At The Futures Wizard, options may be published as the primary way to take advantage of a particular prediction. Depending on the sophistication level of your membership, published strategies may vary to accommodate money management factors, maintaining control in volatile markets, and overall profitability. When it comes to disseminating successful options trading strategies we are the premier publication that will guide you to the rewards you deserve.
THE MAGIC AND MYTH OF OPTIONS
“THE GOAL IS TO MAINTAIN ASSET CONTROL”
THE MAGIC
Options are “magical” for several inherent, yet sophisticated, features that they impart to the investment community. In the first instance, they engender an unparalleled magnification of the use of leverage. Options also amplify the notional value of a leveraged trading account. Notional value, as opposed to actual value, indicates the amount of an underlying asset that, with the use of all the leverage afforded, is determinative of the fluctuations in actual trading results. Contrary to The Futures Wizard’s opinion, options are often used for short term speculation. While those opportunities do arise, the use of these instruments has a more significant long term value which is part of the proprietary implementation of the trading strategies we publish.
Virtually all options expire worthless. From a hedging standpoint that creates the perfect insurance, and predetermined risk exposure, on the hedger’s underlying asset. A large percentage of the volume that makes leveraged markets operative stems from entities, such as multinational companies, that use these instruments to “lock in” a prevailing price level for the future delivery of their products. Leveraged markets also facilitate agreements in commerce. For this reason, as a hedging instrument, much like the futures markets themselves, options usually perform their intended function.
Importantly, the options strategies employed at The Futures Wizard are implemented as an insurance policy that is inapposite from the standard use of that term in typical financial commentary or text. Indeed, option strategies may be effectively used, through our analysis of both pricing and timing, to avoid whipsaws and the certain vagaries that are inherent and inevitable in leveraged markets. Part of their magic is that they are, in certain circumstances, effective at creating the necessary staying power to take advantage of the major market opportunities we publish. The particular type, price level, strike price, expiration dates and all of the features of recommended options will be presented to our subscribers, when appropriate, for the purpose of enhancing the performance of our publications.
TFW’s predictions may on occasion unveil unique opportunities relating to either extreme market volatility as well as prolonged periods of stagnation. The use of these instruments is fundamental during these periods. The actual prediction and the implementation of the appropriate strategies is where the Wizardry comes into play. These types of opportunities will typically only be suitable for our more sophisticated memberships.
Timing and pricing become an essential element to success and our members should expect that on occasion, again as determined by the markets, The Futures Wizard will publish a prediction that entails the use of these instruments. Our members should be cognizant of the fact that The Futures Wizard employs other sophisticated methods of enhancing the value of the information that we publish.
THE MYTH
Options instruments are typically not as liquid as the underlying financial instrument that they are based on. Liquidity and efficiency are mutually inclusive concepts. In efficient markets, the exercising of an option is typically not as dependent on liquidity factors as is trading on the price of the option itself. Hence, exercising an option, on the markets The Futures Wizard follows, is typically, although not always, more conducive to portfolio enhancement. The primary goal is to execute the option during favorable market conditions as disseminated by The Futures Wizard.
Primarily in the past, “deep out of the money” options and similar schemes were implemented for the sole purpose of generating exorbitant commissions which often yielded to the investor the appropriate moniker that labeled the options themselves…“deep out of the money.” This type of investment is a fool’s game and one that will never be entertained nor published on this site.
THE MISCONCEPTION OF LIMITED RISK AND MAXIMUM PROFIT POTENTIAL
Virtually every trader, or individual with even a limited financial interest, has heard or seen the golden oldie that options provide; “limited risk with unlimited profit potential.” To The Futures Wizard this, of course, is nonsense. This is, in fact, one of the most misleading statements in all of the investment community let alone the futures and currency markets. Naturally, there is never truly unlimited potential. That is a scientific certainty and empirical fact.
Secondly, and perhaps more importantly, this misleading statement, as it applies to actual investment vernacular and practice, fails to clarify that limited risk really means losing everything! There is limited risk in every financial venture and simply because the age old concept of going into deficit is, in this day and age, little more than an anachronism, does not lend credence to, and in fact does a disservice to, credible financial expression or characterization. In reality, it can hardly be said that losing everything is enticing because the risk is only limited to the entire investment.
PRICING INEFFICIENCIES
The pricing of options can be very ineffective even in underlying markets that are otherwise efficient. Remember, an option does not give the owner any rights with regard to the underlying product but only provides rights to the futures contract or forex unit based on that product. In this sense, an option really is a derivative of a derivative. Disparities in pricing often exist, a factor we at TFW call the “latency effect.” When these factors are combined with liquidity concerns, execution prices, and commissions, they typically do not fall within The Futures Wizard’s realm of successful strategies from a trading standpoint. That is not always the case, however, and any such recommendation published that includes this type of strategy will be the exception rather than the rule.
ADVANCED MEMBERSHIPS
All options purchasers pay a premium for the luxury of avoiding price fluctuations in the underlying market. This premium is based on several factors including market volatility as well as the time value afforded by a particular option. TFW is very well aware of option pricing methods and was involved with many of the models that have become part of the financial lexicon i.e. the Black- Scholes Model etc. In the late 1990’s, one of The Futures Wizard’s founders worked extensively with one of his close relatives – (who at the time was the youngest recipient to have ever received a Doctorate Degree from the Massachusetts Institute of Technology) – on the pricing of options, conversion and reverse conversion risks, as well as the use of options strategies to simulate, in an enhanced pricing model, a particular outright futures contract.
For the advanced memberships The Futures Wizard will, on occasion, publish, in a proprietary manner, “synthetic” options positions. These strategies are published for several reasons. Indeed, there will be opportunities that exist and can be captured between the prices of virtually identical products trading in different markets. These publications create the opportunity to enhance pricing levels to maximize profit potential.
Furthermore, any strategy that entails the selling of options, and hence the collection of premiums, is limited to the generally available sophisticated membership levels. These more sophisticated strategies can present a multitude of opportunities as well. In essence, The Futures Wizard can effectuate, through publication, a futures position at a much better effective price level in the market that accompanies a particular prediction. When these strategies are implemented, with the high percentage of accuracy you will experience through our service, they can become a useful tool to entertain, and they afford the most leverage and the best pricing to amplify overall return. As they are sophisticated, these strategies are only available to the highest level memberships.
Kindly keep in mind, TFW does not offer particularized investment advice but must be attuned to the suitability of a particular, but generally available, membership/subscription in order to be a responsible contributor to the financial community. The manner in which you actually implement our publications remains your sole discretion and responsibility. Our purpose is to give you the world’s premier published predictions and how we believe they should be implemented for maximum benefit.
These are not considered imprecise trading strategies as in, for example the put/call disparity, but are rather structured and published in an manner that can be effectively used to maximize the overall profit potential of our publications.
It is important to us for our readers to remember that our philosophy is that risk entails adventure.
“Our philosophy is that reasoned speculation is the lubrication to the wheels of enrichment.”
Consistent with our core beliefs, risk is what creates the rewards in life as well as in leveraged markets. This is our mantra. We encourage you to strive for more as we are of the belief that you deserve more! At the same time it is ultimately your own decision as to what to do with the publications you will receive and to decide what inspires you to achieve more and to maintain a comfort level that is suitable to your needs.
“Our research and experience provides our members with exceptional publications on the use of options and how they relate, depending on membership level, to The Futures Wizard’s market predictions and how they can maximize profit potential while managing risk exposure.”
Follow the Wizard The Wizard knows the Future(s)… and the Forex.