Options

Options
3.74 (74.87%) 39 votes

Motley Fool Options Review

Motley Fool Options is an investing newsletter that focuses purely on Options strategies. They employ a mix of options strategies, with the stated goal of “helping you profit in the short-term and the long-term – and in bull, bear, or even flat markets”. They are restricted to only trading options on stocks that are part of one of the Motley Fool services, any of their premium stock reports, or from one of the Motley Fool Analysts real money portfolio on Fool.com. They can also trade options on stocks that sold from one of the Motley Fool newsletters, as long as it is within 60 days of the sell recommendation. The lead advisors are Jeff Fischer and Jim Gillies.

A subscription includes:

  • Trade Alert Emails: These can come at any time during the day and include all the details on their latest options strategy recommendation
  • Options Weekly: Regular weekly email updates from the Motley Fool Options team
  • Options U: An extensive collection of educational materials on options trading, from Beginner-level to Advanced
  • Alternate Trade Recommendations: In addition to the official trade recommendations, they provide alternate strategies for each recommendation as well.
  • Access to their members-only message boards
  • Miscellaneous additional content

Options trading is generally considered high-risk. This is true to the extent that most options strategies utilize some amount of leverage. However, Motley Fool Options employs strategies that are relatively conservative. Their goal is to produce consistent returns; they are not trying to hit home runs with high-risk options trading. They employ a mix of options strategies from simple put-writing to more complex spreads and strangles.

Motley Fool Options Performance

Unlike investing in stocks, it can be much more complicated to measure performance for options strategies. Motley Fool Options uses a variety of options strategies, some of which involve buying (or at least already owning) stocks, multiple options legs, rolling (or extending) options, or a combination of them all. They do provide a detailed scorecard for each trade they make for both Jeff and Jim’s recommendations. Each individual trade is measured on both a levered and un-levered basis.

However, in measuring their overall performance they use the simple concept of “Accuracy”. Simply put, this is a measure of how many of their recommended strategies produced a positive return. You can see up to date performance for Motley Fool Options here. Their goal is to have 90% accuracy on all completed trades, and 80% on their overall trades.

Given the nature of options trading, returns on individual trades range from gaining over 100% to losing 100%.

There is active debate on the boards as to what is the best way to measure performance. Arguments can be made that focusing primarily on accuracy is misleading as a way to measure performance as a whole, but there is no one good way to capture the complexity of all their trades in sum. I do think that Jeff, Jim, and team are very transparent and sincere in their thought process (and provide performance results on each individual trade as mentioned), and are not trying to pull one over on the public.

The benefit of accuracy is that it shows you that they are not executing a lot of high-risk trades, and that as a member you have a higher probability of making money on any individual trade, as opposed to Motley Fool stock-picking newsletters where even though they are generally making strong returns, their accuracy is closer to 50% (see my detailed performance stats for Stock Advisor and Rule Breakers).

My Take

Motley Fool Options is a unique service within the Motley Fool universe of premium subscriptions. Given the derivative nature of options, you are not directly investing in a company. In fact you are not investing in anything but rather buying and selling contracts. And as a matter of fact, in most options trades you are actively trying to avoid owning the underlying stocks. For an advisory service whose mantra is investing in high quality businesses, the existence of an options service at Motley Fool has been somewhat controversial.

But just like day trading (or high frequency trading) and long-term investing lie on opposite ends of the investing spectrum, there is a wide range of options strategies, from the extremely risky, to more conservative income generating approaches. Motley Fool’s take (and I agree) is that if properly implemented, options can complement a long-term equity portfolio, and provide a steady stream of income.

The Best Place To Learn About Options

Motley Fool Options is a great service by which to learn options trading. In fact, there is probably no better place. They offer their Options U which has great fundamental materials for learning all about options, and strategies from basic to advanced multiple-leg strategies. Each of their trade recommendations takes you step by step through how to place your orders, including discussions of the profit/loss  curve, as well as their reasoning on why they picked that trade. And their member boards are filled with a ton of helpful community posts. The education you can gain is probably itself worth the subscription price if you are serious about options investing. In fact, I rarely execute any of the trades they recommend (as I have my own methods) but I continue to learn so much from them that I still follow the service.

Pay Attention!

One of the biggest differences between Motley Fool Options and their other services like Stock Advisor, Income Investor, and Rule Breakers, is that you really have to pay attention to what you are doing. If you are not familiar with options, you really need to follow their trades word for word. “Buying a put” and  “selling a put” are two very different trades and if you get it wrong, you could do some real damage to your portfolio. Using the wrong strike price could lead to similar problems. This is not a service for someone who just wants to set and forget a couple trades. You also need to read their periodic trade updates as well – they often will roll a position into future months and again, if you aren’t paying attention, you could take a loss unnecessarily.

A Word on Portfolio Size

Unlike buying stocks where you can get started with a couple hundred dollars, trading options the Motley Fool way generally requires a larger portfolio size (and specifically a large cash position).  “The Motley Fool way” is an approach such that your options trades are cash secured (a.k.a not leveraged). This is the most conservative approach and highly recommended for anyone starting out with options. Without getting into all the details of options trading, if some trades go against you, you can be required to buy the underlying shares of stocks, and so the safest approach is to have sufficient cash on hand to cover those purchases.

An example may be easier to understand. A recent trade recommended selling $52.50 puts for $2.50 in income for each contract you sold. Since each contract is an obligation to buy 100 shares, if you sold one contract you would make $250 in income minus $8 in commissions (on average; some brokers will be lower), but you’d be on the hook to buy $5250 in shares if the price of the stock fell below $52.50. So to do this safely you would want that much cash on hand in your account. And note that the $8 commission is 3% of the income generated which is probably the max ratio you’d want for your trades. And also note that if you do not want to over-allocate yourself to any one stock, and use a commonly recommended 5% as a maximum allocation, $5250 represents 5% of a $100,500 portfolio.

You can always use some leverage as you gain experience (it’s not always a bad thing) that would require less cash on hand, and there are other trades that are recommended, but I would say this is a fairly typical trade recommendation. The abuse of leverage is where options get their bad reputation, and the worst thing you can do is over-leverage yourself and get caught in a bad market. So consider whether you have  a portfolio that supports those types of economics.

Bottom Line

Motley Fool Options’ main benefit is the educational opportunity involved. If you are new to options, there probably isn’t a better place to learn about them than here. But you do need to stay involved in the service and pay close attention to the details of their trade recommendations or you could quickly experience the downside of options trading.

If you have any questions or comments, please let me know! And I’d love to hear about your own experiences with options trading.

Subscribe to my blog to stay up to date on all the latest Motley Fool Reviews information!

And check out my Favorites to learn about one of the best Options Trading books out there.

 

Leave a Comment

{ 44 comments }

  • Patrick May 20, 2013, 8:03 pm

    Glad I found your review, and looking forward to the next installment. I’m particularly interested in other ways to measure MF Options’ performance. I’m not convinced that “accuracy” is the best way to judge the service.

    Reply
    • Kevin May 20, 2013, 11:42 pm

      Glad you found this useful, Patrick, and thanks for the feedback. Subscribe to the blog and you’ll be sure to get notified when I post updates. Regarding performance metrics, I do agree that accuracy is not the best, but they are trying to account for multiple strategies in one measurement. Perhaps it would be better to treat it as a portfolio with a starting balance, and then measuring the net return of all their trades. Any thoughts on a better metric?

      Reply
  • Daniel Hodder June 8, 2013, 11:14 pm

    Hi,

    I am a supernova member since january and I really appreciated your thoughtful and fair review. I am thinking if dropping supernova next year and keeping Stock advisor only. I initially set up the pheonix portfolio but have significantly gone off the track since and find I get impatient and fearful with stocks that have a bear momentum. I do go back to stock advisor regularly for ideas. Still supernova was an excellent starting point and maybe I should of stayed the course ( I am up about 10% since febuary 5 but I am not sure what phoenix did in that time frame) .

    Reply
    • Kevin June 9, 2013, 11:35 am

      Daniel, thanks for the feedback. I’m glad you found it useful. Supernova’s performance has definitely improved recently, so you might want to take another look. And if you are interested in playing catch-up with the Phoenix portfolio, the advisor team has given a lot of advice on the member boards for people in a similar situation. Stock Advisor is excellent of course, and much lower cost, but you aren’t getting the portfolio management aspect. Based on your comment that you get fearful at times (perfectly natural, of course), Supernova might be exactly what you need: a little more hand-holding through the portfolio building process. Also, check out Income Investor (see my review here) if you are interested in a more conservative investing approach.

      Reply
  • Eucharist August 16, 2013, 11:43 am

    Hi,
    Do you have an idea of the yearly subscription fee of the Motley Fool Option service?
    Thanks in advance, Eucharist

    Reply
    • Kevin August 16, 2013, 12:29 pm

      Eucharist – the price changes each year and they typically offer steep discounts if you sign up for multiple years. So I don’t have recent price information but I do know that it was approximately USD $1000 for a 3 year subscription back in 2011. A 1-year subscription would be more than the $333 annualized number that represents however. But they do offer 1 month trial subscriptions which are a tremendous opportunity to try out the services without making a financial commitment.

      Reply
      • William "The Rude" December 24, 2015, 9:02 am

        I just signed up for MF Options – 3 years for $1,999.

        Reply
  • Eucharist August 17, 2013, 8:52 am

    Hi, thanks for this great review. Appreciate it.

    Do you have an idea of the price for the option subscription?

    Thanks in advance, Eucharist

    Reply
    • Kevin August 17, 2013, 1:17 pm

      Hi Eucharist – I replied to your earlier question with some pricing information. Hope that helps.

      Reply
  • Ramy December 12, 2013, 12:30 pm

    Hello Kevin,

    Thanks for the great review. I’m currently an SA member (since 2012) and have been considering adding rule breakers. I’m hoping to *someday add an Options membership, too. But from your review and from watching the videos from TMF, I figured it requires a very large amount of cash on hand in order to be able to execute the trades/calls/puts/whatever.

    From your article though I can’t tell if you’re suggesting that your portfolio be worth ~$100K or if you need to have ~$100K on hand in order to be in a position to follow the program/newsletter without requiring much if any leverage.

    Reply
    • Kevin December 13, 2013, 1:25 am

      Ramy – thanks for the feedback. The $100k in my example refers to portfolio size. And to completely avoid leverage you would need enough cash as part of that portfolio to cover the trades you are participating in. You certainly could participate with less than that – my example was using very conservative parameters. For example if you were comfortable with having 10% of your portfolio in one stock, the $5250 trade would work in a portfolio half the size, so $52,500. In that situation you’d still want the $5250 in pure cash to avoid leverage but if the stock were put to you, it would only be 10% of your holdings. Hope that helps.

      Reply
      • Ramy December 13, 2013, 9:36 am

        I see. That’s brilliant. Thank you, Kevin. Now, as others have mentioned, it would be nice to know – in addition to the accuracy number – what something like the average return is for these transactions. I understand it can be hard to quantify and it all depends on how you slice things sometimes but it would still be good to get a sense of how much the average transaction returns on percentage basis.

        Reply
  • Michael December 31, 2013, 6:26 am

    Hi!

    For you interested in learning about options I can strongly recommend OIC’s free material:
    http://education.optionseducation.org/course/

    It has helped from knowing very little to be quite comfortable with options

    BR,
    Michael

    Reply
  • vincent griffo April 9, 2014, 2:47 pm

    I have been trading options for one year. I am a retired bond trader .I have a good sense of trading options taking naked positions rather than structured positions. I am interested in taking a subscription and need to know the pricing of the service . I have been trading with a $10,000 bank .

    Reply
  • Linda Timmerman April 27, 2014, 10:48 am

    Everything sounds good and I am interested in America. But I just don’t have a lot of money to invest. What is the least amount that I would need to invest with your group?
    Thanks for your time.

    Reply
  • Dina June 2, 2014, 6:55 pm

    I have been debating for a while whether or not to subscribe to the Motley Fool Options service next time it’s opened to new members, but it’s been very difficult to find their track record “in print”. Thank you for providing this information. I feel a lot more comfortable making my decision now.
    P.S. Would you know what their planned subscription cost is?

    Reply
    • Kevin June 8, 2014, 3:57 pm

      Hi Dina, I’m glad you found this helpful. I’m not sure what the recent prices have been for Options, but a few years ago I paid about $1000 for a 3 year membership. I imagine the prices have gone up since then, but their multi-year memberships usually offer the best value. They also often offer Options as part of a MF Pro membership so if you have any interest in that service (more expensive of course) you could the benefit of the Options subscription as well.

      Reply
      • Doug September 14, 2014, 11:15 pm

        Any clue on when the Options service may open up again? Thanks
        Doug

        Reply
        • Kevin September 27, 2014, 10:03 pm

          Doug – you are in luck. Just heard that Options is opening again next month. Here’s the link to their offer.

          Reply
  • Juan July 13, 2014, 3:51 pm

    Good info, sounds honorable and trust-worthy ( uncommon -too rare)

    Reply
  • jose sanchez November 22, 2014, 12:12 pm

    I am member of MF Pro. Can I get options newsletter for free? How do I get to options U?
    Thanks

    Reply
    • Kevin November 22, 2014, 1:20 pm

      Jose, if you are a Motley Fool Pro subscriber you should already have access to Options. It should be available in the Services menu. If you are having difficulty you should contact their customer service.

      Reply
  • Michael Stapleton January 24, 2015, 2:50 pm

    Would like the opportunity of investing in Motley Fool One if you have suggestions I would appreciate. I know kick off date is I think the 29th of January, do you have any suggestions?

    Reply
  • louis Weiland July 28, 2015, 3:09 pm

    I have 300 shares of F current market 14.90
    I would like to sell 2 call options striking price 14.00, Dec 18 2015
    options novice , please comment

    Reply
    • Kevin July 28, 2015, 9:10 pm

      Louis – I try not to give specific investment advice on this site, and with options, you really need to understand what you’re trying to accomplish in order to comment on a specific strategy anyway. But generally speaking, realize that if the shares remain above $14 in December you will likely lose 200 of your shares (100 shares per the 2 options you want to sell). You’ll keep whatever money you sold the options for ($117 per option as of today’s prices). You should also keep in mind how much you paid for the shares originally as that will impact the overall profit/loss on your shares.

      Reply
  • manoranjan das January 11, 2016, 10:57 pm

    interested in Fool’s Option program

    Reply
  • manoranjan das January 11, 2016, 11:02 pm

    Where can I find the track record for options program?

    Reply
  • David Arnone March 6, 2016, 4:32 pm

    How do I sign up for the newsletter and what is the cost?

    Reply
  • Eric the Fool Fan March 8, 2016, 12:22 pm

    Hi Kevin, thanks for this great review. I’m trying to figure out two things with the MF Options product that you might know: what is the duration of most of their options trades (are you in and out within days, weeks, months?), and, do they spell out exactly what to do for each trade? I’m an experienced investor but new to options; I get their power and the opportunity they offer, but also don’t know enough yet to be sure I won’t press the wrong button. So I need a lot of hand-holding still!! Thanks. best, Eric

    Reply
    • Kevin March 8, 2016, 12:46 pm

      Hi Eric – I’d say they are VERY good about holding your hands through the mechanics of the trade and offering a ton of good educational material. But you do have to “pay attention” when executing trades because there are a number of nuances that can easily go wrong if not careful. The trades themselves tend to last months or potentially a year, definitely not weeks. They also tend to “roll” their trades so the life of a specific position can last for many more months, but would technically be a new trade.

      Reply
      • Eric the Fool Fan March 8, 2016, 8:27 pm

        Thanks very much. It seems like the returns with options can be much greater than standard buy-and-hold. I’m currently loving Rule Breaker and Stock Advisor but I feel like I want to take my investing to the next level and get some better returns… Options might be the key.

        Reply
        • Kevin March 8, 2016, 8:44 pm

          Just proceed with caution. Options can be very profitable but they can just as quickly create big, big losses. If you want to learn about options trading, Motley Fool Options is a great way to do it. Since you are new to them, I can’t stress enough the need to take the time to educate yourself. But they absolutely can be a great complement to your investing/trading.

          Reply
  • Mike March 22, 2016, 3:39 pm

    Kevin
    That was a great article you wrote. I’ve dabbled in Options before and have had fair results. I am thinking of trying Motley Fools Options to see what happens. They have a 100% money back guarantee but not sure whether they would honor it without having met certain parameters. They have a deal now until March 24th for one , two and three year subscriptions. I might risk a 1 year subscription at least for the education.

    Reply
    • Kevin March 22, 2016, 8:22 pm

      Thanks Mike. The money back guarantees are a great option so take advantage.

      Reply
  • SUSAN ROSENBAUM March 25, 2016, 11:54 am

    I found your information to be helpful. Im new to this so I’m not sure I want to go forward in Motley’s Fools Trading. I’ll try it probably, at least it will be an education.
    Thanks

    Reply
  • George Crater April 14, 2016, 5:44 pm

    I Subscribed to Motley Fool options last November. Unfortunately, the day of the Kickoff presentation my wife had a major operation. So with critical care and recuperation time, I never got started with options. I have been investing for a number of years and my major goal is to be able to Hedge to protect my portfolio. I have owned KMI for several years so the latest option trade is of particular interest to me. I started to explore the KMI trade in my e*trade account but did not have the knowledge or confidence to make the trade. I want to learn but do not expect to be a high volume trader. GHC

    Reply
  • John August 17, 2016, 2:35 pm

    Hi, Kevin;
    Thanks for the thoughtful review.
    Do you happen to know how many of their trades depend on owning the underlying asset?
    Failing that, or if the answer requires a pesky labor-intensive analysis of their trades, I would be delighted with doing the analysis. (Unfortunately, however, I don’t know how to obtain a “database” or source of their options trades. So I would need that.)
    Regards,
    John

    Reply
    • Kevin August 17, 2016, 5:17 pm

      John – a rough estimate would be about 25% of their positions involve some time of stock ownership. They do a lot of put and spread writing which don’t require stock ownership. They write some covered calls which do require owning the stock, which is the bulk of that 25%. However, they are also sometimes forced to buy stock when one of their put positions doesn’t work out, in which case they’ll then sometimes turn around and sell covered calls on that same stock, keeping the position open in effect. Hope that makes sense.

      Reply
  • Michael January 7, 2017, 2:09 pm

    Hi Kevin,

    You seem well informed on Fool Options, do you happen to know what option income strategis are recommended by the service?

    Thanks,
    Michael

    Reply
    • Kevin January 21, 2017, 7:16 pm

      Michael, they do a lot of selling of puts, covered calls, spreads, and diagonals. They are trying to generate income with their trades, not make huge levered bets.

      Reply
      • Michael January 25, 2017, 3:00 pm

        Thank you Kevin for your reply.
        hmm, I have done short puts myself and am currently closing out all the short open positions with the intention not to ever return to that (nor the cc) strategy.

        I can recommend you following video, that does an excellent (maybe somewhat basic) to explain the long-term risk with cc and short-selling puts, I hope it can be helpful:
        https://www.youtube.com/watch?v=TMPiycZeqU8

        Good Luck with your option-trading!

        Reply