My problem with risk taking and trading options and futures isn't necessarily with the products. It is the leverage. With stocks and covered calls you have at most 4/1 leverage. With futures it is 50/1 and options are similar. You can trade any of these products in a self directed IRA and that is ok. Just keep in mind I know a man who killed his IRA, savings, and lost his marriage because he kept buying lower on a stock that he thought was safe. Ever heard of Enron? He literally averaged down to the dirt because he couldn't take a small loss. Discipline is the key to wealth. It is the key to wealth no matter what field or endeavor. If I had the choice between intelligence and discipline I would go discipline every time.

Take all the risk you are comfortable with, just make sure you have proven the ability to take a loss and move on. As long as you still have the risk tolerance to average down and wait for a scratch out or small winner to exit your account will be at risk. I am scared by some of the talk in this thread about rolling out options to wait for a profitable exit. That is what killed Karen the "super trader". I put up a video of Ken Cordier. Watch it, he ruined his clients because of his hubris and unwillingness to take a loss and move on.

Trading is not kids play. You can destroy yourself if you aren't built for it. I am just trying to make sure everyone understands that.

 

All this talk of risk, inexperienced traders and tax considerations has me thinking about a quick retreat to my happy place in real estate. I've never had a house drop to 0 or watched it double when I'm short. The leverage on options is great, but so is the leverage on RE. The tax code is favorable to index options, but even better for real estate. The ability to receive cash flow that is offset by a non-cash expense (depreciation), then take cash out via refi without paying taxes on the distribution is a huge advantage. I'm trying out trading more for entertainment in a small account, while keeping my primary focus on adding more real estate.

 

The most successful investors will always be doing what they enjoy spending the time and energy to get good at. If real estate is your thing you will be better at that than stock picking. I had rentals from 1989 to 2006, made a lot of money but just got sick of the 2AM calls about overflowing toilets and repairing tenant damage at the end of every lease. I sold out when the market went crazy last time. Right now sort of reminds me of those days.

 

You should copyright this. Best advice ever for newbies into options and futures.

 

It’s interesting how people view risk. Asset heavy properties that rely on others to pay your mortgage seem risky. It seems high overhead and the risk of the mortgage payment always is risky. But, you’re comfortable with it and I know it’s not as risky as I perceive.

Your perception of options is that it’s very risky, but I’m very comfortable with them.

No one is right or wrong, it’s just an interesting observation in how people perceive risk.

Most importantly, risk is what allows us to make money in our respective areas of expertise. So, we are all more similar than we think, in terms of risk tolerance.

 

1) Follow-up to earlier part of this thread: I called Fidelity about BrokerageLink. You can trade options (up to level 2, basically no spreads). But due to the nature of the account, it requires a paper application. Must be filled out, signed, scanned, and submitted via their secure messaging on the site.

2) Regarding risk, I think everyone is giving similar advice. Be careful. Start slow. Don’t risk too much of your portfolio on any single trade. That applies to both RE and options/futures. I just thought it was interesting that what sounds like safe, conservative options advice (don’t risk your retirement funds) actually exposes you to more risk (non-retirement accounts don’t have the built-in IRA safeguards) and wanted to make that clear for other newbies.

 

Absolutely. The most successful traders seem to be the ones who know how to take losses, not just pick winners.

All this talk of Delta, Theta, Vega, Beta, etc. has me thinking about real estate metrics. One I pay close attention to is the $/toilet ratio. We don't have a fancy Greek symbol for it, but higher is better. Self storage can get you north of 3,000,000:1. If investing in an asset class where a high $/toilet ratio isn't an option (residential), scaling the size of the portfolio where you hire employees makes a huge difference. The current high prices have tempted us into listing two of our smallest assets. We are re-deploying the capital into passive MF and pulling out a small amount for an options trading experiment. We've also taken advantage of the low rates to cash out refi and reduce risk with non-recourse debt.

Options aren't all that risky when managed properly by an educated trader. I've traded the simple strategies off and on for nearly 30 years. I just got tired of managing positions. The WB reserve schedule over the last year has given me time to take on some other personal interests, so I've returned to options trading. The biggest risk is losing time more than money.

Real estate comes with a wide range of risks. Buying an existing asset with a history of income is not very risky. Like options, you have to know the market and what represents a good price. You are absolutely correct about the relationship between risk and expertise. I'm working on my expertise in stocks, options and futures as a risk reduction measure. Knowledge and expertise definitely reduce risk and allow investors/traders to identify safety where others fear risk.

 

I subscribe to a trading newsletter/group. It’s been great for me to start to learn trading stocks and options. They send out a weekly email newsletter each Sunday, have a daily chat group to ask questions and learn, online lessons, and send trade alerts when they make a trade (with stops and target). I've easily covered my subscription costs with gains from the trade alerts and what I’ve learned. They’re offering a 20% discount to new subscribers with code HNDST2020.

Wanderer Financial

 

I guess my point is more about how we perceive risk vs actual risk. I am very comfortable taking risks trading options. Somehow losing $1-$2k per trade seems less risky to me than investing in real estate. No one is right or wrong. There is no way to establish and appropriate amount of risk that works for everyone.

its just an interesting observation. I’ve always seen real estate as illiquid, high overhead, hope for a renter to pay your mortgage and pray for price appreciation that exceeds say, an index fund. A lot here have successfully done this.

Just an interesting observation and good way to continue to develop ones investing Arsenal. Ultimately, we all have the same *general* goal. I think.

 

thanks for the link razor.