How can we gain from feeling guilty

guilty
When do you feel guilty?
My very conscientious ten-year old said, “when I know I did something wrong”.
What comes to mind for me is when I have “over-done something”. This can be anything like one too many cups of coffee or that extra portion of triple chocolate anything. There is yet another form of guilt, perhaps one that is more intense.This is when “one thinks one has failed in his/her responsibility to another”.

But there is yet another level of guilt that cuts in even deeper into our emotions.
The thinking goes something like this: I have failed in my responsibility to my loved ones in how I handled the family finances. Their life styles are compromised because of what I did. This guilt cuts deep into who we are and hurts most intensely. Unfortunately, this is often felt more intensely amongst men. Many have taken on the responsibility of or the traditional role as the provider of the family and of creating wealth for the future of the family.

When financial circumstances turned for the worse for some, either due to the downturn in financial markets or the poorer state of the economy, these translated to less fortunate employment opportunities and loss of family wealth in savings and investments. Many men took these “losses” as their failures to provide and felt guilty about the circumstance they put their families through. This guilt has been felt by many in the last few years but left unspoken by most.

Have you considered the implications of this emotion on its “sufferers’”? One important one is on how they will make future monetary decisions.

We face guilt differently. Some bury it or simply allow it to lurk and simmer on the surface of emotions. These “sufferers” tend to make the next decisions by total avoidance or by taking to the other extreme, without more consideration of their choices. They mostly result in detrimental or less than ideal financial results.

Lessons not drawn from losses are losses lost.

The more positive reactions I have seen come from those who have bravely faced the emotion. “Guilty is, but moving on”. They are now giving greater consideration to financial questions like risks, how and what they invest in and whom they trust and are involving their spouses in more monetary decisions. The secret weapon of these success stories lies in the latter part of the above sentence: spouses and family who have equally accepted the losses and agree to rebuild the family future together.

Lessons drawn from guilt are future profits to be gained.

21 June 2014
Wai-Yee Chen

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What’s happening with bank shares

from late March 2013 to today 18 June, volatility has taken over Aussie Banks
From week ending 24 May to 18 June, WBC and CBA lost some 7% whilst NAB down 11%.

out of the three banks, which do you are most volatile in the last 4 weeks in terms of options trading.

CBA – put/call ratio moved from 1.7 when share price was diving to a a recovery of 0.63 (tipped towards calls) today
WBC – from 1.1 ratio to put to 0.62 today

CBA had been most volatile whilst WBC most stable of the three.

Trade what caught my attention today was a calendar spread on WBC and NAB.
short term upside capped whilst going long with a 3 month view.
selling Jun call at the money and buying sep at the money call.

This calendar spread expresses view short term weakness/medium term bullish view well.

Is Telstra more volatile than the XJO Index?

In the last 10 trading session, Telstra TLS.ASX has fallen more than the S&P/ASX 200 XJO Index. 9% vs 6.5% respectively.

However, looking at the volatility though, the XJO historical volatility has climbed 25% versus TLS’s of 17%.

Also, TLS’s moving average of put/call ratio for the last 10 trading session has remained steady in the last 3 days.

It appears that despite falling in share price more than the Index (together with other defensive stocks in addition to issues with asbestos), its volatility has not climbed as much as that of the Index.

In spite of that, selling of calls had been active on TLS.

FMG – falling with iron ore price?

FMG touched a low of $4.24 in the morning of 5 Mar, following weakness in iron ore price (instigated by China’s property price curb).

Options actions in the stock:

– strong activities in calls

– current month implied volatility and At the money strikes calls and puts tell a story – calls’ Implied Vol is much stronger than puts. Showing a lot more demand and interest in calls than puts

– Put/Call ratio on options had been positive in the last 10 days despite stock falling.

– If it Historical Volatility stays within the 39-45 range it has done since October 2012 (is closed under 45 yesterday), then it could be signalling a recovering share price. If not, then we are looking for Historical Vol to go up to 48 and share price falling to under $4.00

Options traders seem to be betting the stock on recovery and historical vol reaching a near term peak. Catalyst could be the 17% fall since mid Feb, post results.

High risk trade for those who want a bet.

Advanced Options Course

A couple of clients have asked recently if I could conduct an Advanced Options course.

So, here it is.

This will be a 3 hour course, for those who are familiar with the market and have basic knowledge of options

Charts, trading styles, real stocks with options strategies.

Come, contribute, learn and connect with other traders.

11 May 2012

Friday

3-6pm

Sydney CBD

$280

If you are interested, email me at waiyee.chen@rbsmorgans.com

small class size. 3 more spaces.

No need for the Real Thing

No need for the Real Thing.

byTraderPlus Editor— ISSUE 7 — NOV/DEC 2011

If you can access the same benefits, is it worth paying more? By Wai-Yee Chen    

 

In many cases, synthetics are just as good as the ‘real’ thing. The real thing usually costs more, often, many times more. For the owner, the satisfaction of owning the real thing is derived from their own personal knowledge, though others may not care.

Synthetics on the other hand, can often get the job done just as well. Not only that, good synthetics can be strong replicas of the real thing and look good too. More importantly, synthetics are likely to give the holder a higher level of satisfaction as it costs less – and therefore there is less to lose.

In the current volatile climate, many investors have chosen to sit on the sideline with cash to wait it out before returning to buying shares. Others are holding on to their shares to ride out the storm.

Regardless which segment you are in, the reality is, there is no need to own the real thing (that is, the fully paid shares) when you can get their replicas through owning the synthetics. Some who hold shares might argue that the “real thing” gives them the income that they need from dividends and franking credits. Consider this: what if a share has just paid dividend and is not expected to do so again in six months, and on top of that has the possibility of depreciating in value in the next six months? Why not consider cashing in the real thing and then spend just a fraction to get its replica?

If this idea appeals to you, let’s look at ANZ shares, which are trading at about $20.50. If you were holding 1,000 of ANZ, you would have just received $760 worth of dividend. In order to sit on the shares and wait for another six months before being paid again, the shareholder can swap the “real thing” for its synthetics. The shareholder has the benefits of releasing the cash from his shares, having less at risk and yet is still able to benefit from any appreciation in its share price or jump back into the stock.

An ANZ shareholder is considering freeing up cash for a nine month period, which he sees as a volatile period in the stock market. He is looking to swap his shares for this synthetic – buying a nine-month ANZ call option at the strike of $20.50. This option is costing about $2.00, therefore for a 1,000 underlying exposure the investor would be buying 10 contracts or spending about $2,000 for this Synthetic.

This is how it will work out for this ANZ shareholder: Should ANZ fall, he would lose a maximum of $2,000. Should ANZ rise, he is still able to benefit from the rise in the $20.50 call option he bought. Meanwhile, he has released $18,500 from his holding of 1,000 ANZ shares. Knowing the maximum amount he can lose from the synthetic gives this shareholder a peace of mind and sense of control over his investments that he can’t get from owning the shares. He is now sitting on cash and yet not losing out on any potential recovery in the stock market. The benefits of the synthetic are not just financial, but emotional as well.

The Synthetic releases cash, quantified a maximum potential loss, limits downside to a minimal amount; yet at the same time allows room for any upside. Contrasting these benefits to the holding of underlying shares, which subject the holder to the risk of large capital losses (even for the benefit of receiving some dividend income) and exposes the shareholder to the mercy of the volatility of the market, where much of the discomforts lie.

The strength of the synthetic lies in its flexibility as well. One can have varieties with their replicas.

The basic long call (buying) synthetic above can be supplemented with another option. In order to put even less at risk or spend less on the long call synthetic, the investor can sell put options. The nine-month $20.50 call option bought can be matched with the selling of a nine-month put. This is likely to reduce the cost to zero or even generate positive income potentially (depending on the choice of strike). A lower strike on the put generates less income, but has less risk too. A long call/short put synthetic gives the investor the potential of getting back into the ANZ without paying for it now.

With so much flexibility and benefits using synthetics, why would you own the real thing.

Wai-Yee Chen of RBS Morgans has been advising in options for fifteen years and is the author of ‘OptionsWise how to invest sensibly’ (www.optionswise.com.au). Wai-Yee regularly shares her unique options insights on CNBC and SKY and contributes regularly to Trader Plus, Wealth Creator and YourTradingEdge amongst others. Contact: waiyee.chen@rbsmorgans.com

   

Your Trading Edge – The truth about options

YTE logo

July 27th, 2011


The truth about options

Wai-Yee Chen takes a look at options from both sides, and how they can be a secret weapon for profitable trades.

 

It’s known for its notoriety. It earned its reputation from causing some lose homes or nest eggs. Some advisors even caution their clients to “never touch this thing”.

This “thing” which has attracted much negative press, is called options, a type of investment instrument which goes by the name of derivatives. Its key attribute is in attaching itself to other assets or shares to derive value. For a call option, it rises in value if the underlying rises and for a put options, it rises if the underlying falls in price. Moreover, options have use-by-dates.

These attributes of options and its flexibility in being able to be sold without first owning (or buying ) the options (nor its underlying asset) make it a very powerful weapon to be had for investors. Many use it to trade and gear and hence helped options gained the disrepute that it has. However, this same weapon can be used to protect against the onslaught of the volatile stock market and for extracting income. The secret in using any powerful weapon, options included, is in avoiding self-harm.

Most understand the common strategies of buying call options for a fraction of the price if one predicts the underlying asset to rise in price, hence wanting an option to buy the actual asset. On the other hand, one buys put options if reasonably expects the asset owned to fall in price and want an option to sell the asset. The most these buyers can lose is the small sum they paid for. If losses are mostly small and capped, how then did options get its bad rap?

It’s the other side of the contract, the sellers who received the payment. Buyers who paid to be in these contracts, expect the sellers to fulfil their promises. From the sellers’ perspective, the contract is a good deal as they are paid for their views; which happened to be the opposite of the buyers’. All they need to do is to ensure they fulfil the promise of the contracts. Well, this is exactly the hardest part of the deal, which often gets sellers unstuck. It’s human to like to be paid, but when it comes to fulfilling promises; it takes discipline, prior planning and sometimes forcing ourselves to keep them.

What are sellers promised to do anyway? For sellers of call options, their promise is to deliver or sell the underlying asset to the buyer. To invest sensibly is to hold the required underlying asset to be ready to sell them (generally positioned at a profit). For sellers of put options, their promise is to buy the underlying asset from the buyer. In both circumstances, if the sellers of those call and put options were not asked to fulfil their promises, they would have successfully extracted income from their asset or cash holdings. That’s the best outcome.

However, our rationale minds tell us that based on the law of probability, there will be times when sellers will be asked to do what they promised. Prudent sellers who neither intend to nor are able to fulfil those promises will need to ensure they are protected by exit clauses or not contract at all. Otherwise, they may just find themselves creating headlines!

To use options is sensible investing, it helps investors defend against the unwanted attacks of the stock market and the opportunity to be paid. However, its use must come with the discipline of and the ability to fulfil those contractual promises; otherwise one can move from being self-arm to self-harm.

Wai-Yee Chen of RBS Morgans has been advising in options for 15 years and is the author of ‘OptionsWise how to invest sensibly’.Wai-Yee regularly shares her unique options insights on CNBC and SKY and contributes regularly to YourTradingEdge and TraderPlus amongst others. If you want to invest in options strategically, contact Wai-Yee atwaiyee.chen@rbsmorgans.com or 0425 304 302.

http://www.ytemagazine.com/news-latest/689-the-truth-about-options