Trading Calls and Puts

@jerschneid Any chance you might do a piece on options trading?

While I’m certainly a big believer in the buy and hold low-cost index funds philosophy you espouse (thanks to you!), I’ve heard that options trading can hedge against stocks whether they go ‘up, down or sideways…’. My best friend has been trading options for the last 2 years with guidance from his mentor who has been doing it for 10 years and the returns he is getting are looking pretty good. He also says he’s no more exposed to risk if a market crashes than I am investing in Index funds.

I’m trying to better understand:

  • how options contracts are able to hedge against stock price movements
  • if and why options contracts are more or less risky than buying individual stocks
  • why specifically options contracts are more risky than buying index funds
  • In the event of a market crash/correction, in what scenarios does dollar cost averaging into index funds hedge better than options contracts? Can you just dollar cost options contracts on a basket of stocks?
  • Is there any reliable historical data you’d suggest that shows how well options contracts traders have done overtime (is it similar to picking individual stocks where 90% don’t beat the market?)

I’ve done some research on my own, but I haven’t really put it all together in my head yet. Just wondering if you’d be interested in giving this topic the Jeremy Schneider Treatment :slight_smile:


Hey @j32!

Yes, I probably will in the future. It’s also not a specific area of expertise of my own, although my statistical understanding of it is that it’s not really a reliable way to outperform the market, you’re just kinda shifting around risk/reward tolerances, usually at a fee. I doubt it’s something I’d ever wholeheartedly endorse as it seems like yet another concoction of the financial services industry and many course selling gurus to put themselves in between full market returns and the individual investor.

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Thanks for the reply, looking forward to hearing you address this topic in the future!

No need to wait, this guy has a series that explains the basics and then some

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This is super helpful, thx!