- Options are used by professional traders to manage risk, earn an income and make speculative investments, but they are also being pushed onto novice investors.
- Options are not a guaranteed low-risk way to make big profits quickly.
Options trading is promoted as a “high profit and low risk” strategy to make money in rising and falling share markets. It sounds great, especially if you believe claims that “trading options is less risky than shares” and you’ll “identify low-cost trades in just minutes per day”.
One company, Optionetics, says if you don’t make 300% on your tuition fee in six months you’ll get your money back. Another, Traders Circle, recently said at a free seminar that if you start with just $4000, its options “mentoring program”, “recipe for success” and trading recommendations will teach you how to earn $1000 per month for the rest of your life.
The profits they estimate are alluring. Volatile and uncertain investment markets are the hook; slick sales presentations assure attendees they can profit from options whether share markets go up, down or sideways.
The Securities & Derivatives Industry Association (SDIA) estimates as many as 60% of the 75,000 options trades made each day in Australia are by individual investors, as opposed to financial institutions.
We attended free seminars and spoke to other experts to find out if options are really the best way to profit from volatile market conditions. We found options to be highly speculative, with a very real chance you’ll lose everything you invest. We also uncovered some dubious get-rich-quick claims that downplay these risks.
Please note: this information was current as of September 2009 but is still a useful guide to today's market.