Why Speculation is Good

I don’t particularly care for speculation. But I do like speculators.

It’s somewhat akin to the expression “Hate the sin, love the sinner”, but that’s actually very hard to do, so I don’t even try.

John McCain, back when he was a decent human being, before his recent decision to try and return to that state once said about Osama bin Laden, “May God have mercy on his soul, because I won’t”.

You’ve got to like that. Too bad he went to the dark side. Come back to the light, John. Come back.

In a humorous aside, it turns out that God does not cover the seas.

Anyway, it wasn’t always that way. There was a time that I thought speculation was really the way to go. How else could you escape “The Man” holding you down?

There was a time that I thought I could outsmart the harness race track.

Then another time it was the casino and roulette.

There was even a futures period of my early life. Ironic that futures were in the past. Copper, Gold, silver, financial, wheat and corn.

Loser, loser, loser, loser, loser and loser.

Today’s blog is borne out of laziness. It’s essentially a re-hash of “Greed is your Friend”, a chapter in Option to Profit, which I will shamlelessly plug here.

So buy the book. $14.95 at respected retailers, $19.99 elsewhere.

Always go for the respected. I won’t miss the price difference.

SpeculationI now think speculation is great. Let the naysayers say that speculation has driven up the price of commodities. Gold, oil and all of those other things.

I say good for them and good for us, the end users.

Just about the only way to get us to change behaviors is to exact economic costs. What will get us to drive less? You got it. Higher gas prices.

Maybe increasing sugar prices will result in less Type 2 Diabetes.

And as used to be said on late night television “And maybe monkeys will fly out my butt”.

But I’m not a macro-economic kind of guy. I know that at some point there would have to be adverse effects on the economy, but I find that people who claim to look at the big picture, rarely do. That includes me.

All I really care about is me, and of course my readers loyal enough to buy the OTP book (another shameless plug). Mostly though, it’s about me.

And for me, speculation is great, as long as it’s others doing the speculating.

It’s on the greed of others that we prey and pray.

That’s the basis behind selling options to others. Those using leverage, seeking to hit it big with as little skin in the game, as possible are the ones that let me sleep soundly at night.

But there’s another impetus for today’s blog and that was the endless carping about Microsoft yesterday.

Just about everyone imaginable was chastising Microsoft because its stock price has been pretty range bound for the past decade. The geniuses refer to a Microsoft investment as “dead money”.

Those opinions even came from people that I respect, despite the fact that they were pretty harsh in their comments.

I tend to disagree.

But I do that as a matter of habit, anyway.

Back in the old days, my disagreement might be manifested by letting air out of tires. I always found that the diagonal combination of flat tires was most effective.

Since then, I’ve grown up. Plus, now I can just hire someone else to get their hands dirty, instead of my own.

But in this case, Microsoft has been very good to me.

It has reliably delivered a 2-4% monthly premium on its near the money options, while increasing its dividends. That 10 year chart that was shown on CNBC just made me feel that much better.

I’m a pretty analytical kind of guy, as my wife will attest as she tries to tear me away from any given spreadsheet. I continue to like Microsoft, not for its growth prospects, Uh duh, but for its prospects of my growth.

One Twitter poster, @stockguy** (identity withheld, good luck trying to figure it out), I’m talking to you, in an attempt to denigrate the call writing strategy, said something to the effect of, “well its alright for you, it may pay the rent, but for traders, it’s not enough”.

I guess my 1500+ trades a year doesn’t make me a trader and a 24-36% annual return isn’t good enough.

I don’t really think he meant it in a derogatory way, but it’s like technical analysis, you can interpret it any way you please. Besides, isn’t that what makes a market, or so they say?

Just to be clear, I’m not saying that I get 24-36% annual return. That figure looks solely at the options net income generated from trades, Microsoft being just one example.

In my responses, I got a little more detailed with numbers, as my “rent” is pretty high and using his line of thought, I may as well go and get another 5 or 6 houses, because I can, just from options premium income


The problem with living in this neighborhood is that you can’t readily find someone to let the air out of someone’s tires, so you have to resort to words.

At any rate, the inference was that a “trader” is only satisfied with home runs.

A quick look at baseball statistics shows that the great homerun hitters were pretty great at at least one other thing.

Striking out.

And if you know anything about math and real life, it’s much harder to recover from a strike out in the stock market than it is to strike out.

Option to Profit teaches a way to actively manage your account, get a nice steady return and best of all, sleep at night. I guess that’s another plug, but I promise not to do so for at least a month starting tomorrow.

No homeruns. OK, maybe an occasional, but really in the stock market, homeruns are either dumb luck or insider trading. I wasn’t a genius because I held Green Mountain Coffee and had not yet written call options on it, prior to its gapping up past $65.

Dumb luck.

I certainly didn’t know anything about the Strabucks deal.

I’ve never won anything in my life so I don’t count on luck and I’m too embarrassed to evacuate my bowels in front of a prison cellmate, so I’ll stay away from any semblance of insider trading.

So to paraphrase the Dos Equis guy, “Be greedy, my friend. Be greedy”.