Option Fanatic, RIA (Part 10)

Today I continue discussion from the last few posts regarding trade transparency.

My original thought was that seeing option positions in the account was much more transparent than seeing a listing of funds. Mutual funds are not transparent because knowledge of their holdings is only available in retrospect. I therefore cannot replicate those on my own. Furthermore, some institutional funds (e.g. Dimensional Fund Advisers) may only be bought/sold by affiliated investment advisers. The typical client does not even have access to these.

What makes options so “opaque” is the typical ignorance that surrounds them. A typical client might see stocks in an account and be willing to go purchase or sell a stock. I believe the Average Joe/Jane may know a thing or two about stocks (but not enough to actually invest). I think most people know nothing about stock options and many have never even heard of them.

Besides knowing what they are, there is a great deal to know about how to physically trade these vehicles whether they be stocks or options. My concern suggests one could determine a pattern for what positions I get into and out of at different times. That’s just not true. With stocks and options there are criteria used to select which ones to trade (e.g. technical analysis, fundamental analysis). On top of that, much is to be known about what to look for and how to handle order entry to make sure reasonable prices are attained. Without this, any trader can get hosed by the middle man.

Did you know there was a middle man? I’m quite sure that many people do not.