Trimming the Options Learning Curve

A recent seminar drives home the importance of continuing your education.
Author:
Publish date:

Q: How do you become worth a million dollars on Wall Street?
A: Deposit $2 million in a trading account.

We all know a variation of this old joke, and for some reason it usually comes to mind as I answer a multitude of readers' queries regarding educational trading resources, which are by far the most frequently asked questions I receive -- even surpassing the almost hourly inquires for where one can find an

option's implied volatility.

Admittedly, it's with this somewhat unfair yet healthy cynicism that I accepted a most generous invitation by

Optionetics.com to attend its intensive two-day introductory seminar last week here in New York.

The Business of Learning Is Business

Upon hearing that the two-day seminar commands a $3,200 fee, my first response was "Wow, that's a lot of money!" Those funds could be used to buy a number of books, sign up for high-speed Internet access, subscribe to a few newsletters, maybe scoop up a couple of shares of

Taser

(TASR)

and bet the remainder on black at the roulette wheel.

Before I give you my review, though, I'd like to share a little of the history, background and philosophy of Optionetics and why, regardless of whether it can help you succeed, I am duly impressed with it as a business unto itself.

According to Richard Cawood, Optionetics' CEO, the company started about 11 years ago "mainly by accident" after George Fontanills (the co-founder) wrote an article describing the use of options in layman's terms for

Futures Magazine

. The article generated a tremendous response, which suggested a huge demand for options education, trading tools, software and investment advice. Thus, the company was formed.

Since 1993, when the article was published, Optionetics has grown from six seminars a year to what will be 1,400 in more than 70 countries this year. The seminar in New York last week drew about 120 attendees, while a recent event in San Francisco had more than 200. At $3,200 a head, some simple math tells me the enterprise is bringing in something close to $400 million in revenue on seminars alone.

That revenue stream means it must be doing something right. One of the first signs is the fact that it offers a money-back guarantee. This comes in a two-pronged form: When you sign up for the course, you receive a tremendous amount of study material, including four coursebooks, a 14-CD video set and the Optionetics library on DVD, giving you plenty of time to review before the first day's session. If after noon -- or four hours into the first session -- of the first day you don't think it's worth your time or money, you get a full refund.

The second part of the refund comes for those who complete the course but don't make 300% of the tuition within the next six months. To qualify for this refund, you must execute at least 36 Optionetics-approved limited-risk trades that can be confirmed through a brokerage statement.

While of course you need to read the actual document and fine print for details, I believe this goes a long way toward giving people peace of mind regarding the tuition fee, especially those who can probably least afford it. And let's face it -- if you were making money hand over fist, you wouldn't be trying to learn how to trade better. Also, this initial fee essentially buys you a lifetime membership to return for an unlimited number of refresher courses.

Options for Dummies

What really impressed me about Optionetics was how it simply presented material in a thorough yet nonintimidating manner. Kevin Lunt, one of Optionetics' directors of research, asked me what I thought of his presentation titled "Using Tools to Find Trades." I told him it felt like "Options for Dummies," which I meant as a supreme compliment.

Optionetics does a good job of keeping everything simple. First, it makes sure you enter each trade or position understanding the risk and worst-case scenario, rather than singing the promises of untold riches should everything work out. Then it focuses on one or two trade patterns found to be successful, which produce the best probability of profitable trades for customers and Optionetics itself. Optionetics also acknowledges it holds no secret key nor only right way to trade.

Optionetics happens to rely heavily on Elliott Wave and Fibonacci patterns. But just as you don't need to be a mechanical engineer to drive a car, you don't need to know all the math concepts behind the theories. That's why Optionetics has software.

Another great piece of the premium software offers the ability to compare the risk-reward and, more importantly, the return on investment for any given position. It allows you to plug in simple criteria such as "bullish" or "bearish" on a specific issue, the target price and the time frame, and it spits out a variety of option positions.

Obviously, Optionetics is not the only firm out there, and it is admittedly geared toward retail and less-sophisticated investors. But Cawood thinks these types of individuals tend to be the best students. "When you go

in front of an investment firm or seasoned traders, they either want to show how much they know or are too embarrassed to ask questions and show what they don't know."

While it might not be the best fit for everyone, the two days and hours of reading and CD viewing reminded me that education is an ongoing process. And just as you may be able to run or lift weights on your own, working with a professional trainer can usually help produce better results.

On to Vegas, Baby

With that in mind, I suggest people be aware of and try to attend some upcoming events. The next really big show will be

The Vegas Money Show run by InterGroup, the same firm that runs the TradersExpo, which I attended and

reported on last February. The Vegas Show will have such options luminaries as

Larry McMillan,

Bernie Schaeffers and our own

RealMoney

contributor Dan Fitzpatrick participating in free roundtable discussions and paid presentations.

I'm sure there'll also be plenty of glitz, gizmos and high-tech products to check out. And if all that fails to impress, you can always fall back on betting it all on black.

Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He invites you to send your feedback to

steve.smith@thestreet.com.