Don’t Believe the Hype! (Part 1)

Almost two years ago, a new guy started posting in an e-mail list I read. Today I am going to paste some of his posts. The moral of the story here is don’t believe the hype: any trade has risk and can always lose!

On April 12, 2015, GB wrote:

     > Hello Mark… Did you use quality Delta Puts for
     > the coal stocks? I work with a guy who lost tens
     > of thousands…now he is in the dog house with the
     > wife who is… threatening divorce if he trades
     > again. I had him backtest a couple his major losers.
     > He came back really upset because he could have
     > used Puts to offset the loss. He had heard about
     > Puts but never used them. I’m all for taking the
     > middle ground using Puts for consistent weekly
     > profits. Matter of fact, the lower the stock drop
     > the more the Put increases. Then, you might be able
     > to buy higher Puts to get out of the dropped stock
     > to recoup even more cash. Hmmm! I’m going to run
     > numbers on that last idea.Thx. [italics mine]

On April 12, 2015, GB wrote:

     > …think of it like this: You keep getting premiums
     > and dividends you will recoup all of your money and
     > the rest will be “gravy” forever into the next
     > generation. Also, look back to see if ITM Puts
     > by 1 or 2 strikes would have made you money on the
     > initial position. I do not care to own stock for the
     > long term. I use my employment retirement account
     > for funds. I will use index funds for my IRAs going
     > forward. I use stocks as a financial tool…like a
     > hammer or saw. I use to get stuck in a stock when
     > it dropped…but usually way back on top after 2
     > weekly trades. I believe the “hype” is out of a
     > stock when it drops…so the coast is clear to keep
     > it and make premiums until it is ran up, again…
     > like an upcoming dividend.Thx [italics mine]

In another post, GB wrote:

     > Mike, I’m not an analyst but I’m sure your right…
     > coal will save the country. I agree not to be afraid
     > of a paper loss. Too many of my co-workers dumped
     > their retirement shares in 2008. They lost, big.
     > Those who stayed and kept putting into their
     > retirement accounts are rich and retiring out this
     > year and next!! Do you mind if I check out those
     > stocks? [italics mine]

Yes he minds because he likes to control all the shares?!?

No, incidentally, Mike did not praise coal stocks nor did he say paper losses do not matter.

Until I conclude next time, recognize that any trade can always lose and that without risk there are no profits!