For a long time I’ve been really depressed that I’m unwilling to be a cheat or a swindler, Lenny Dykstra doesn’t have that problem. Well, actually he could be honest and just extremely stupid. You decide which is worse.
Here’s my dilemma. I know a lot about the stock market and even more about options. If you put me in a room with 50 guys hawking stock systems, I could tell you in detail why each of their strategies was completely inane and something only a pure ignoramus would choose to do with their money. But I have nothing to sell!
It’s like hair growth products. I can sadly tell you that buying Rogaine is a really expensive waste of money. I can tell you how hair plugs eventually leave you looking even worse than you did originally (the rest of your hair falls out and the plugs remain and look like little lost pubic hairs). I have no idea how to deal with baldness, I wish I did, but again I have nothing to sell. People that are flat out wrong or swindlers have stuff to sell. You can’t sell educated cynicism.
A couple years ago Lenny Dykstra started to give stock picks on Jim Cramer’s website TheStreet.com. Here was the pitch that Cramer gave at the time. “Remember Lenny Dykstra? Didn’t you think he was a complete moron? Me too, but guess what he went out and learned a lot about the stock market and now he’s a really great stock picker!”
How much time did Dykstra spend on his pursuit of equity expertise? According to Cramer, “A lot!” And how do we know that he is now a great stock picker? Because Jim Cramer, the really loud guy on CNBC, who seems to think he’s John Madden announcing Monday Night Football says so!
Yes, the same guy, who vehemently told you to keep your money in Bear Stearns stock before a three day period where it lost about 90% of its value.
https://bradlaidman.com/uncategorized/backpeddle-jim-cramer-backpeddle/
Here’s Lenny (and Jim’s) scam. You pay $799.95 and Lenny will give you his “Deep in the Money” option recommendations. It’s sort of like a gambling hotline, but actually, it’s a thousand times less intelligent than those services.
Here’s Lenny’s strategy. He finds a stock that he thinks is going to go up and then tells you to buy 10 “Deep in the Money” options. When you make $1,000 you get out. Simple!!!!
Notice that Lenny doesn’t really care how much the stock is trading for just that you make $1000 on your 10 options.
In Google, which trades over 500 dollars a share, this may happen in a matter of seconds. In Sirius, which trades under 3, this could take 2 years even if Lenny is 100% on the money with his pick.
What do you do if you never make $1,000? Lenny doesn’t seem to consider this to be a possibility.
But the possibility of being wrong isn’t the biggest reason why Lenny “Nails” Dykstra is a complete ignoramus. It’s the bid-ask spread.
Lenny wants you to buy 10 “Deep in the Money” calls. Well, anyone who understands options knows that aside from a small insurance premium (the out of the money put). Buying 10 “Deep in the Money” calls is the exact same thing as buying 1,000 shares of stock.
Let’s look at a concrete example.
Apple stock is currently trading about $180. The bid-ask spread in Apple is usually a penny or two wide. It’s essentially negligible.
If “Nails” likes Apple, he might tell you to buy 10 “Deep in the Money” Calls – probably the 150 strike.
I’ve traded options for over 15 years. These markets are the least liquid option markets that exist in the universe.
Chances are that the market in these calls would be 30.5 – 31. This means you buy your ten options at 31. You’re essentially buying 1000 shares of Apple at $180, but you’re doing it in a market that is 50 cents wide instead of a penny or two wide.
If I buy 1000 shares of Apple for $180 and sell it for $181. I will make Lenny’s golden grand.
If instead, I buy the 150 calls for 31 and Apple stock rises by $1
The likely new market in the calls will be 31.5 – 32.
The entire market went up a dollar but it’s still 50 cents wide. If I pay 31 for my calls, I can really only sell them now for 31.5. That’s only a $500 dollar profit. Just buying the stock is a million times smarter.
In fact, you likely won’t be able to realize $1,000 with this strategy until Apple rises to $182.
But of course, we could have made $2,000 just buying the stock.
Meanwhile, possible loss with Lenny’s Strategy = $31,000!
I’ve left out some things about puts to make this simpler, but the corresponding put markets are usually a nickel wide, not 50 cents wide.
Lenny and Jim are either stupid or corrupt and just like Robert Deniro said in Casino, “either he was in on it or he
was too dumb to see what was goin’ on. Either way, I cannot have a man like that working here. . . He’s weak. He’s incompetent. He jeopardizes the whole place.”
I challenge Jim or Lenny to debate this with me live on CNBC in front of any options trader alive running more than a 20 million dollar portfolio (there thousands of them). If that person disagrees with me that Lenny is a complete ignoramus – I’ll hand Lenny $799.95 in cash live on the air.
The chances of that happening are infinitely worse than the chances Lenny’s ex-teammate, John Kruk, had of making contact with one of Randy Johnson’s pitches in that famous at bad during the 1993 All-Star Game.
Tim McCarver: No Chance!
keithcrime I am a professional option trader for a hedgefund. Some of what you say about bid/ask spreads is correct however a married put is NOT the same as a DTM call. DTM calls provide additional leverage that Married Puts do not have. Clearly you are not getting Lenny’s angle. But the risk in Lenny’s approach is clear, It’s the picking of the undervalued issues that is the trick here, and I have seen no mention of how he values a stock. During this downturn and I have used straddles that have been hugely successful. But switched to DTM calls recently to get the rallies that are coming for this month. Perhaps Lenny is a fool, perhaps not, but there are several very successful traders here that use a similiar strategy and are up 50% this year alone.
Btw, Stock trading is gambling, you win some, you lose some, The trick is to win more than you lose. Try doing that in Vegas.
I have to say………I dont know a whole helluva lot about options BUT I have been betting sports for 28 years now…………
When I saw the way he is marketing his stock selections it reminded me of sports services marketing sports selections………….
I couldnt help but say to myself……….these guys had an idea………….lets get a sports guy(Dykstra) and use him to market stock selections the same way they market sports handicapping selections……..maybe we can get some of these suckers betting sports on the weekends and weeknight something to do in the daytime……….its gambling right!!!!!!!!
I get the point of the bid and ask, but i dont get it when your saying that a call option is the same thing as buying a stock and a put.
Just curious. What options strategies do you use?
it’s exactly the same
and the bid ask spread for any deep in the money call is likely 30 cents wide minimum – it’s usually 50 cents wide whereas the put market is probably a dime and the stock a penny – i’ve traded them for years i’ve looked at them every single day in every single stock – they are the most illiquid options on the board – you literally can’t trade them without giving away at least 20 cents both going in and getting out
putting in a GTC order makes it even worse because the people that trade the options just lean on those orders until the stock falls
there isn’t a worse way to trade options than with GTC orders in deep in the moneys – anyone who has ever traded them professionally would laugh at this notion
The GTC order is one dollar above the buy order.
A married put is formed when an investor buys shares (increments of 100 or commensurate amount) of a stock and at the same time, a put option contract.
The married put has the benefit of “insuring” a stock for a predetermined length of time; that is, in the event that the price per share of the stock falls below the strike price of the put contract,
This is not the same.
Not all bid and ask prices range that wide. And Lenny looks for low option premiums.
Take the strike+price paid minus the stock price= premium (he looks for less than 1.00 premium.
dude you don’t understand options
a call is the same thing as stock with the corresponding put
a deep in the money call is only different than stock in that it has that downside protection that provides you with limited downside loss
the bid ask in a deep in the money call is usually about a half dollar wide – options market makers don’t ever trade them unless they can immediately arb them with the put market
you can put a GTC order out there that is the equivalent of where the stock is trading – you won’t get filled
the option will not trade it until the stock falls a quarter or so – at which time it is a bad trade for the GTC bidder – he’d be better buying the stock and a put in markets that are tight
the call’s value is dependant on where the stock is trading – once a GTC order gets filled the buyer of the deep in the money call will already be behind by a quarter – that’s my entire point –
Crash and burn, I was talking about the DOW right now down 600+
A call option is not down side protection, a put is.
What do bid and ask prices have to do with it when you use limit orders?
Lenny focuses on 20-80 dollar stocks. Most of the time the cash out lay to purchase 100% delta contracts are far less than buying the underling stock .
You do have to be well capitalized to make it work for you. But you can buy 5 contract instead of 10.
Buying a put and stock on a one to one ratio is the exact same thing as buying a deep in the money call – that seems to be what you don’t understand – all of the interest and costs to entry are already in the calls
What does it matter if the market crashes and burns? Dykstra’s entire strategy relies upon the market eventually going up
Are you trying to tell me his picks are up today?
What does he do when he’s totally wrong?
Maybe he has such a high success ratio because all of his losers are considered stocks that he’s still holding on to
Anyone using this strategy over the last three months would have been hammered
Even if you grant that Dykstra is the best stock picker alive (and i don’t) – the deep in the money call stuff is nothing but hocus pocus nonsense
What does it matter today if the market crashes and burns?
Where have you seen this? This is the first time ive seen it.
Buying the stock and put is a hedge if the stock declines in value. Then the put will become worth more. This is not comparable to DITM options strategy.
there is no innovation in this at all – it’s an old con and an old system that has been proved time and again to produce good results until it doesn’t
I’ve seen people try to do this – it just doesn’t work in the long run
“Time decay does not affect call that much until the last month of the call option.”
That’s just completely false – do you think options traders just give away downside insurance for free?
and again you are also ignoring the wide bid asks of deep in the money calls
“Plus if a stock does not go up one dollar in six months do you really want to own it?”
That is exactly what mortgage brokers were saying about housing prices always going up – look how well that worked
No one has ever proven that they could time the market for large moves much less noise moves like a dollar
Why a dollar? It makes no sense – trying to make a dollar in a 350 dollar stock is completely different than trying to make a dollar on a 50 dollar stock – to have the same goal in both is outwardly insane
You could take a stadium full of people and have them flip coins until one is left – do you really want to argue that the winner is the best coin flipper?
Dykstra has a lot of money from baseball and others and is doing something that people with a lot of money get away with for a while until they get hammered – trying to suggest similar insane behavior to people with different risk constraints it’s irresponsible – it’s a con
1. There are no 100 delta call in Sirius – there aren’t even ten delta calls – the stock is too cheap
2. Buying more when the stock goes down is even more insane because it increases the damage when you are wrong
3. buying stock and puts is still smarter due to the smaller bid ask spreads
Read about the martingale strategy in blackjack because Dyksta’s strategy is exactly that
http://www.blackjacktactics.com/blackjack/betting/martingale/
Dykstra’s strategy is a typical con in that it shows results until it blows up completely in your face
He is making money by shorting the fact that stocks will ever just completely fall apart – when that finally happens and it will he will get hammered
the market has been getting hammered lately – I doubt Dyksta has escaped it
The one dollar call is an example, yes 100% delta calls cost more. But, 100% deltas correlate to the price of the stock. So you could get a 100% delta call option on sirius for less than ten dollars it is not a fixed amount. Time decay does not affect call that much untill the last month of the call option. Plus if a stock does not go up one dollar in six months do you really want to own it? How is the strategy insane if he is making money and over a two year period lost one time. Show me a broker with a record like that. When the stock goes down he dollar cost averages in to the stock lowering his average cost per contract and lowers his GTC order. When the stock does bounce say a dollar or so, hes able to sell for a profit. The only real innovation to his strategy is selling at a set price. Most options strategy’s fail because people become too greedy and dont sell when they have a profit. Name one manager that uses options that has as successful of a record.
irrelevant to whether it’s a smart strategy and i don’t think it is
you could still do better replicating a deep in the money call by buying stock on margin and buying the corresponding put – it’s the exact same trade and the bid ask spreads are way tighter
1. No call that you can buy for 1 dollar is a 100 delta call – 100 delta calls are at least 10 dollars
2. you have to pay at least a quarter of juice to get in and out of a 100 delta call – so the stock needs to go up 1.50 not 1
3. you are losing time premium on the corresponding put while you wait – that’s even more the stock needs to now go up
4. no one can do research to time a stock for a dollar move – dollar moves are just noise and anyone that tells you different is lying
5. this type of strategy works until it doesn’t – you get long a stock and just hold it until you have a profit – most stocks will eventually go up – but i’ve seen people try it and it works maybe 5 times in a row and then they lose their entire investment – it’s an extremely irresponsible method of trading – if Lenny has so far had enough dough to profit on it – the fact remains – it’s an inane strategy
Lenny deals only with call options that have or are close to a 100% delta so that a change of one dollar in the underlying security will result in a one dollar change in the option. In terms of losing the whole outright position when it goes down is not true. Lenny can roll his options to later months strikes or lower his GTC order. He has had in two years on this system only one loss. Current month wins of 8,100.00 http://www.thestreet.com. As with any investment strategy you must look out for commissions and spreads but with limit orders this not as big a concern. If you buy for 1.00 and it goes to 2.00 under this strategy you have made the 1000.00 minus commissions, options house is 9$ a trade.
I seriously doubt my math is wrong – anyone who wants to provide evidence of this – if they are right, i will admit any mistakes
After reading your article again your math is wrong.
Lenny uses DITM call because buying 100 shares out right cost 10 times as much. Plus theres a higher ROI. Plus he has made over 180,000 this year alone. He also lowers his GTC sell order to capture the 1 point bounce.
Bravo! I couldn’t understand 1/2 of it, but you sound like you’re ready to take on those pricks and I for one would love to see it happen. They might just take you seriously…you better start to check your spelling! 🙂