We get a lot of requests for takedowns of different sites and newsletters now. One problem is that new services seem to crop up constantly, at a much faster rate than we can debunk them, in a kind of perpetual game of whack-a-mole. The subject of this takedown is a very prominent newsletter site called OptionInvestor.com. They’ve been around for awhile now, and we’ve received some questions about them.

What do they provide? Eight, count ‘em eight different newsletters, ranging from stock picks and covered calls to LEAPs, vertical spreads, and iron condors.

Summary conclusion: As a rule, we like to avoid newsletters that have been accused of fraud by the SEC. Maybe that’s just us. Want to know more? Keep reading…

Honest marketing - Fail

As you can see, one of their Google ads reveals some very interesting information: namely, that you too can make 188% profits! So what are you waiting for? Go get your 188% profits! What, you want more information? Okay:

Right, so this Yahoo ad gives us even more information. Not only have you been missing out on 188% profits; you could’ve been booking said profits in Days! Don’t you feel silly.

But if you thought those search engine ads were over the top, check out the emails they send (at left). It’s a classic technique - list all your winners, ignore your losers, and hope no one notices. We suppose the real question all this hype raises is: with returns like that, how does OptionInvestor ever retain any members? After quadrupling their portfolios, don’t all their subscribers retire to the Bahamas or something? Sarcasm aside, this is the sort of marketing that we could all do without. Only an idiot would think that it was possible to nearly triple your capital in one or two trades, in a matter of days, as a matter of course. And only the half-brained son of an idiot would think that is was possible to do all that without taking on an extreme amount of risk that would be just as likely to blow out your entire account.

That’s probably enough analysis of their marketing - we’ve heard this story many, many times before.

Repeatable returns - Fail

This section is kind of tough to write. As we mentioned, they track 8 different newsletters at this site: covered calls, credit spreads, technical analysis on stocks, naked calls/puts on indexes, iron condors, etc. How on Earth are we going to review and evaluate the performance results for 8 newsletters - we’ll be buried in data!

But we want you to be well informed, and so we decided to take on this enormous task. After mustering up all the strength and energy we could, we have compiled and cross-referenced the available performance data for these newsletters and posted it here, for you:

<…crickets chirping…>

That’s right, they don’t provide any data. No charts, tables, or trade histories of any kind. So these newsletters could be publishing genius trades on RIMM and SPY and whatever, but we have no way of knowing. And we certainly can’t verify that their returns are repeatable by the average subscriber. And you know what? The SEC agrees with us (well, we agree with them, but whatever):

According to the complaint, OptionInvestor.com claimed actual returns ranging from 60% to 240% for subscribers who followed its trading philosophy and trading recommendations. The SEC alleges that all of the performance claims were hypothetical, not actual, and that it was impossible for subscribers to achieve similar results. [link]

Did you catch that? The performance claimed was just hypothetical, not actual. Well, surely OptionInvestor challenged that accusation, right? Not quite:

Without admitting or denying the allegations in the complaint, Sunset Investment Group and Brown consented to the entry of an order that enjoins them from violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 under the Exchange Act, and agreed together to pay a civil money penalty of $70,000. The SEC also seeks permanent injunctive relief and civil money penalties against Pinnacle Capital and Tanner.

Hmm. So does that mean that the 188% returns we are expecting in a matter of “Days” might take a couple of weeks instead?

Risk management - Fail

We have some admittedly high standards when it comes to risk management. Ten years ago, maybe it was okay to toss people a few stock picks and wish them well. But given how many tools are now available to the average retail trader, there’s no excuse for leaving people with unhedged deltas. Most of the newsletters at this site seem to be garden-variety stock picking newsletters, some of which use options - but not in order to reduce risk but rather to boost leverage, which is just nuts. As for the rest, covered calls are covered calls (yawn), credit spreads are okay but not ideal, and iron condors are obviously great if you construct them properly. And again, since we get no performance data or other details of any kind, we can’t assume that their condors are constructed in a risk-appropriate way.

One curious feature of this site is that they offer a sort of “all access pass” that gives you access to their entire range of content. Maybe it’s great to get blasted by eight different newsletters, but it sounds positively awful to us - who has the time, capital, and attention span to follow that much advice? And more importantly, is it realistic to think that someone receiving that many picks and that much pontification is really going to maintain an appropriate level of risk?

Reasonable Price - Fail

Prices range from$29 to$99 for the various newsletters. In absolute terms, that’s obviously not a big deal. But what about value for money? We tested out their covered call newsletter some time ago as a lark, and were disappointed to find that the weekly updates were nothing more than a table of possible covered call candidates dumped into your inbox. Furthermore, one of our members had this to say about his experience with OptionInvestor.com:

I actually subscribed to his newsletter for one month. I sent him 3 e-mails during the month and none were returned. I quit…because of his awful writings and advice. He needs to be debunked!!

Sounds like customer service is either minimal or nonexistent - maybe they’re swamped with so many members, they’ve decided to take the Comcast approach (”we’ll ignore people’s requests, and simply call all those cancellations ‘churn’”). In any event, if the newsletter isn’t useful and the people providing it aren’t helpful, does saving a few bucks on the price really make things any better?

Conclusion

In case you needed one more reason to run screaming from OptionInvestor.com, here it is: if you give them your email address for any reason, you will start receiving spam for over-the-counter stocks. In order to shield themselves from any deserved further legal action, they post this disclaimer at the end of their spam:

In other words, for $2680 they’re willing to dump the worst kind of misleading tripe on their subscribers and on anyone else who’s ever given them an email address. This is not a company who has the interests of its customers at heart.