Stock Option Trade Advisory Services

Nov 20 09:06 2007 Christopher Smith, B.B.A., J.D. Print This Article

There are many pitfalls associated with trade advisory services, which can result in devastating consequences.  Discover what you want, and do not want, in a stock options trade advisory service. 

If you are a stock options trader,Guest Posting you are aware that trade advisory services are common place.  It is understandable, because these services are tempting for time pressed retail traders who need some help finding good trading opportunities.  However, before risking your trading account on the trade recommendations of a service, consider whether the service is appropriate for your needs from an investment and trading perspective.

Stock options are complex, derivative securities.  Too many retail traders jump into trading options without first doing what is necessary to learn about these securities, how they work, and how to use them.

Some investors and traders do make the commitment to study the subject of stock options, and do develop a solid academic understanding.  They understand that options should not be traded whimsically, but only after the appropriate research and planning has taken place.

Most retail traders do not trade full-time, however.  In actuality, most retail traders have day jobs, families, and social obligations that keep them distracted during the trading day.  It is very difficult to put in a full day's work, return home to spouse and kids, and then sit down and diligently perform your trading homework.

Because their daily lives are already full, many part-time traders seek means of reducing their trading burdens.  One method they have been increasingly relying upon are the many trade advisory services that are now available. 

The services reduce the burden of researching option trades by identifying trades and publish the recommendations.  Some services offer an auto-trade relationship, in which the subscriber signs what amounts to a power of attorney that authorizes the broker to execute all trade recommendations issued by the service.  These auto-trade arrangements are perilous, because many new traders feel that they are relatively safe since a "professional" is now managing each position.

Auto-trade services are not the same as hiring a professional advisor, however.  Even if the service uses professional traders those traders have no understanding of your particular financial needs or risk tolerances. The fact that these services issue trades directly to the broker means that no one has made a determination as to whether the particular trade is appropriate for you.

Even when using a service that issues recommendations for you to consider, they are often one dimensional in nature.  In other words, they focus upon just one or two trading methods or styles.  This means that you either have an un-diversified portfolio of trades or you need to subscribe to multiple services.

Retail option traders may finally be getting a break, however.  A leading options educator, has developed a service that provides their students with access to professional traders who use a variety of strategies to respond to developing market conditions. 

These traders are true professionals, having spent years on the floors and trading desks of the financial institutions.  The recommendations are issued to you, not only by e-mail, but through a few methods that greatly increases the probability you will actually receive the alert in a timely fashion. 

The subscriber's job is to evaluate the trade and determine whether it is appropriate for them.  If so, they call their broker or place the order online.  This all sounds very much like other services, but it does not stop there.

Regular tele-classes are conducted to further help subscribers develop their own trading skills.  Listening to these experienced traders helps to focus and hone those skills that retail options students have learned from their studies. 

Trades alerts not only include the "buy and sell" order information, but notes as to why the trade is being recommended.  This assists the retail trader in understanding the bigger picture and assessing whether the trade meets their individual risk tolerances and needs.

If you are considering a trade alert service, you may want to steer clear of an auto-trade relationship that removes you from the decision making loop.  Also, since you are ultimately the decision maker, consider whether the service provides you with sufficient relevant information to permit an informed decision.  The next evolution in these services will also offer to educate you so that you become a better trader and investor.

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Christopher Smith, B.B.A., J.D.
Christopher Smith, B.B.A., J.D.

Helping individual traders learn about stock options and develop their trading skills is what is all about.  We recommend very few trading services, but recently we reviewed Options University Strategist and found characteristics of what we think will be the next evolution in such offerings.

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