Stansberry Alpha newsletter
by gimpie317 | January 30, 2013 8:56 pm
Travis: Any thoughts on the new Alpha newsletter Stansberry’s coming out with? Cost is $1625/year for 12 option plays selling put options[1]. Do you think their advice is worth that kind of money?
Endnotes:
- options: https://www.stockgumshoe.com/tag/options/
Source URL: https://www.stockgumshoe.com/2013/01/microblog-stansberry-alpha-newsletter-2/
Travis, I just received Stanberry’s ALPHA Strategy also. What is your opinion in general on the strategy of selling put options?
Bottom line you have to be willing to buy the stock you are selling options on. So you have to have sufficient liquidity on hand or be willing to use a margin account.
I have been selling Puts and it does work. True you must be willing to buy the stock, but you can alsways roll it out to a later date and in most cases pick up additional premium. It also allows you to cover the exposure in your margin account at no cost until it is excercised. Nice to get a return on borrowed money that you are paying noting for.
Who is your broker? Broker’s generally do charge interest for margin money.
I haen’t done it but I think selling naked puts can be very profitable. You do not have to buy the underlying stock if the price drops. You; can simply close out the position with a generally small loss.
Stansberry & Associates already has Retirement Trader that specializes in selling puts. RT generally sells puts close to the money, which means you get a lot of premium but have a good chance of being put to the stock. That means that you should only sell cash secured puts (no margin). Which means that your annualized return will be about 20% of what they claim, since they love to state eye popping returns on margin. It is not clear whether Stansberry Alpha brings anything new to the table. And charging over $1600 for a put selling newsletter sounds pretty pricey to me.
Selling puts is no magic route to a fortune. If you want to juice your returns with margin ask yourself how well that would have worked out had you had a large position in short puts in July and August of 2008.
What Stansberry Alpha does is combine long calls and short puts. So the put sales finance all or part of the long calls, while at the same time creating a margin requirement. Of course if the stock goes the wrong way you can lose money on both the puts and the calls. Buyer beware.
Options are generally fairly priced — the “fair” value of an option is usually between the bid and ask. The real professionals in the options market are the market makers, and they make their money on the bid/ask spread — they hedge away all the delta risk and make no bets as to whether a stock will go up or down. To make money as a retail trader in options you must be significantly better than average at guessing whether a stock will go up or down, or whether its price volatility will go up or down. Porter Stansberry has given me no evidence that he is in that elite league.
@John Green: I believe you are confusing two different “fairly priced” concepts. In any open market where there is a publicly posted bid and ask price, the “fair price” can be said to be in that range, with “market makers” able to collect the spread in each trade and others loose that spread in each trade. Thus the prices could be said to be “unfair” by the amount of the spread.
But with options, there are other considerations as well. Here the main consideration is whether the price is high or low based on the price and the volatility of the price history of the underlying. An option price should be higher if the underlying has moved up or down rapidly in the past. The nearly universally accepted theoretical model for calculating “fair” option prices is the “Black and Scholes option pricing model”. Using this model, you will typically find that options are overpriced. So over time, those who purchase options tend to loose and those that write (create) them tend of win. Perhaps this is because people are risk-averse. Or for the same reason people gamble – they enjoy an occasional win more than they dislike a larger dollar amount of small losses.
The only downside of writing options is, of course, that a market crash (or a “melt-up”) can cause rare huge losses. So a “system” that appears to win might not be profitable if such periods are included. This is the reason why option writing “systems” are invariably advertised as having a history of successful trades of 90%, 95%, or even 100%. These are generally truthful claims. But if next Wednesday turns out to be called “Black Wednesday” in history books, the losses may wipe out everything you made for years before.
So any approach to option writing that limits risk in extreme cases is an inherent long term winner, with no need to actually predict price direction. Which may be what Stansberry is claiming. Or perhaps he uses pricing models to select options which are under-priced based on past volatility.