e-mail and was soooooo appreciate to have your commentary in my e-mail too.

You’re like a fuzzy baby blanket that keeps the spooky boogie man away.

Harold A
Guest
0
Harold A
January 26, 2008 2:23 pm

You’ve won a reader here as well.

I, too, thought he was talking about options until he said he wasn’t. Google pulled up your site and the secret is revealed. Thanks, much.

Harold

coolrappingdude
Guest
0
coolrappingdude
January 27, 2008 2:46 pm

hey guys,
thanks so much for shedding the light on this.
I personally have traded options for about 15 years.
very few instances of success.
I think they are so very risky, and you really have to be a Pro
to make money at it.
so, Dark Equities or not, you guys please be carefull. this market has no mercy.

Chuck Davenport
Guest
0
Chuck Davenport
January 27, 2008 5:18 pm

Thank you for clearing up the hype! It is so easy to get caught up in the excitement. In the end if it sounds too good it usually is. Do you have a good web site that you recommend for learning candlesticks?
Thanks
Chuck

John in Deland Florida
Guest
0
January 28, 2008 2:11 am

Gee….I have been buying and selling these long term options for over two years and I did not even know they were not jusr normal regular old options that just had distant expiration dates….JOHN

Andrew
Guest
0
Andrew
January 28, 2008 7:47 pm

I actually like investing in options…just small bets of 500-1000 at a time…

But I really wish I knew whether or not some of these services even provide a slight edge…

Terry
Guest
0
Terry
January 28, 2008 10:42 pm

I have been with the Oxford Club for a while. Followed the advice without risking any money for a year. I can say I have made good money each year for 5 years now. Have some disappointments with the service, where I believe certain services I should have access to, but don’t after paying the highest level membership. Yet, overall I believe it is some good investment advice…better than my broker gives! As in anything, research and make a wise decision.

Azam Khan
Guest
0
Azam Khan
February 6, 2008 11:56 am

THANK YOU!!!! That’s all I can say for demystifying a well-written email teaser being slammed into my email box every few days. Keep up the good work!!!

marc
Guest
0
February 7, 2008 11:54 am

i too say thanks for the important information. i was tempted to try their their program. i will now look elsewhere.

babs
Guest
0
babs
February 7, 2008 3:16 pm
A brief word form a similarly inclined “gumshoe.” As an obsessive researcher, I try to find key words in the teasers then find the stock or play. This has resulted in some interesting trails. You probably already have found the Albanian mining company – Tirex Resources – TXX:TSX.V – and the oil exploration company that now benefits from resolution of the water border dispute off Uruguay – CGX Enery – OYL.U:TSX.V. In researching the “Dark equity” teaser (before I found your site) I found “dark pools” at http://www.advancedtrading.com. Spent way too much time looking at the site but was fascinated.… Read more »
Gravity Switch
Admin
11
February 7, 2008 3:30 pm

Thanks babs — yes, I’ve seen that “dark pools” stuff but haven’t looked at it closely. I have written about both of those other teasers, in case anyone’s interested:
http://www.stockgumshoe.com/2007/11/albanias-forgotten-commodity-treasure.html
and
http://www.stockgumshoe.com/2007/12/seven-year-blockade-lifted-from-gunboat.html

Mark
Guest
0
Mark
February 14, 2008 12:42 pm

Thanks very much for a very informative article…I first heard about this in a news letter I have been getting for a few weeks from a goofball doctor’s newsletter. This confirms what I thought all along…was that a duck I just heard?? His web link is below.

WC Douglass (realhealth@healthiernews.com)

Michael
Guest
0
February 15, 2008 10:44 am

Hi, Gumshoe

I’m really delighted having read your comment!
By the way, these guys are operating world-wide.
At least from my knowledge of the German scene, there is a publisher’s group who must have a sort of franchise agreement with their U.S. counterpart.

P.S. What do you think of a 95%-hit record (as being boasted by Bottarelli/Lass)?
Michael

Marty
Guest
0
Marty
February 15, 2008 12:06 pm

Hello Gumshoe.
Dark Equities, I’ve been trading options for over 30 years, spent 16 years on the trading floor, I never heard that term.
If you don’t mind a shameless plug, I co-authored “Understanding LEAPS”, 2003, McGraw Hill. Get it at Amazon, 40% off. 99% of investors didn’t buy my book (yet).
Why didn’t I think of that term?

Marty Kearney
Senior Staff Instructor
The Options Institute
Chicago Board Options Exchange (CBOE)

wan
Guest
0
wan
February 22, 2008 12:51 pm

I am an Oxford subscriber. I think their basic newsletter is worth the $99 per year. I do get several “teaser” ads…usually their price is too high for me. Thanks for YOUR service. I have learned a lot from your articles. Like some of the above comments, I used to try to decipher them myself. As a teacher, I don’t really have that kind of time. I count your site as one of the most informative. Keep up the good work and Thanks.

Bret
Guest
0
Bret
March 2, 2008 12:58 pm

Like the rest of the reply’s I too an thankful for your informative article. If and when I get anymore of these so called secret investment techniques I will check back here for so truth talk! Thanks again.

G IMBURG
Guest
0
G IMBURG
March 2, 2008 5:12 pm

Did it ever occur to anyone that if you could make gobs of money with all the “secret” techniques the teasers promote,you wouldnt need to broker ideas with creative names. The tehniques are very common to traders and are just an attractive way to lure the uninformed into paying money for an idea that they could find in a $10 book.

Greg
Guest
0
Greg
March 8, 2008 8:54 pm

Gumshoe,

I went surfing for the term ‘Dark Equities’ and your’s was one of the sites that surfaced. I am so happy I read it. Had Karim info on them stored in my favorites..(since erased) and may have invested the subscription amount he was asking…..but NOT now….thanks so much for your informitive information…you now have a NEW reader.

Mark Rossi
Guest
0
March 9, 2008 3:36 am
Stock Gumshoe is a great site! As an investor myself I get a ton of these promos and so many are coming from the same group of people, all with different subscription services and names. It’s funny because I’ll get a promo from one service, and then another will email me with their own sales letter or pitch with a link that gets you to the same sales letter…Let me say this, I am growing more and more disappointed, and irritated frankly with The Oxford Group, Investment U, and the bunch because, now 2 years later I can “CLEARLY SEE”… Read more »
LUIS TAYLOR
Guest
0
LUIS TAYLOR
April 2, 2008 1:03 am

WAS ABOUT TO SUSCRIBE TO DARK EQUITIES-THANKS FOR THE INFO. SUSCRIBED TO TRUE WEALTH. COULD YOU TELL ME ABOUT THIS?

Karen H
Guest
0
Karen H
May 2, 2008 4:56 pm

Hinging from a promotional Inv. U e-mail, “Dark Equities” prompted me to search for more info on the web. That led me to “GumShoe’s” article, logically identifying the high probability that Karim is creating a new marketing “niche” for what GumShoe asserts are LEAPS. As a new subscriber to Oxford and Investment U, I am bombarded by an empty-worded, lengthly, and costly solicitationsfor. Thank you for your candid information and allowing readers to comment. It saved me $$$$.

Kelly L
Guest
0
Kelly L
May 10, 2008 10:40 am

Thanks for the heads-up. Just got the spam and was interested. Wanted to post just to be a member of this great group of message posters. Wow, over 2 dozen people searched for key words and found your site. The added insight in the replies was well worth the read. Thanks, to all.

Laurie Witt
Guest
0
Laurie Witt
May 10, 2008 2:17 pm

Whew, that was close. I was also rather interested in investing in Karim’s offer, especially since I realized I recently spent 2 x that amount for my business, which at best will only double in a few weeks. Better that than trying to figure out “options trading and high risk taking” that I am seeing written here at your site from the others. I heavily diversified about 5 years ago, and I thankfully appreciate the excellent advise here, to study, get subscriptions from those in the know, and continue to make my best (and hopefully wise) decisions on stock purchases.

Buck S
Guest
0
Buck S
May 14, 2008 2:18 pm
StockGumshoe…you are the best. I was so angry at the mis-representation in this salesletter, that it prompted me to write this letter for Karim to take to his sleezy misleading copywriter. I have yet to recieve a reply. Enjoy, Buck S Karim, I recieved your latest marketing letter for “The 400 Report” and I’ve got to tell you… These cheezeball snake oil salesletters you and your sleezy copyrighters put together are really starting to piss me off. You’ve discovered this mysterious thing called “Dark Equities?” You? Congratulations! and you “will admit, though, that when I talk to investors who do… Read more »
Gravity Switch
Admin
11
May 14, 2008 2:23 pm

Thanks Buck. I wouldn’t hold my breath waiting for a reply …

Diana
Guest
0
Diana
May 21, 2008 11:00 am
I too share your disdain for such shameful tactics. I have been trading options for five years and have settled in to trading primarily credit spreads with predetermined limited risk for a modest but comfortable steady return, along with what I will describe next. In looking at the charts provided in the teaser the numbers suggest that in addition to purchasing the in-the-money LEAP, calls are being sold against the long option position (similar to a covered call but substituting the LEAP for the long stock)on a shorter time frame, monthly, creating a diagonal spread. Each month the short call… Read more »
Peter
Guest
0
Peter
June 8, 2008 5:40 pm

Thank you so much for this excellent article. I’m sure you saved a lot of people from wasting there time checking out the newsletter.

Harvey
Guest
0
June 11, 2008 1:01 pm

Thanks for the info. I’m a subscriber of Oxford and I get a lot of these teasers at high prices and just ignore them. If its unbelievable its to good to be true! I’m retired and am in the income bracket and invest in only dividend paying funds and stocks, HIGH PAYING DIVIDENDS.
Thanks again

Russell
Guest
0
Russell
June 13, 2008 1:31 am

Thanks for the clarification. A great time saver. Note,however, that the real money is undoubtedly made in the number of individuals who sign up for the 400 Report because they took the bait.

Mangojulie
Guest
0
Mangojulie
June 20, 2008 8:07 am
Gumshoe, thanks for the great service. I use your site all the time when I get these spam emails and junk mailers. You did an excellent job deciphering that they’re talking about LEAPS. However, I wasn’t quite sure that the strategy was only LEAPS. Karim’s teaser showed it was possible to earn much higher returns on the strategy than on the actual stock in some of the cases he teased. That was a big curiosity for me. It did not appear that it could be a LEAP-only strategy. Then I read Diana’s note at #34 above. And I suspect she’s… Read more »
victor
Guest
0
victor
October 9, 2008 8:35 pm

thanks for your informative alert and warning. what do you think about other such services? you barely mentioned the next caption in this write-up”turn every $2k into $91,771 or more in just 7 weeks of trading options”. I really believe in the leverage powers of options, but how these humongous profits of 700% or more could be made is beyound discription.

Raymond
Guest
0
December 13, 2008 3:32 pm

Upon reading up on this Dark Equity Scam, I am grateful for your comments. In a few of the Letters, the Oxford Club was mentioned. Does anyone have something to say abour the various services Newsletters offered by Agora Financial? Also, I have noticed a pattern that many of these solicitation Junk Mailers seem to come out of Frederick Maryland and Fort Erie Ontario. Did anyone, also, notice such a pattern? No matter which Newsletter Subscription Junk Mailer is offered, it always comes from the same address and/or P.O. Box!!!
Thank you.

Allen
Guest
0
Allen
September 7, 2008 10:34 am

If after trading options for 15 years, it has not been profitable, time to find a new hobby. I’ve been trading options about 10 years and usually have 60-70% of my trades profitable.

wpDiscuz