Why Buying Options Is A Very Difficult Investment To Manage

https://www.youtube.com/watch?v=g45heRGKrpE?start=1637

During his recent interview with Tobias. Tim Travis of T&T Capital Management discusses why buying ‘options’ is a very difficult investment to manage, saying:

Tim Travis: I mean, I’ve seen a lot of options. I gained experience working at firms that really specialize them, and they did a lot on things like commodities and stuff. They didn’t have a lot of equity exposure. And I saw kind of the success that most people have when they were mostly buying options, and it was not good. It was not good. Now, people can do it successfully obviously, that happens, but it’s a tough investment to manage.

Firstly, if you’re buying options, the probabilities are somewhat against you. So, how much of your portfolio are you willing to put in it? I mean, you might get spectacular returns on it, but are you really willing to build that 5%, 10% position to have it make a material impact?

Secondly, let’s say you’re hedging your portfolio by buying puts, and I see this all the time. You’re buying the puts and then you get a winter of 2018, and the market tanks. Are we going to sell the puts and lock in the profit, or are we going to hold just in case the market continues to go down? It’s a very difficult investment to manage, and I don’t think it would help generate better returns for me or my clients. So that’s why we don’t use them ourselves.

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