A Big Reason Why I Do What I Do

2/19/2014

I have traded options professionally for many, many years. Did very well, as it happens. Now I am transferring my accumulated knowledge to you, my readers and students. Why? Well, I enjoy it, in the first place. And in the second place there is so much bad, disingenuous and downright false options information out there that it appalls me. And I, false modesty aside, strive to do better.

Case in point: CNBC (which should know better) reported on a major bearish options trade on Tesla (TSLA) which happened today pre-earnings.

Someone did a 1 x 2 ratio put spread in size. They bought the January 100:50 1 x 2 put spread for a 3.50 debit.

If I may quote the article: "The maximum loss is the money spent on the trade". False!! A 1 x 2 ratio spread means that you are net options short. The maximum possible loss is far more than the debit paid!

Any options spread that is net options short makes for an undefinable risk. Anyone claiming otherwise has no business explaining options and how they actually work.

Oh, and by the way, ay this writing TSLA seems to be powering higher, so kiss that 3.50 goodbye.

But that's not the point. My point is that the article was basically wrong, wrong, wrong, about how options actually work.

I don't just teach options theory. I also teach options working method.

Randall Liss, The Liss Report