Wednesday, May 04, 2005

Bill Cara: Capital Markets & Social Equity

Bill Cara: Capital Markets & Social Equity

When Bill recommended Ford, I posted that he was making a good call. However, do not fall for the option recommendations he is making.

No one has shown an ability to consistently make money off option trades. The combination of the spread and commissions is simply too high. Short-term trading of stocks is extremely difficult. Trading as options is a losing strategy. Trading options should be done with a relatively small amount of money, for entertainment only.

One can be correct about the direction of a stock a very high percentage of the time and still lose money on option trades because options are "wasting assets". The value of an option typically goes down on days when the stock price does not change! One 2% down day on a stock may move the option price down 20% and one up day of 2% may not move the option price up at all.