Thursday
Jan112007
PUndits Pushing Puts Punters: Dangerous Advice
January 11, 2007 at 3:53 PM
I'm watching CNBC ...
Two market pundits are recommending selling puts on the Dogs of the Dow. While I sell puts often against stocks I would like to own. I don't like the idea of CNBC explaining to people that selling put is a good idea. In 1987, I heard more stories about bankrupcies caused by small guys short puts.
I traded options on bonds from 1991 - 1993 at Chemical Bank (now JPMorgan Chase). I traded options on equities from 1993-1996 at Morgan Stanley. I was responsible for derivatives (options, futures and other non-standard instruments) trading at Morgan Stanley in different partys of the world at different points in my career. Suffice it to say I'm an expert. Unless you are an expert, have a firm handle on your finances and trade with money you don't need, do not sell puts. I cannot tell you the number of times I've seen people get hurt or really frustrated with investing because they entered an options strategy that they didn't really understand.
I know that CNBC has a mission to present viewers with interesting ideas but I think CNBC is being irresponsible by having these guys on TV. Closing Bell co-host, Dylan Ratigan, did try to clarify the jargon that the pundits kept using to confuse viewers. But they just kept pitching a put selling as a "something for nothing" strategy that earns you money or lets you buy stocks on the cheap.
Two market pundits are recommending selling puts on the Dogs of the Dow. While I sell puts often against stocks I would like to own. I don't like the idea of CNBC explaining to people that selling put is a good idea. In 1987, I heard more stories about bankrupcies caused by small guys short puts.
I traded options on bonds from 1991 - 1993 at Chemical Bank (now JPMorgan Chase). I traded options on equities from 1993-1996 at Morgan Stanley. I was responsible for derivatives (options, futures and other non-standard instruments) trading at Morgan Stanley in different partys of the world at different points in my career. Suffice it to say I'm an expert. Unless you are an expert, have a firm handle on your finances and trade with money you don't need, do not sell puts. I cannot tell you the number of times I've seen people get hurt or really frustrated with investing because they entered an options strategy that they didn't really understand.
I know that CNBC has a mission to present viewers with interesting ideas but I think CNBC is being irresponsible by having these guys on TV. Closing Bell co-host, Dylan Ratigan, did try to clarify the jargon that the pundits kept using to confuse viewers. But they just kept pitching a put selling as a "something for nothing" strategy that earns you money or lets you buy stocks on the cheap.
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