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[Revealed] Why There Is No Free Money

[Revealed] Why There Is No Free Money

Posted On June 7, 2021 2:48 pm
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Over the weekend, someone sent me a podcast by Peter Schiff.  Peter is a “permabear” and a gold bug, just to give you context if you don’t know him. 

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I’m going to give this example based on the numbers he quoted in the podcast. I didn’t look them up because the lesson works if the numbers aren’t right on target.

He was talking about some 145 calls in AMC with a 2-week expiration that he could sell at $14.95 per contract. I think he meant per share because he specifically said someone would pay $15,000 (he rounded up) for 10 contracts – or the right to buy 1000 shares of AMC at $145.

Still with me?  I hope so.    

Here’s the thing, at the time AMC was trading at $60 a share. 

He pointed out that the stock would have to more than double in 2 weeks in order for the options to be exercised.  

In short, he was suggesting that he could collect a lot of premium with virtually no risk. 

I played that game once and lost $50,000 on my first personal trade. 

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Peter is a fundamental analyst and investor, so under normal circumstances, he might be right.  But let’s face it, meme stocks are not normal circumstances.  

These stocks are moving up and down at breakneck speeds with absolutely no fundamentals underlying the stock price.  That means there is as much chance that the stock could shoot “to the moon” as there is that it could tank.  

Making that trade is tempting, but it’s too much risk for my taste.

He was criticizing the people buying AMC, suggesting that they were gambling.  It seems to me he is also gambling.  

Maybe he is a better gambler than the people at the other end of the trade, but there is no reliable analysis for these stocks – which means he’s at the roulette wheel also.

I keep talking about these meme stocks because I don’t want to see my readers get hurt…

And that includes you!

I should point out, Peter isn’t a normal retail investor, so he does have an out. He suggested that if he had to deliver the stocks he would sell them short and wait for the stock price to go to its real value…

Which he suggested might be $5 a share.  

But you and I aren’t going to be selling stocks short and hoping that the stock price goes down.  

That’s why we stick to our “grind it out” philosophy.  Steady profits with low risk is the real way to build wealth. 

Remember, the tortoise won the race!

Once you have some money to gamble with if you want to gamble for fun that’s your choice.  But don’t mistake it for building wealth.  

As George Clason wrote in the Richest Man in Babylon, the only person who gets rich at the gaming tables is the owner of the tables.

To Your Success,

Steve

PS.  Tomorrow I might share a way for you to structure a trade like this with the smallest amount of risk if there is interest.  If I do, it will be PURELY an intellectual exercise and NOT advice or a recommendation.

Hit reply and let me know if you’d like to see that.  

PPS.  Don’t forget to get your $19 trial membership in Options360.  It’ll be the best money you ever spent.     

About author

Steve Smith
Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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