It’s good to have options. That’s true of clothes, ice cream flavors, cars, potential romantic partners, and the contents of your portfolio.
Options are some of the trickier and potentially riskier securities out there. A lot of investors don’t even bother with them, especially those that have heard the horror stories of people getting levered up to their eyeballs and suddenly owing $100,000 when the structured options transaction they put together falls apart.
As risky as they can be, though, options are a perfectly viable and potentially incredibly profitable part of a wise investor’s portfolio. That said, there’s a lot of daylight between learning what options are and actually having the knowledge to put them to good use. If only there was a good way to get some options knowledge and advice plus some great trade recommendations from professionals.
Oh wait a second.
The Motley Fool’s Options program is a subscription service that gives you all the information, education, and advice you need to master the art of options trading. The service boasts an 81% successful trade rate, and it’s administrated by some really talented folks, but it also costs $999/year.
It’d be easy to recommend the service if it was free, but at a price point like that it’s a good idea to ask some questions before you open up your wallet. Questions like, say:
Is the Motley Fool’s Options service worth it?
What is The Motley Fool?
The Motley Fool is a financial advice firm that was first started in 1993 by Tom and David Gardner. The brothers Gardner named their firm the Motley Fool after a character from Shakespeare, a fool who told the king tough truths that no one else dared say. That ethos—the idea of speaking truth to power regardless of popular sentiment or potential consequences—formed the foundation for all of the company’s operations.
The Motley Fool employs a small but dedicated staff of traders and analysts who spend their days uncovering the truth about the market and passing their discoveries on to their customers. If you sign up for one of their services you know you won’t be getting any nonsensical happy talk or wishful thinking, just the raw and honest truth as the folks at the Fool see it.
The Options service is just one of several managed portfolios and stock recommendation lists that the Fool maintains. If you’re interested you can find recommendations for stocks covering just about every corner of the market, not to mention recommendations for things like cryptocurrency, options, and other tradable assets. But we’re not here to talk about all that. We’re here for one reason: Options.
The Motley Fool Options Service
The Motely Fool’s Options service is a subscription-based service that provides insights, analyses, recommendations, and educational materials relating to options.
The service operates under these Principles of Success:
Company first. Always. We’re investing via options, not trading
Keep the risk of the option not working firmly in mind. Size your position accordingly
Remember, options are leveraged instruments and leverage works both ways
Pay attention to the strategy’s returns, not the return of any single leg
Patience is your friend
In addition to those general principles, the service cites these 7 rules for investing based on the Motley Fool’s philosophy:
Valuation first, options second: Using options as part of an investing strategy layered on top of a stock portfolio. They go into positions with a clear plan, including a thesis, a desired outcome, a predicted time frame, and a backup plan/exit strategy.
We think long-term even as we use short-term strategies: The stocks that underly each option trade are held with long-term returns in mind. The Fool’s team makes sure they believe in the fundamental value of each stock before using options on/against it. They mix up their strategies between short and long-term transactions based on the underlying stocks.
We’re option writers more often than option buyers: The Fool’s team most often sells options rather than buys them. This gives them a few advantages, namely the fact that the premium is paid and collected on day one, they get to choose an advantageous strike price, and they an use the underlying stock to buy their way into a profitable exit if a trade goes against them. Buyers have the potential for greater profits, however, so they sometimes mix up their strategies depending on the context.
Diversification if necessary, but not necessarily diversification: The Fool’s team prefers to act with or against underlying stocks that they understand, rather than expanding their scope to other industries that they may not be as familiar with. In other words, they’d rather use a number of different strategies on the same underlying stock than go outside their comfort zone.
We stay focused: No acting on emotions. Options are volatile, markets are unpredictable, and the only thing they can control is their reaction to material changes. As long as the initial plan is in place and the initial option strategy remains viable they’re likely to stick with it through even extreme volatility.
We go our own way: The Options team doesn’t always agree with the Motley Fool’s main newsletter. They aren’t afraid to break from the main set of recommendations if necessary, though they don’t act in a contrary way just for the sake of it. If and when they break from the main list, they do so only based on extensive business analysis and valuation.
We believe in the power of community: The team is active on the Fool’s message boards. They answer questions, engage in debate, spread knowledge, and generally listen to what the community has to say.
Learning About Options
Options aren’t the simplest things in the world, so the Motley Fool has been kind enough to provide a few different resources for your educational pleasure.
The first is a reasonably in-depth set of lessons that the Fool calls Options U. There are three units, Essentials, Strategies, and Masters, each of which is broken into at least 8 different lessons. Most of the lessons are in written article format, though each unit does have a set of videos to compliment the written material.
The next resource is the community message boards. These are pretty much what you’d expect.
The Fool’s team also provides regular updates in the form of analyses and research reports, all of which have interesting information that can help you figure out how to handle options.
Finally, if you click on one of the Fool’s options recommendations you’ll be taken to a page that spells out the specifics of the option(s) in question, as well as a set of instructions for how to follow along with the Fool’s actions. If you scroll down you’ll also typically find a whole writeup about the Fool’s thinking behind the option position they’ve taken.
The instructions are nice to have, as they kind of take all the guesswork out of how to structure the transactions, but the real meat of it is in the reasoning you’ll find below the instructions. There are things like:
Key performance indicators and explanations
Comparable situations and transactions from past Foolishness
Alternative positions on the same stock and how to make those transactions
A box with maximum gain, maximum loss, and follow-ups
The team member in question’s reasoning behind their position at every step of the way
So whether you’re the type who prefers to learn from a more academic angle, by watching videos, or by example, the Motley Fool’s Options service has you covered.
Now let’s take a quick look at how the Options team has actually performed since they started the portfolio.
The team has made a ton of transactions, so it’d take forever to go through each individual position they took. Instead, how about we look at some of the extremes?
Of the transactions in the Options portfolio, there have been:
12 options that delivered triple-digit unlevered returns
14 options that delivered triple-digit levered returns
81.47% of transactions were profitable
6 options that lost 100% of unlevered value
9 options that lost all levered value
2 options that lost more than 100% of levered value
That’s actually not too bad for options, especially when you think about how much of a pounding you can take on levered transactions that go belly up.
So it seems like the Motley Fool’s Options service can show you how to make money and deliver on their promise of mostly positive returns. It is $999/year though, so let’s ask the question one more time:
Conclusion: Is The Motley Fool’s Options Service Worth It?
Let’s think about this for a sec. The Motley Fool’s Options service costs $999/year, meaning you’ll need to squeeze at least $1,000 worth of annual value from its offerings. Offerings that include:
Options U: A set of lessons that—let’s be honest—you can find elsewhere for free
Professional analysis from the Motley Fool: Regularly posted research and analysis produced by a set of qualified professionals. You can’t find work by those particular folks anywhere else
Recommended Options Transactions: An 81.47% success rate is nothing to sniff at. Depending on the size of your portfolio, you could very well make at least $1,000 extra each year just by following the Fool’s lead
Options Research and Reasoning: Something else you can’t find elsewhere. The Fool’s team is happy to walk you through the reasons why they took their positions, including comparisons to historical examples and (some of) the math that goes into their calculations. If you’re the type who learns by example you’ll have a field day with this feature.
Community: It’s a message board. You can find any number of finance or options-focused chatrooms and forums around the net that don’t cost $1,000/year.
All in all, the Motley Fool’s Options service offers enough value to be worth it to the right users. Whether you’re just learning, want to see some examples, or just want some recommendations for options plays, chances are you’ll be able to get more than your money’s worth if you sign up.
The post Motley Fool Options Review: Is the Motley Fool’s Options Service Worth It? appeared first on Wall Street Survivor.