Options Trading: Use an adviser or go it alone?

This is a fundamental point. I’ll present the arguments for both cases.

Use an adviser

There are a few very good reasons for using an ASX-accredited advisor:

  1. Trade Selection. An advisor will typically contact his clients periodically with trade recommendations. The quality of these recommendations can of course vary, but an experienced advisor is likely to come up with much better ideas than an inexperienced beginner. From a learning perspective, this can give the client a few ideas to focus on.
  2. Execution. Advisors can assist with placing orders into the market, which can itself be a little complicated for new traders (particularly if a trade has multiple “legs” i.e. two or more options are being simultaneously traded). Advisors who know their stuff will be aware of the nuances involved in getting the best price. Advisors will require clear instructions from the client but from there they take responsibility for any errors.
  3. Monitoring. Advisers will monitor the trade and recommend the optimimum time to close it to book profits or manage losses. In addition they can advise the client on managing their trades around dividends or corporate actions.
There are of course a few disadvantages of using an advisor. The most obvious is cost. Keep in mind that brokerage on options is typically higher than for shares. Use of an advisor increases the cost further.

Go it alone

An alternative is to use an online broker. The primary advantage of using an online broker is cost savings.  These savings can ultimately lead to a better bottom line, enabling better market timing (cost effectively scaling and out of trades) as well better risk mangement by cost-effectively hedging using additional options trades or stock. Discount brokers can also potentially offer research, information and portfolio analytics (e.g. calculate the option “greeks” for a particular position).
Disadvantage is obvious. You’re on your own.

 

Written by TheOptionsEdge

Analyst and Options Trader

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: