Guide Options Trading Guide by Alaron

This guide is an introduction to options, including terminology and a selection of basic strategies.
 
I lost my life savings (net worth) with ODL securities on an advisory basis in 5 months. I invested £71,500 and was left with just £900. The Brokers name was Frank Freeman and traded options. I was commissioned over £32,400.

The case has now gone to the Ombudsman for arbitration.
 
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loui10 said:
Iwith ODL securities on an advisory basis in 5 months. I invested £71,500 and was left with just £900. The Brokers name was Frank Freeman and traded options. I was commissioned over £32,400.

The case has now gone to the Ombudsman for arbitration.
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There is so much wrong with this post that it is hard to know where to start.

lost my life savings (net worth)
Trading Options (or any derivatives) is absolutley for risk capital only. Are you seroiously trying to tell us that you didn't know that? Have you ever read the disclaimers that are always included with any advisory service stating this fact?

I invested £71,500 and was left with just £900
First of all, it wasn't an "investment". And did this just "happen" overnight. When you were down, say oh... 20% didn't you stop to thik ... hey this isn't working? What did you think when you were down...say 50%? 75%?

I was commissioned over £32,400.
Was this a surprise? Were you compelely ignorant of the rates being charged?

The case has now gone to the Ombudsman for arbitration.
Taking responsibility for your decisions, or the lack of them is the first step towrds becoming a successful trader.

Good luck with your case.
 
1) From Wikpedia -

An investment involves the choice by an individual or an organization such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time.

2) "Trading Options (or any derivatives) is absolutley for risk capital only" Why would an advisory broker take all clients net worth then? Its the responsibility of the broker not the client. Ever heard of Due diligence, COBS, treating your customers fairly?

3) Churning refers to the excessive buying and selling of securities in your account by your broker, for the purpose of generating commissions and without regard to your investment objectives. For churning to occur, your broker must exercise control over the investment decisions in your account, either through a formal written discretionary agreement or otherwise. For example, if you relied on your broker's advice because you were unable to evaluate the broker's recommendations and exercise your own judgment, your broker may have exercised control over your account. Churning can be a violation of SEC Rule 15c1-7 and other securities laws.

The major securities industry self-regulatory organizations have rules prohibiting churning and excessive trading. Excessive trading is the same as churning, but without the requirement that the person engaging in the trading does so for the purpose of generating commissions. Churning and excessive trading can violate FINRA Rule 2310, FINRA Rule 2310-2(b)(2), NYSE Rule 408(c), and NYSE Rule 476(a)(6). To request copies of the applicable New York Stock Exchange rules, please call the NYSE at (212)656-2744.

If you believe your broker has churned or excessively traded your account or engaged in another sales practice abuse, please send us your complaint using our online complaint form.

4) Read up on the LAWS of investment advice then you can start ranting on like an idiot. The guy above lost everything he had, have a little compassion and i was treated the same way by the same broker.

Good luck with your trading
 
Ivan Gekko said:
1)

The guy above lost everything he had, have a little compassion
We would need to hear both sides of the story to make any real informed opinion ... so I accept your admonishment. But frankly, I find it hard to imagine how someone can just let their account be manipulated down to zero without rescinding whatever authority may have been granted to the person doing the trading.

and i was treated the same way by the same broker
Are you saying you have knowledge of this broker and that this is his normal practice? If so, what information was provided in advance to entice you trade with him?

My point still stands though that it is and always will be the responsibility of the account holder to monitor and manage his/her account. That seems to have been missed here.
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Ouch, that's a lot of loss. I think new traders come in and think that options are cool, and they seem cheap with huge possible payoff, and they're new, so I can make money here. I don't think the reality could be further from that. If you can't understand how price is moving normally, and be able to profit from that, I think you have no business ever getting into buying options. And unless you are able to hedge with low transaction costs (which a retail trader typically isn't) I think you have no business selling options. You probably also don't understand the risks involved in that.

Stay away from them is my advice, until you can already profit from the market via the underlying.

I understand options. I know all the Greeks, I know how to hedge them, I know how much gets added to the volatility just to be on the safe side, and I wouldn't touch them. I don't have the expertise.
 
Not under FSA laws, it is the duty of the advisor. Please read the rules an regulations, we can the have a chat about what you have learnt.
 
bakrob99 said:
My point still stands though that it is and always will be the responsibility of the account holder to monitor and manage his/her account. That seems to have been missed here.
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incorrect. as gekko says quite rightly. i am all for taking responsibility for ones actions but when it comes to derivatives the goalposts move.
 
gooseman said:
incorrect. as gekko says quite rightly. i am all for taking responsibility for ones actions but when it comes to derivatives the goalposts move.
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So... you're saying that the account holder has NO responsibilty to manage his account and make sure that no one is mismanaging his account?

(Personally, I watch my account statements closely and ANY advisor would always have to get approval from me before any trade decisions are acted upon.)
 
Of course you do, and i bet you understand options. What if a client has no experience in options and is totally reliant on the broker?

Look, when receiving advice from any broker, the responsibility shifts to the advisor. Have you read the rules as i advised you to do yet? I expect not....your going on your theory alone, which is all incorrect pal.
 
bakrob99 said:
So... you're saying that the account holder has NO responsibilty to manage his account and make sure that no one is mismanaging his account?

(Personally, I watch my account statements closely and ANY advisor would always have to get approval from me before any trade decisions are acted upon.)
Click to expand...

Not at all, i am saying under the FSA guidelines the onus moves to the broker providing the service. personally i don't go for get rich quick schemes because i know there is no such thing. if i don't understand something i don't invest. sadly the rest of the world doesn't work like me.

please read FSA guidelines before you post any more on this one....
 
gooseman said:
Not at all, i am saying under the FSA guidelines the onus moves to the broker providing the service. personally i don't go for get rich quick schemes because i know there is no such thing. if i don't understand something i don't invest. sadly the rest of the world doesn't work like me.

please read FSA guidelines before you post any more on this one....
Click to expand...


I don't need to read the FSA guidelines, thank you. I am well aware of the risks involved.

Of course the broker is at fault here as the case was described. But you can't open up an options account without signing documents which clearly outline the risks involved.

I thought we were having a discussion - but apparently you want to remain on your high horse and not even consider dismounting for a brief moment to look at the other side. Good luck to you and your trading.
 
someone needs to wind their neck in. no soapboxes or high horses. i'm not absolving the client of blame, i'm saying it doesn't stop witht the them though. the broker has responsibilities to the client, especially in derivatives. as i said whoever this was thought that an options account was the path to riches, i'm saying there is no short cut. client to blame partly, broker to blame partly. good going to blow that much in that space of time.
 
When i signed the risk warning, i was advised options were only to be used as a hedge/covered options, which is explained. However, it was not the case, the broker at ODL Frank Freeman was using them as uncovered (naked).

You get told one thing and they do something different, without you understanding how options worked in the first place.
 
Ivan Gekko said:
When i signed the risk warning, i was advised options were only to be used as a hedge/covered options, which is explained. However, it was not the case, the broker at ODL Frank Freeman was using them as uncovered (naked).

You get told one thing and they do something different, without you understanding how options worked in the first place.
Click to expand...

Thanks for the information. It makes a discussion more valuable when we have some facts. I regret if my comments have been construed as lacking in sympathy - but frankly emotions such as sympathy have no place in the markets.

Writing covered call options certainly is a reasonable income strategy which I have used before and will use again from time to time. Maybe it's just me ... but I am always
looking at my account pretty closely to ensure that it is the way I think it is.

Did you not know that these options trades were on stock that you didn't own?

Also, your margin requirements would have been considerably higher in this instance if they were naked... so did this broker somehow manipulate the margin amounts that his firm would have demanded?

Where were the checks and balances here?

Good luck with your case - and I truly mean that.
 
The bid/ask in options is one of the reasons I don't trade options for my account. They are a vehicle for market makers to generate cash. Most amateur traders don't come close to understanding vanilla options (here's a question - if volatility rises, what happens to your gamma? Any idea?), and those who do realise that 1) spreads are wide and 2) options keep you in positions when you really should close them, due to illiquidity and/or bid/ask.
 
meanreversion said:
The bid/ask in options is one of the reasons I don't trade options for my account. They are a vehicle for market makers to generate cash. Most amateur traders don't come close to understanding vanilla options (here's a question - if volatility rises, what happens to your gamma? Any idea?), and those who do realise that 1) spreads are wide and 2) options keep you in positions when you really should close them, due to illiquidity and/or bid/ask.
Click to expand...

Couldn't agree more on option bid-ask spreads
 
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