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Options
and
Investment Clubs
May 26, 2010
I’ve been
a fan of combining
investment clubs with options for a long time. The
following was published on my
blog, Options for Rookies, on
Jul 18, 2008.
Are you
the type of person who
prefers to learn something in a group environment, rather than by
yourself? May
I suggest that you find a few friends, coworkers or family members and
make it
a goal to learn to use options? You never know who’s interested in
learning new
investment techniques until you ask.
One
enjoyable way to learn together
is to form an investment club. If you have the patience to refrain from
investing real money before you are ready, you can hold meetings
(weekly
recommended) at which each member discusses a topic that he/she studied
(books
or internet) since the last meeting. You may also want to post a
question or
comment here. You can open a paper trading account with your broker and
practice
one or two option strategies and discuss each position at each meeting.
Each
member (or team of members, working together) can ‘own’ one specific
position
and manage it (in the practice account), as necessary. At the meeting,
discuss:
- Why the
position was initiated.
- Why this
specific stock or index was chosen.
- Include
profit potential and risk.
- Is this a
market neutral strategy, or are you planning to benefit from a bullish
or bearish move?
- Were any
trades made since the position was opened?
- Did you
close the position to take your profits or to take a loss and eliminate
further risk?
- Was the
position modified (adjusted)? Why? This is a learning process and this
type of discussion is very helpful.
- Whether
you are ready to add another position to your practice portfolio. Do
that only if you have meeting time for a thorough discussion.
If you
don’t
have more than two or three positions to discuss, each can get a
thorough
airing. The purpose is not to make money from these trades (yet), but
to learn
how to adopt, and manage, a specific strategy. This is an excellent
method for
getting a good options background. You have hands on practice, discuss
the
trades within your group, and use fake money. It’s a fun way to learn
-
when you have people who are truly interested in learning. If these
meetings become social gatherings, it will not work. This is not your
traditional buy and hold investment club.
Not every
member may be able to
contribute as much time as others. Those with full time jobs can only
spend
evening hours on their individual education and probably cannot be as
active a
member of one of the teams that manages a position. But, those club
members can
examine a position at night and suggest a trade to the rest of the team
– a
trade that could be entered the following morning. You can make this
work, no
matter whether you are retired with lots of spare time, someone who
works at
home who can grab a few minutes here and there to watch his/her
position, or
someone who is too busy to get involved during market hours. The most
important
qualification to join this investment club is the desire to learn about
options.
As you try
different strategies, you
will discover which feel most comfortable for your group. You may
prefer very
conservative methods where preserving capital comes first. Most
investors are
interested in making money and you want to find a method that’s
profitable –
and comfortable – at the same time. That’s not difficult.
If you are
a member of an investment
club, speak to the other members about learning to use conservative
options
strategies to enhance your club’s performance. Come to the meeting
prepared to
discuss one strategy, or bring along a copy of today’s blog.
If you
open a new club, consider
posting that news and an occasional progress report.
Mark D Wolfinger
Partner and Director of Public Relations
Expiring Monthly: The Option Traders Journal
http://www.expiringmonthly.com/
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