Valerie Scruggs started trading stock options after being laid off from her job as an IT manager two years ago.
Scruggs, who lives on Manhattan’s Upper West Side, says at first it was a way to make ends meet. But then she started thinking about it for a primary income.
“It seemed like a good way to make money no matter which way the market went,” Scruggs says.
More investors like Scruggs are fed up with losing money in the markets and are starting to take control over their own finances. And with many portfolios down 50 percent over the past year, they feel they can't do any worse than their broker or financial adviser.
“There’s a broader trend of people feeling disenfranchised with the way the financial-services industry works,” says Kurt Oeler, a spokesman for optionMonster, a web site for investors to trade options. “They think: ‘I’ve got to be more active in managing my finances.' ”
For some, that means do-it-yourself investing. While not exactly day traders—those who seek short-term gains with rapid trading in stocks—these investors feel confident enough to manage their own portfolios.
"I find that more so with men," says Stacy Francis a financial adviser and founder of Savvy Ladies, a finance group for women. " They say, 'I might as well do this myself.' "
The danger, of course, is that the amateur investor can lose even more money by doing it on their own. And a relative few are good enough to live off their trading.
Scruggs, for one, says she’s made some money on a few good options trades, but her balance isn’t enough to pay her living expenses. Her plan is to go back to work, save money to boost her base, and then try trading again.
Still, that hasn't stopped other people from trying.
At a recent optionMonster conference in New York City, attendance was up 20 percent from a November conference in Chicago, the company says. The people were there to learn the basics of trading options—financial contracts that give you the right to buy and sell securities at a set price, allowing you to bet on the future direction of the security without actually owning it.
The attendees varied widely — in geography as well as employment status — from money managers who want to start branching out into options, to retirees looking to supplement their income and the recently unemployed looking to create income through options trading.
Charles Lamb, an independent asset manager from Boston, came to learn about options as a potential investment for his clients.
“I’m here to learn,” the 20-year industry veteran says. “Anybody can make money when the market goes up. I’m looking for alternatives, given the situation today. How can I help my clients preserve their capital?”
Bob Kostiuck, a retired IT consultant from Toronto, has been trading options for the past year and half. He uses options trades as insurance against stocks he owns, and in some cases, to bet on a company’s neutral outlook. But he decided to attend the conference because he’s not doing as well as he thinks he should be.
“When I started trading options, the markets were somewhere else," he says. "I had income I could live nicely on. I’m not living as nicely now.”
Investors are often drawn to options because the commitment level is much smaller than owning a stock outright. Options give you a variety of ways to bet on a stock’s direction, from basic calls—which bet a stock will go up—and puts—a bet the stock will go down—to straddles and strangles—where you can bet on a big swing coming.
Options trades provide more flexibility and give investors more of a sense of being in control — something that’s in short supply these days.
Francis said she’s also seeing more interest from investors who want to increase their financial I.Q., estimating that attendance at her Savvy Ladies seminars is up 20 percent from a year ago.
“I think people ARE waking up,” Francis says. The volatility “is shaking people.”
“It makes them realize that they do need to be educated," she adds. "They do need to understand this information — whether they’re working with a financial advisor or not.”
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Barry Armstrong, a financial planner and the host of “Money Matters” on 1060 WBIX radio in Boston, says the demographic for his radio show is widening, too.
“It used to be a lot of older people,” he says. “Now, it’s a lot of 30 and 40 somethings that are listening.”
The job losses are what scares them the most, he says.
“Either they lost their job, or their friend lost their job and they’re worried about losing their job,” he says. “They’re paying more attention to their money. The savings rate is higher today than at any time since 1993.”
“ It’s not just senior citizens that are saving — everybody is socking money in the bank because they’re paranoid,” he adds. “And with good reason.”
Both Francis and Armstrong said they’re getting a lot of inquiries from investors about gold. Of course, the problem with that is that by the time most individual investors notice a trend, they’ve missed the trade.
Plus, there are lions in the grass who can smell the fear.
“There’s a lot of fear mongers out there that are trying to profit from people’s emotions right now,” Armstrong says. He cites ads that tempt investors with shiny gold coins and the prospect that gold could go to $2,000 an ounce.
The reality, he believes, is that gold could go to $500 an ounce.
Francis says what they’ve recently invested in is the Vanguard REIT exchange-traded fund and in high-yield bonds because both have been beaten down so much.
Armstrong says he likes corporate bonds, given that the spreads between Treasurys and corporate bonds are at record levels. He said he’s getting clients yields of anywhere from 6 to 9 percent but he’s not going out longer than 5 years.
Armstrong said he’s OK with investors going it alone — as long as they know the risk.
Francis said the only thing she worries about with scorned investors taking matters into their own hands is that they’ll throw all their money in cash.
“They’ll miss the rebound — which happens quickly with very little prior notice,” she cautioned.
“It’s like training for a marathon,” Francis said. “The last couple miles are the hardest. But if you can stick with it, when you cross that finish line, it’s going to be incredibly sweet!”