I was on Facebook the other night and I saw a video advertisement for a trading education company (They shall remain nameless… for now). The misdirection that the video ad was displaying was infuriating, and I felt it was appropriate to write about it for two reasons:
1) Because the information they were providing was grossly misleading to those who didn’t know the whole picture
2) I want to vent a little (Hey, I’m human. Give me a break).
Full disclosure: our company does provide paid trading education. Albeit, some of the most affordable and advanced education (A flat fee of $195 is severely underpriced for the amount of insight we provide).
However, we are first and foremost a blog. The paid education helps us keep the blog running and is there for people who are interested in learning from people with real experience, and for people who don’t want to spend their whole trading account learning from overpriced, half-witted educators. I digress.
As I watched through this 10 minute video, I noticed that there was some valid information being provided. Stuff like how Options can make you money even if the Stock doesn’t move.
He was talking about how it’s possible to have a 90% win rate with Options, and so on and so forth. In the video, the moderator claimed that he and his company make on average $500 per trade. That wasn’t what bothered me. This did…
The moderator goes on to show a screen of how he made over $30,000 trading Options in the past 3 months. He shows his Year-To-Date PnL on Thinkorswim. On the dashboard, I see /ES (The E-Mini S&P Futures). For those of you who don’t know, trading Futures vs Options Spreads produce two wildly different ROI’s.
Futures are mostly leveraged. Options provide leverage too, but the returns from trading Futures is much, much higher (also riskier) than trading Options Spreads.
His PnL showed over $30,000 in profits, but here’s the real kicker… $16,000 of that was from the /ES Futures. However, this is just setting me up for my bigger frustration.
Now this is what truly bothered me, and should bother you too.
Remember how I said he claimed his company was making $500 per trade on average?
The moderator showed his screen of a current trade he had on… He had a 10-lot $20-wide spread on a Stock. What the #$^&!
For those of you who don’t know, when you’re trading Options spreads every $1 (in terms of Strike width) equals $100 in risk.
This bozo had $20 in risk multiplied by 10… nearly $20,000 in risk!
And he had the gall to try to mislead people (intentionally or unintentionally) into thinking that they can easily make $500 per trade… he just didn’t add in that you need to risk $20,000 to do so.
Making $500 on $20,000 of risk is about a 2.5% return on capital. Most Options Spreads (with a reasonable amount of risk) will return about 30% on margin per trade. If you would like to know more about that, we have a free course that you can take. Yes, it’s really free and no it’s not crap (These days “free” implies junk).
Screw this guy for misleading people into thinking it’s so easy to make $500 on a trade, while leaving out you need to risk $20,000 to do so.
It’s people like this that give trading a bad name.
Alright, rant over.
Who knows… maybe I’m the one who’s wrong here. I definitely won’t argue that I’m not biased. I most likely have a subconscious bias, but I think it’s important that these kinds of people don’t blatantly mislead others or leave out key pieces of information. It’s just wrong.
I’m definitely willing to admit I’m wrong here if someone provides a valid point. Let us know what you think in the comments below!